Vol. 2, No. 2, December 2018

ISSN: 2586-0682 i

JKWS Editorial Committee

Editor Jae-jin Yang Yonsei University

Managing editor Ijin Hong Yonsei University

Editorial board Young Jun Choi members Yonsei University Heejung Chung University of Kent Margarita Estevez-Abe Syracuse University Timo Fleckenstein London School of Economics Dokyun Kim Gyeonggi Research Institute Sung-Won Kim Tokyo University Taeil Kim Korea University Yeong-Soon Kim Seoul National University of Science and Technology Thomas Klassen York University Cheol-Sung Lee Sogang University Jooha Lee Dongguk University Kinglun Ngok Sun Yat-Sen University Shih-Jiunn Shi National Taiwan University Ilcheong Yi United Nations Research Institute for Social Development Jong-sung You Gachon University

Editorial staff Seola Han, Jungju Lee

JKWS

ii

Volume 2, Number 2, December 2018

Contents

01 Tax perception matters. Preferences for welfare expansion with a tax p. 1 increase

Jong Ye Kum, Hyunsub Kum

02 Who are Outsiders in the Dualized Labor Market in South p. 31 Korea? A Fuzzy-set Analysis

Ho-yeon Lee, Jae-jin Yang

03 Population Aging and International Migration Policy in South p. 73 Korea

Dong-Hoon Seol

Vol.2, No.2, December 2018, 1-30

Tax perception matters Preferences for welfare expansion with a tax increase

Jong Ye Kum

Ph.D. candidate, Graduate School of Public Administration, Seoul National University. [email protected] Hyunsub Kum (Corresponding author)

Professor, Graduate School of Public Administration, Seoul National University. [email protected]

Abstract This study empirically analyzes the effect of tax perceptions on preferences for welfare expansion that entails a tax increase. Since explicitly mentioning a potential tax increase triggers considerations about the costs, as well as the benefits, of welfare expansion, it is assumed that tax perceptions have an effect on welfare preferences. Based on the traditional perspectives on welfare preferences, two variables of tax perceptions were set. The first is the perception of one's own tax burden, which reflects the aspect of self-interest. The second is the progressive taxation preference, which represents the aspect of value and is constructed by combining the tax perceptions of the poor and the rich. The results show that the perception of one’s own tax burden has a negative impact on welfare preferences only when a tax increase for welfare expansion is stipulated. This implies not only that people regard welfare expansion itself separately from welfare expansion with a tax increase, but also that the self- interest orientation is revealed as “perceived self-interest” rather than actual self- interest when cost is taken into consideration. In contrast, progressive taxation preference has a positive effect on welfare preferences regardless of whether a tax increase is mentioned. Furthermore, for people who perceive their tax burden as high, their welfare preference is more likely to turn negative when they are facing a tax increase, whereas the progressive taxation preference does not induce changes in welfare preference. The results also show that the perception of one’s own tax burden has a clearer effect in the low- and middle-income bracket, while progressive taxation preference has a clearer effect in the high-income bracket. Keywords Welfare preferences, tax increase, tax perceptions

* This article is an updated English version of the original work in Korean: Kum, Jong Ye; and Kum, Hyunsub (2015). “Jeungsewa bokjihwakdaee daehan taedo: segeumbudam insikeul jungsimeuro”. Hanguk haengjeong hakbo. 51(1): 1-29.

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Introduction

Welfare expansion can be regarded as one of the South Korean government’s predominant policy initiatives in recent times. Over the past few years, free school lunches, basic pension, and childcare subsidies have been adopted by both the central government and local government bodies, and even now, debate continues over proposals for youth allowance and basic income. In 2007, nearly KRW 130 trillion of the Korean government’s total budget of KRW 400.5 trillion was allocated to public health, welfare and employment, and new policies continue to be adopted aimed at addressing the low birthrate and the aging society. Though there is disagreement about some of these policies, what is clear is that the Korean government will be providing a greater variety of services to a larger number of people in a more organized fashion. Considering that Korea has been categorized as having both lower taxes and less welfare spending than Western countries, this recent tendency represents a substantial change, and there has naturally been growing interest about how to secure the requisite funds. Presuming a limited budget, increasing welfare spending ultimately puts pressure on the funding of other areas, including economic and industrial development and social overhead capital. This makes it necessary to find an additional source of funding to meet the growing demand for welfare. While every Korean administration has expressed definite support for welfare expansion since the basic livelihood security system was established in 2000, they have generally adopted a more ambiguous position on how to fund that expansion. These administrations have made at least one thing fairly clear, however: they will not raise taxes. This shows that Korean society’s demand for welfare expansion is equaled by its discomfort with tax increases. To be sure, there are some figures, mostly academics, who emphasize that raising taxes is necessary to expand welfare, but the views that welfare expansion can be achieved through restructuring without tax increases and that welfare should be expanded within the bounds of fiscal stability can be described as constituting a relative majority. It is also true that some of those who recognize the need for increasing taxes are skeptical about whether this is feasible. The fact is that policy makers both in the government and politics feel rather uncomfortable with the idea of raising taxes, and that is the case even when a tax increase is presented as a way of financing the welfare expansion that the majority of the populace want. That raises the questions of how ordinary Koreans think about tax increases aimed at expanding welfare, how much they are actually willing to pay for the benefits that welfare brings them, and how much they are willing to pay for the benefits that welfare brings to Korean society as a whole. In theory, securing public support is a key aspect of implementing government policy. Public support is even more essential in the case of welfare policy and tax increases, since these represent the redistribution of costs and benefits to the public. In such cases, individuals are generally thought to support a given policy when they stand to gain a net benefit from it or when it is consistent with their internal belief system. That is to say, individuals support policies that are beneficial to them (oriented on self-interest) or that they regard as being beneficial for the development of society (oriented on values). However, the reality seems to be a little more

