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How the reduction of Temporary Foreign Workers led to a rise in vacancy rates in the South Korea

Jeong, Deokjae (2022): How the reduction of Temporary Foreign Workers led to a rise in vacancy rates in the South Korea.

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This paper investigates the impact of a reduction in low-skilled Temporary Foreign Workers (TFWs) on the vacancies in the manufacturing sectors in South Korea. Using a quasi-experimental event, the initiation of a quarantine policy due to COVID-19 in January 2020, the study aims to isolate the causal effect of TFWs on labor shortages. The paper employs vacancies as a proxy measure for labor shortages and focuses on E9 visa holders, who constitute the majority of TFWs in the South Korean manufacturing sector. Through Difference-in-Difference (DD) regressions, the study finds that sectors heavily reliant on TFWs experienced a significant increase in vacancies a year after the COVID-19 outbreak. The results suggest that firms faced challenges in finding full-time workers, leading to a higher ratio of part-time to full-time employees. The paper also utilizes Structural Vector Autoregression (SVAR) and Local Projection (LP) methods to reinforce these findings. Our results contribute to the existing literature by confirming that a reduction in TFWs results in an immediate increase in vacancies, and by challenging the claim that native workers can readily fill the positions left vacant by TFWs, especially in terms of full-time employment.

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