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complicated. For example, in the United States and a number of other countries there is a paradoxical tendency for the low-income bracket to support policies that are beneficial for the high-income bracket, such as cutting taxes on the wealthy and abolishing the inheritance tax (Roemer, 1998; Bartels, 2005; De La O & Rodden, 2008). Related research has concluded that one of the reasons for this is that the members of the low-income and middle-income brackets, who are likely to benefit from welfare policy, in fact have a subjective perception of taxation that distorts their understanding of their self-interest. That is, subjective bias can interfere with the calculation of objective interests and create distortions, and such bias can be especially conspicuous in the case of taxes, which imply an immediate loss. When it comes to taxation, in fact, the distribution of costs and benefits resulting from a tax increase is easier to differentiate by income bracket since the majority of countries have a progressive system of taxation. Nonetheless, the aforementioned paradoxical tendency occurs, caused not only by the amount of taxes actually being paid but also by a subjective perception of the tax burden, which appears to play an important role here. The numerous surveys carried out thus far in Korea generally show a rapid increase in welfare demand among Korean citizens and corresponding support for government expansion of welfare. Nevertheless, as we have already mentioned, not much is known about welfare expansion preferences when explicit mention is made of the financial cost and, more specifically, the possibility of higher taxes. In that sense, this paper examines what differences are found in welfare expansion preferences when the issue of cost (that is, tax increases) is explicitly considered and when it is not. The objective here is to gauge welfare expansion preferences that are less simplistic and more substantive. If welfare preferences are found to vary when welfare expansion is accompanied by a tax increase, the causes of that variation merit research. This paper seeks to examine subjective tax perceptions by drawing attention to the influence of subjective bias, as proposed in behavioral economics. In general, subjective perceptions of tax can be understood in two ways. First, since a tax increase represents an addition to the original tax burden, individuals’ perception of their original tax burden is likely to play an important role in interpreting the significance of that tax increase. The more burdensome an individual considers their perceived tax burden to be, in other words, the more negative their perception about a tax increase will be. Even if the tax increase in question is supposed to fund welfare expansion, the individual will be comparing the benefits resulting from that welfare expansion not with the new tax increase per se but with the sum of that tax increase and their original tax burden. Therefore, welfare expansion preferences may vary before and after the tax increase has been mentioned. Second, individuals’ current tax perceptions are not limited to their own tax burden. Individuals also make judgments about whether other people’s tax burden is too heavy or too light, albeit on an abstract level. This includes, for example, subjective judgments about the tax burdens of the high-income bracket and the low-income bracket. Some may think, for example, that the current system of taxation should be made more progressive in order to alleviate income inequality, while others may think that making the system more progressive would impede economic development. In such cases, the criteria for making a judgment about other people’s tax burdens may be the individuals’ political vision or values, their desired direction for Korean society.

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This paper assumes that the individual’s perception of their own tax burden still reflects a self-regarding tendency and that the perception of other people’s tax burden reflects an other-regarding tendency that is linked to personal convictions.1 These assumptions are consistent with previous studies that have found that self- regarding and other-regarding tendencies are major factors in policy support. In other words, whereas previous studies have generally used physical and objective considerations such as income level and political ideologies such as progressive and conservative as their main explanatory variables, this paper uses subjective variables that are directly related to taxation in order to examine welfare preferences when a tax increase is explicitly mentioned. Korean society’s demand for welfare is expected to keep growing in the future, with the consequent result of a continuing need for funding. Considering that taxation is one of the fundamental sources of government revenue, it remains possible that taxes will be increased to expand welfare. This paper’s basic position is that, in such a situation, individuals’ subjective perception of tax has an important effect on their view not merely of tax increases but also of welfare expansion achieved through tax increases. In that context, this paper focuses on individuals’ subjective tax perceptions, which have generally not been addressed in previous research about welfare preferences, in order to determine the relationship between the ultimate goal of welfare, tax as a way to reach that goal, and individuals’ preference (and support) for that.

Theoretical Background and Previous Literature

Welfare Preferences and Tax Increases

Previous studies have generally found that the factors determining individuals’ preferences for welfare policies are self-interest and value orientation. Scholars who emphasize the factor of value orientation regard policy preferences as being determined by individuals’ relatively stable internal norms and values, such as political ideology, awareness of the causes of social problems, and racial prejudice (Sears et al., 1980; Roemer, 1998; Fong, 2001; De La O & Rodden, 2008). In contrast, scholars who emphasize the factor of self-interest argue that individuals calculate the material costs and benefits that a given policy is expected to entail and support policies that promise a greater net benefit (Meltzer & Richard, 1981; Doherty et al., 2006; Jaeger, 2006; Franko et al., 2013; Margalit, 2013; Owens & Pedulla, 2014).2

1 In contrast with traditional economics, which assumes that individuals’ preferences are simply self- regarding, research findings in psychology and behavioral economics show that individuals’ preferences are affected by the consequences for other people. Such other-regarding tendencies include altruism, fairness, and social norms (Congdon et al., 2011). 2 In the area of welfare, for example, the low-income bracket’s preference for the expansion of welfare policy can be attributed to the net benefit they expect to gain (Soroka & Wlezien, 2008; Gilens, 2009). Those who have experienced unemployment or a loss of income tend to have a greater preference for redistribution policies, and that tendency can be seen as reflecting self-interest more than the relatively stable factor of value orientation (Margalit, 2013; Owens & Pedulla, 2014).

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While this same approach has generally been adopted in Korean research into welfare preferences, research findings have been quite mixed. Some studies have found that both self-interest and value orientation are significant (Joo, Eun-sun & Baek, Jeong-mi, 2007); some have found that only one of the two is significant (Ryu, Jin-Seok, 2004); and still others have found that only some aspects of self-interest are significant (Ryu, Man-Hee & Choi, Young, 2009). This means that fundamental human behaviors such as the pursuit of self-interest and value orientation can be constrained by other factors. One such factor could be the consideration of costs, including the cost incurred by a tax increase. Support for a policy can be interpreted as meaning that an individual has compared the expected costs and benefits of that policy and found that the expected net benefit is positive. Considering the characteristics of government policy, however, in reality it is not so easy to make judgments about a policy’s costs and benefits. In addition to the lack of a proportional link between policies’ costs and benefits, there is an inevitable disconnect between those who benefit from a policy and those who must bear the cost. Furthermore, perceptions about costs and benefits can vary with the person. Therefore, while costs and benefits are theoretically presumed to be linked to support for welfare expansion, that connection may be dynamic rather than static, and sometimes it may be impossible to find a connection at all. To take one example, Young (2009) argues that tax hikes and tax cuts alter individuals’ perception of the cost of government expenditures. Young says that individuals facing a tax hike could perceive the cost of a policy accompanied by government spending as costing more (that is, being expensive), leading to a decrease in demand for the policy in question. On the other hand, he says, individuals facing a tax cut could perceive the policy as costing less (that is, being inexpensive), leading to a relative increase in their demand for that policy. Young’s empirical findings only support the former hypothesis. This not only tells us that a tax increase can reduce support for a given policy but also reveals an asymmetry in which taxpayers respond more sensitively to tax hikes than tax cuts. These findings also have implications for the question of welfare expansion. In short, when a tax increase is clearly being considered, individuals perceive welfare policy as being expensive. Furthermore, given the fact that individuals respond more sensitively to tax hikes than tax cuts, their welfare expansion preferences when a tax increase is being considered may be different from when it is not. Recent Korean studies also point to an inconsistency between welfare expansion preferences and attitudes toward the cost of welfare. Choi, Gyun & Ryu, Jin-Seok (2000) highlight the ambivalent attitude of Koreans who support welfare expansion and the state’s responsibility for welfare but are less eager to put that support into action by shouldering the cost of welfare. Kim, Yeong-Soon & Yeo, Eugene (2011) and Kim, Sujeong & Nam, Chan-Seob (2015) have shown that, despite low-income earners’ strong preference for welfare expansion, they hold a contradictory attitude toward tax hikes. Kim, Sa Hyun (2015) also thinks that people in lower income brackets are more likely to exhibit a cost-averse attitude by withdrawing their support for welfare when it is accompanied by a tax increase. At the same time, the question of tax increases resulting from welfare expansion can be made more significant by approaching it in terms of individuals’ ideological identity and value orientation. Ideologically speaking, welfare expansion reflects the

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progressive value of placing relative priority on enhancing equity. In the value- oriented approach, therefore, individuals express their support for policies that are consistent with their values about the direction society should take regardless of their own interests. When this is linked to a tax increase, however, it could prompt individuals to revise not only their intuitive judgment about the social values to which they aspire but also their perception of the aspect of social cost. Taking into consideration the social cost of a tax increase, for example, could lead to a change in the strength of those values or the priority given them. It is also worth considering individuals’ assessment of the government’s previous use of taxes or their support, or lack of support, of the current government (Kum, Hyunsub & Baek, Seung Ju, 2010). The reasoning here is that, if individuals consider the government’s previous activity to have been inefficient or inappropriate or if they do not support the current government, a tax increase could be a new factor to consider in regard to their value orientation. When a tax increase is thus stipulated, the burden of cost is not the only thing that is factored into default welfare preferences. New matters are also taken into consideration, distinct from those considered before the tax increase was stipulated.3 The catalyst at such a time can be regarded as the default perception of the tax system (and the tax burden in particular), which is triggered by the stipulation of the tax increase. This will be examined below.

Tax Increases and Tax Perception

Korea’s tax-to-GDP ratio (which includes both taxes and social security contributions) was 24.3% in 2013, lower than the 34.2% average among the 30 member states of the Organisation for Economic Cooperation and Development (OECD). In particular, personal income tax only amounted to 3.7% of GDP in 2013, which was less than half of the OECD average of 8.8%. Furthermore, personal income tax only made up 15.3% of total tax revenue, less than the OECD average of 24.8% (National Assembly Budget Office, 2016).4 Consequently, Korean researchers dealing with tax increases aimed at welfare expansion have generally approached the subject from the perspective of long-term financial legitimacy, such as estimating the optimal ratio of tax revenue to national income in a welfare state or analyzing the

3 The scenario presumed in this paper consists of the inconsistency between default welfare preferences and those preferences after a tax increase has been stipulated. This is different from the question of ambivalence about identical policies. The inconsistency in preferences for similar policies or the ambivalence about identical policies can be regarded as resulting from conflict between individuals’ internal values, differing degrees of specificity in policies, or discrepancy in expectations about the role of the government (Gainous & Martinez, 2005; Gainous, Martinez & Craig, 2010). 4 The origins of the low contributions that characterize the Korean system of taxation and in particular the low level of the private income tax are explained as follows by Yang, Jae-jin and Min, Hyo-sang (2013). During the period of state-led industrialization that began in the 1960s, the Korean government pursued a policy of lowering the income tax and minimizing the burden of social insurance payments to keep wages low and thereby secure export price competitiveness. Since there was little need to use the income tax and other forms of direct taxation for redistribution at that time, this taxation system was left in place without any major challenges, Yang and Min contend. Kim, Do Kyun (2013) similarly argues that, since public social spending was kept low during the period of industrialization, the low income tax burden was treated as a kind of income security on an individual level.

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tax categories in which an increase would be feasible (An, Chong Bum, Ahn, Sang Hoon & Jeon, Seung Hoon, 2010; Kim, Seong Wook, 2013; Yang, Jae-jin and Min, Hyo-sang, 2013). Nonetheless, a state-level approach to welfare spending and the level of the tax burden does not provide much information about Koreans’ preferences for the tax system and tax increases. Just because the tax-to-GDP ratio or the income tax rate is low compared to other OECD countries does not mean that Korean taxpayers perceive their tax burden as being low. In the same way, the mere fact that there is a strong demand for welfare does not necessarily mean that everyone agrees that a tax increase is necessary (Steinmo, 1993). Separately from the emphasis on the legitimacy of the tax increase demanded for welfare expansion, therefore, it is necessary to understand Koreans’ preferences about the tax system and tax increases. Generally speaking, individual attitudes toward taxation can be examined from the perspective of rational choice and from a perspective that is critical of rational choice. One of the best-known theories representing the former perspective is the median voter theorem, according to which the government’s level of taxation for redistribution is determined by the preferences of the median voter (Meltzer & Richard, 1981). Presuming universal suffrage, majoritarian rules for decision making, and perfectly informed individuals seeking to maximize their utility, individuals who are at or below the median income will prefer higher taxes because they stand to benefit more from redistribution through taxation than they pay in taxes.5 This tendency can be expected to be even more pronounced under a progressive tax system (Baek, Seung Ju & Kum, Hyunsub, 2012). The critical perspective, on the other hand, argues that such rational expectations are too idealistic. In reality, individuals are greatly constrained in their ability to accurately compare all gains and loss because of cognitive limitations on information acquisition and computational capacity (Simon, 1978), and cognitive biases are likely to take effect under conditions of uncertainty. According to Kahneman and Tversky’s prospect theory (1979), for example, individuals who are faced with choices involving uncertainty exhibit loss aversion, which makes them respond more sensitively to losses than gains based on their present circumstances. Even when the expected values are identical, individuals are found to respond sensitively to differences in phrasing or salient characteristics (Saez, 2009). This suggests that, for an individual facing uncertainty, intuitively irrational biases could be a rational choice. In light of this, an individual’s attitude toward taxation can be determined not by the actual amount of taxes they are paying, but rather by their perception of the taxation system and their subjective interpretation of their own tax burden (Congdon et al., 2011).6 The tax aversion inclination neatly illustrates how individual preferences are affected by such cognitive biases. Tax aversion, which refers to a negative inclination that goes beyond the rational motivation of trying to avoid the financial loss

5 Considering that the median income is located to the left of the average income because of the very nature of income distribution, the median voter theorem explains the continuing expansion of redistribution that Western countries have experienced. 6 Many studies have demonstrated the existence of widespread misperceptions about the amount of taxes actually being paid, which results from various biases and heuristics affecting individuals’ perception of taxes (Gemmell et al., 2003; Sanandaji & Wallace, 2011; Blaufus et al. 2013; Fochmann & Hemmerich, 2014).

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resulting from paying taxes (Sussman & Olivola, 2011),7 can occur because of a variety of cognitive biases. Some examples of this are loss aversion bias, in which present losses evoke stronger emotions than future gains; the hostility evoked by the very word “tax”; and the isolation effect, in which an individual responds to salient issues to the neglect of other, more important, considerations (McCaffery & Baron, 2006). In other words, individuals’ negativity toward taxation occurs not only because of the loss of utility resulting from their financial loss, but also because of their loss of financial freedom, their antipathy toward compulsory expenditures without a fair and immediate return, the collective nature of the public services supported by their taxes, and their distance from the inflection point under a progressive system of taxation. As a consequence, the tax aversion inclination can even be seen in people who acknowledge the need for taxes and who prefer redistribution (Kirchler, 1998; McCaffery & Baron, 2006; Reimers, 2009; Sussman & Olivola, 2011; Lamberton, 2013). If individuals exhibit an inclination to tax aversion in their perception of their own tax burden because of such cognitive factors, they may pursue their perceived self-interest rather than their actual self-interest, in contrast with the pursuit of rational interest predicted by the median voter theorem. This possibility is also evident in a study by Bartels (2005), who analyzed the mass support enjoyed by George W. Bush’s tax cut for the wealthy. Even though there is widespread awareness of inequality among Americans, income level (representing actual self- interest) has a negligible impact on defining preferences for abolishing the inheritance tax, while the perception of one’s own tax burden (perceived self-interest) is found to be the most powerful factor. In other words, this study found a correlation between the opinion that one is paying too much in taxes and support for the abolition of the inheritance tax (which functions as a tax cut for the wealthy), regardless of income level. Bartels describes this phenomenon as “unenlightened self-interest,” meaning that individuals are pursuing their self-interest while making choices that are divorced from their actual self-interest. Given the existence of such negative perceptions about the tax burden, stipulating that welfare expansion will be accompanied by taxes is likely to trigger cognitive biases about taxation itself in regard to the welfare expansion preferences being examined in this paper. In addition, this could have an impact not only on self- interested behavior but also on internal norms and value-oriented behavior. That is precisely the question that this paper seeks to analyze empirically.

7 Since tax aversion refers to the perception that one’s tax burden is higher than the appropriate level, this differs from tax misperception, which refers to the inability to accurately recognize how much taxes one is actually paying. Under complex tax systems that involve indirect taxation, it is possible to mistakenly believe that one’s tax burden is lower than it actually is. But even when one has underestimated the amount of one’s taxes, it is still possible to feel that those taxes are excessive. In that sense, the fact that one has overestimated one’s tax burden does not necessarily mean that tax aversion has occurred. Therefore, the perception of one’s own tax burden (on which this paper is focusing) does not mean the individual’s assessment of their actual tax burden, but rather the degree of their aversion to their tax burden.

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Research Design

Research Question

In general, this paper’s analysis can be divided into two categories. First, it will examine the factors that affect welfare expansion preferences according to whether a tax increase has been stipulated. Second, this paper will examine the direction and degree of change in welfare preferences on the individual level after a tax increase has been stipulated. In other words, it seeks to examine how, and how much, individuals recognize the connection between welfare costs and benefits in their preferences for welfare policy. What is particularly worth noting here is the role of the subjective perception of the tax burden in the case that a tax increase has been explicitly added to welfare expansion. Previously, income level and political ideology have been regarded as playing a direct role in the formation of welfare preferences. As discussed above, however, subjective tax perceptions or biases are expected to play a decisive role that is distinct from existing factors when a tax increase has been stipulated. For this analysis, a distinction is made between the individual’s perception of their own tax burden and their perception of other people’s tax burden. First, it is assumed that the individual’s perception of their own tax burden is not only disproportionate to their income level but also reflects a certain inclination to tax aversion. The reason is that not everyone in the low-income bracket feels that their tax burden is light, nor does everyone in the high-income bracket feel that their tax burden is heavy. It appears, therefore, that the individual’s perception of the degree of their own tax burden will affect their preferences not only about additional tax increases but also about the welfare expansion that such increases make possible. This can be described as self-interested behavior on the level of subjective perception, which is distinct from self-interested behavior resulting from income level. On the other hand, the perception of other people’s tax burden is a subjective perception of the tax burden of the high-income bracket and the low-income bracket (excluding oneself) and can thus be seen as a way of representing preferences for a progressive tax system. That is, an individual who subjectively regards the high-income bracket as having a low tax burden and the low-income bracket as having a high tax burden can be said to prefer a more progressive taxation system than the current one. Since this is an abstract but subjective judgment of the tax burden on all, it can be regarded as reflecting the individual’s desired social values or norms and can be described as value-oriented behavior in terms of tax perception that is distinct from self- interested behavior. Given Korea’s progressive taxation system, we can expect that a tax increase designed to fund welfare expansion will in fact impose a higher tax burden on the high-income bracket than the low-income bracket and that welfare expansion will be more beneficial to the low-income bracket than the high-income bracket. Even when a tax increase is being considered, therefore, the rational choice perspective (i.e., median voter theorem) would predict that the individual’s income level would be the most significant factor in determining welfare expansion preferences, with the low-income bracket supporting welfare expansion and the high-income bracket opposing it. When a tax increase is explicitly mentioned, however, individuals may

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respond more sensitively to the immediate loss entailed by the tax increase rather than the long-term welfare benefits sought by the policy. That is, the individual may pursue their perceived self-interest (which depends on their perception of their own tax burden), and this may be divorced from their actual self-interest. For example, the advantage that members of the low-income bracket gain from welfare expansion is likely to be greater than their additional tax burden, but they may be opposed to welfare expansion accompanied by a tax increase because of the inclination to avoid the sudden and additional loss represented by a tax increase. In contrast, since the advantage that members of the high-income bracket gain from welfare expansion is likely to be less than their additional tax burden, they would have no reason to support welfare expansion accompanied by a tax increase either.8 In the case of individuals who value equity, on the other hand, the stipulation of a tax increase may not have any major impact on preferences for welfare expansion that is designed to enhance redistribution. Furthermore, while the tax aversion inclination and present bias became more pronounced when they are linked to the individual’s own interest, they give way to neutrality in connection with other people. This suggests that value orientation represented by preferences for the progressive tax system, rather than political ideology, could be more evident in cases of welfare expansion with a tax increase.

Data and Variables

The data used in this paper is derived from the 2014 Citizen Perception Survey on the Role of Government and Quality of Life, which was jointly carried out by Gallup Korea and the Graduate School of Public Administration at Seoul National University. This survey consists of 282 structured questions asked in face-to-face interviews in October and November 2014. These interviews were administered to 5,940 men and women at least 19 years old throughout Korea who had been selected using the method of multi-stage stratified cluster sampling. 9 The survey was composed as follows. First, there was a question about the expansion of the welfare budget as one of the government’s expenditures. Next, there was a question about the individual’s perception of their own tax burden and the tax burden of each income bracket. Last, there was a question about welfare expansion accompanied by a tax increase, which was one of several questions about the role of the government. Consequently, respondents were unlikely to consider the tax burden when answering a question about their welfare expansion preferences. Furthermore, the fact that respondents read through 42 sub-questions before being asked about their preferences for welfare expansion accompanied by a tax increase made it unlikely that the results would be affected by the cognitive bias of attempting to maintain a

8 The additional tax burden faced by the middle class may be greater than that of the low-income bracket, but the middle class is more likely to benefit from welfare expansion than the high-income bracket. That makes it difficult to intuitively determine whether the middle class’s net benefit is positive or negative. Even in this case, the loss aversion inclination vis-à-vis an additional tax burden is likely to affect welfare preferences just as it did with the low-income bracket. 9 Responses with missing data for variables used in this analysis were excluded from consideration, ultimately leaving 5,881 responses that were actually used.

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consistent attitude toward welfare expansion. The survey also used separate questions to assess respondents’ perception of their own tax burden and the tax burdens of other people in each different income level, which can be regarded as corresponding to this paper’s objective of distinguishing between self-interested and value-oriented behavior in its approach to subjective tax perceptions. Just as in previous studies, welfare expansion preferences were measured in terms of the degree of support for increasing or decreasing the government budget for implementing welfare policy (Joo, Eun-sun & Baek, Jeong-mi, 2007; Ryu, Man- Hee & Choi, Young, 2009; Kim, Yeong-Soon & Yeo, Eugene, 2011; Kim, Sa Hyun, 2015; Choi, Young Jun & Lee, Seung Jun, 2015). The degree of support was derived from responses to the question, “How much of the state budget do you think the government should allocate for carrying out welfare policies (such as reducing the gap between the rich and poor or enhancing services for children and the elderly)?” The answers “It should be greatly decreased” and “It should be somewhat decreased” were recoded as “oppose”; the answer “It should be maintained as is” was recoded as “neutral”; and the answers “It should be somewhat increased” and “It should be greatly increased” were recoded as “support,” resulting in the ordinal variable of “oppose,” “neutral,” and “support.” Preferences for welfare expansion accompanied by a tax increase were measured using a question that asked respondents to express their opinion about two contradictory views: “Welfare should be expanded even if this requires a tax increase” and “Taxes should not be increased even if this prevents welfare expansion.” In this case, responses that were close to the former statement were coded as “support”; those that fell somewhere in the middle were coded as “neutral”; and those that were close to the latter statement were coded as “oppose.” In addition, the change found by comparing the previously reported welfare expansion views with the preferences for welfare expansion accompanied by a tax increase was set up as a nominal variable. As can be seen in Table 1, when the respondents’ preferences did not change between the two questions, this was defined as “no change”; when they did not oppose welfare expansion until it was accompanied by a tax increase, this was defined as “negative change”; and when they did not support welfare expansion until it was accompanied by a tax increase, this was defined as “positive change.”10

Table 1. Change in preferences for welfare expansion after a tax increase is mentioned.

Welfare expansion accompanied by a tax increase Oppose Neutral Support Oppose No change Positive Welfare expansion Neutral Negative No change change Support change No change

In order to assess the individual’s perception of their own tax burden (one of the variables of subjective self-interest on which we are focusing), this paper used the “one’s own tax burden” section of the question “What do you think of current tax

10 Cases in which the stipulation of a tax increase changed respondents’ preferences from “support” to “neutral” (968) and from “oppose” to “neutral” (263) were regarded as signifying a sort of hesitation rather than a definite change. As such, this paper’s analysis was limited to clear cases of a shift to “support” or “oppose.”

Journal of the Korean Welfare State and Social Policy 12

levels?” in which responses fall along a five-point scale. This refers not to respondents’ actual taxes but to their subjective perception of their own tax burden. Progressive taxation preferences, which are a value-oriented factor that is revealed through tax perceptions, were measured using the difference between responses to questions from the aforementioned survey about perceptions of the low-income bracket’s tax burden and the high-income bracket’s tax burden. The bigger the difference, the more the respondent is assumed to prefer progressive taxation.11 In other words, these variables are based not on preferences for an increase or decrease in the absolute amount of taxes themselves, but on the perception of the relative tax burden of the low-income bracket and high-income bracket. Though most studies into welfare preferences have used political ideology (divided into progressive and conservative) as their value-oriented factor, in South Korea such ideological categories tend to reflect a difference in viewpoint on security issues (the classic case being relations with North Korea) rather than on the question of redistribution (Kang, Won Taek 2003; Kim, Moo Kyung & Lee, Kap Yun, 2005). And given the fact that tax increases aimed at funding welfare are closely linked to the redistribution of wealth and income (Kim, Sa Hyun, 2015), it was concluded that progressive taxation preferences would be more directly linked to the factor of value orientation. The control variables that this paper examined to explain welfare expansion preferences include not only socio-demographic factors and the tax burden but also self-interested and value-oriented factors and the perception of government capability. To begin with, the socio-demographic factors include age, gender, educational level, and labor market status. As factors representing material self- interest (distinguished from the perception of one’s own tax burden), this paper included household income and household traits that are closely linked to eligibility for receiving welfare (such as the presence of elderly individuals, children in preschool and people with disabilities). Household income was divided by the square root of the number of household members to find the equivalized income. Furthermore, the ten income deciles in the 2014 Household Income and Expenditure Survey published by Statistics Korea were used to analyze each income bracket, with the first through third deciles (less than KRW 1,401,054) defined as the low-income bracket, the fourth through seventh deciles (KRW 1,401,054-KRW 2,595,139) as the middle class, and the eighth through tenth deciles (more than KRW 2,595,139) as the high-income bracket.12

11 The measurement of progressive taxation preferences Tax burden of the low-income bracket Low Appropriate High Tax burden of Low ③ ④ ⑤ the high-income Appropriate ② ③ ④ bracket High ① ② ③ Much less progressive A little less progressive Maintain current level A little more progressive Much more progressive 12 The index that Statistics Korea used for its income deciles is the equivalized income, or in other words the household income divided by the square root of the number of family numbers, just as in this paper.

Jong Ye Kum & Hyunsub Kum 13

Table 2. Measurements of variables.

Variables Category Measurement Support for welfare expansion (0) oppose Dependent Support for welfare expansion (1) neutral variables I accompanied by a tax (2) support increase (0) negative change (support → oppose, Changes in welfare neutral → oppose) Dependent preferences when (1) no change in welfare preferences (base) variables II accompanied by a tax increase (2) positive change (oppose → support, neutral → support) One’s own tax Self-interest burden (1) very low – (5) very high Independent perception variables Progressive (1) much less progressive – (5) much more Value taxation progressive preference Government Average value of preference for spending in 11 spending policy areas other than welfare policy preference (1) major decrease – (5) major increase Value- Average value of the degree of government oriented Government responsibility for retirement security, individual factors responsibility for medical costs, and child support universal welfare (1) entirely the individual’s responsibility – (5) entirely the government’s responsibility Political ideology (1) progressive, (2) moderate, (3) conservative Average monthly household equivalized household disposable income Self- income interested Dummies assigned when respondents’ factors household includes elderly individuals (65 Household traits Control years and older), preschool children, or people variables with disabilities Government Efficient use of (0) used very inefficiently – (10) used very assessment budget efficiently Age (0) 20s–30s, (1) 40s–50s, (2) 60s and above Gender (0) men, (1) women (1) middle school or below, (2) high school Educational level graduate, (3) two-year college graduate, (4) Socio- university graduate or above demographic factors Regular workers (excl. public sector) are treated as reference group, with dummies Labor market assigned to irregular workers (excl. public status sector), self-employed, public sector workers, economically inactive population, and unemployed

Journal of the Korean Welfare State and Social Policy 14

This paper also included the following value-oriented factors that are distinct from the tax burden: political ideology, preference for government spending, and perception of government responsibility for universal welfare. As for government spending preferences, the average value of the degree of preference for the allocation of government money to 11 policies that are largely unrelated to welfare (foreign policy and security, unification, education, the environment, real estate, arts and culture, labor, the economy, taxation, energy, and safety and disaster management) was used to stand in for preferences for the government intervening and playing an active role in resolving social issues. These policies were deliberately chosen to minimize the connection to welfare policy. The perception of government responsibility for universal welfare is defined as the sense that welfare should not be aimed at the poor but rather based on citizenship regardless of income and other conditions and publicly provided to all citizens regardless of their ability to pay (Rothstein, 2001; Bergh, 2004). In this regard, this was measured by combining perceptions of the degree to which the government is responsible for retirement security, medical costs, and child support, which are subcategories of universal welfare. Meanwhile, recent studies have focused on the assessment of the government’s role as the agent responsible for welfare policy. Rothstein (2011) argues that the conditions under which citizens support the welfare state are not only mere preference for a welfare state (a normative assessment) but also trust in the government and its overall quality in areas such as competence, fairness, and corruption, an argument that is supported by the findings of empirical studies (Anderson & Tverdova, 2003; Kum, Hyunsub & Baek, Seung Ju, 2010; Lee, Hyeon- Woo, 2013; Lee, Seung-Yoon et al., 2015). The reasoning here is that since welfare and redistribution are both achieved through government mechanisms, individuals who consider income inequality a problem might not support the government as the agent of redistribution if they have a poor assessment or low expectations about the government’s competence.13 Therefore, it was decided to use the assessment of the government’s efficient use of the budget over the past year, which is thought to be more closely related to tax increases and welfare policy than several other survey questions that assessed the government. The operational definition of these variables and the way they were measured can be found in Table 2.

Analytical Results

Descriptive Statistics

Figure 1 shows the percentage of responses for welfare expansion preferences with and without a tax increase. Before explicitly mentioning that welfare expansion would be accompanied by a tax increase, nearly half of the total respondents supported welfare expansion, while the percentage of support dropped to 27%

13 A survey by Page et al. (2013) of the perceptions of the wealthiest individuals in the United States shows that they are also sympathetic about inequality but prefer solutions that are market-based rather than government-led.

Jong Ye Kum & Hyunsub Kum 15

afterward. In contrast, the percentage opposing welfare expansion increased from 14.8% to 39.5%. Figure 2 shows how preferences changed before and after the tax increase was mentioned. Among those who supported welfare expansion, 36% switched to opposition, along with nearly 40% of those who had held a neutral position on welfare expansion. In contrast, while nearly half of the group that had opposed welfare expansion continued to do so, 22% of them switched to support of welfare expansion, indicating that individual choice varies to a considerable extent according to whether or not a tax increase has been stipulated.

Figure 1. Welfare preferences

Figure 2. Welfare preferences when accompanied by a tax increase

Journal of the Korean Welfare State and Social Policy 16

Table 3. Descriptive statistics for major variables N=5,881 Mean (SD) / Mean (SD) / Variables Variables share of share of (range) (range) respondents (%) respondents (%) 20s–30s 36.8 % Perception of one’s own 3.42 (0.675) tax burden (1–5) 40s–50s 40.8 % Age 1. Very low 0.6 % 60s and 22.4 % above 2. Low 5.6 % 3. Fair 48.2 % Gender Women 50.9 %

4. High 42.5 % Middle school 13.2 % or below 5. Very high 3.1 %

High school 38.3 % Progressive taxation graduate preferences 4.00 (0.894) (1–5) Two-year college 15.9 %

Educational level graduate Efficiency of government’s taxation management 4.53 (1.803) University (0–10) graduate or 32.6 % above Government spending Regular preferences 3.15 (0.361) worker (excl. 34.7 % (1–5) public sector) Irregular

worker (excl. 9.8 % Government responsibility 3.06 (0.713) public sector) for universal welfare

Self-employed 22.9 % (1–5) Retirement 3.28 (0.914) Government/ Medical costs 3.04 (0.860) 1.1 %

Labor Labor marketstatus public sector Economically Child support 2.87 (0.889) 27.7 % inactive Equivalized income 21.5 (8.936) Unemployed 3.8 % (KRW 100,000/mo.) Elderly 17.0 % Progressive 24.3 % Household Political Disability 2.9 % Moderate 46.1 % traits ideology Children 13.6 % Conservative 29.6 %

Jong Ye Kum & Hyunsub Kum 17

Table 4. Correlation between major variables

Support Perception Progressive Government Universal Efficient Support welfare of one’s taxation Income spending welfare government welfare with tax own tax preferences preferences attitude management increase burden

Support welfare with 0.094 *** tax increase

Perception of one’s own 0.034 ** -0.082 *** tax burden

Progressive taxation 0.103 *** 0.046 *** 0.174 *** preferences

Income -0.030 * 0.015 0.051 *** -0.011

Government spending 0.173 *** -0.019 0.056 *** 0.039 ** -0.010 preferences Universal welfare 0.174 *** -0.003 0.084 *** 0.049 *** -0.025 0.011

attitude

Efficient government -0.065 *** 0.042 ** -0.115 *** -0.096 *** -0.001 0.004 -0.091 *** management

Political 0.000 0.002 -0.028 * 0.031 * -0.084 *** 0.013 -0.030 * 0.146 *** ideology

* p<.05, ** p<.01 , *** p<.001

Table 3 lists the descriptive statistics for major variables. The variables to note here are the tax perceptions that are the focus of this paper. The average perception of one’s own tax burden was measured at 3.42 on a five-point scale. 48% of respondents said their tax burden was fair; only 7% said it was low (“low” + “very low”); and 45% said it was high (“high” + “very high”). This means that nearly half of respondents perceive their tax burden as being excessive. On the other hand, progressive taxation preferences received a score of 4 points, showing that a considerable number of people think the taxation system should be made more progressive than it currently is. What should be remembered here is that such preferences represent the subjective perception of the tax burden of the high-income and low-income brackets, which is distinct from one’s own tax burden. Table 4 examines the correlation between these variables. First, welfare expansion support and preferences for welfare expansion accompanied by a tax increase exhibit an extremely low correlation of 0.094 (p<.001), suggesting that individuals generally approach these as separate issues. Furthermore, the perception

Journal of the Korean Welfare State and Social Policy 18

of one’s own tax burden is somewhat positively correlated with support for welfare expansion and negatively correlated with preferences for welfare expansion accompanied by a tax increase. On the other hand, progressive taxation preferences also exhibit very little correlation with support for welfare expansion or preferences for welfare expansion accompanied by a tax increase. Income level, which has been the focus of previous studies, was found to be negatively correlated to welfare preferences, but no correlation could be found between income level and preferences for welfare expansion accompanied by a tax increase. Furthermore, the fact that there is very little correlation between income level and tax perceptions indicates that tax perceptions are not closely linked to the actual amount of tax paid, which is determined by income level.

Preferences for Welfare Expansion with a Tax Increase

Table 5 details the estimates found by ordered logistic regression models in which preferences for welfare expansion accompanied by a tax increase are treated as the dependent variable. Models 1 and 3 contain the findings when a tax increase is not stipulated, while Models 2 and 4 contain the findings with a tax increase. In Models 1 and 2 the explanatory variables are the factors mentioned in previous studies, while Models 3 and 4 examine the role of the subjective factors that are the focus of this study, namely individuals’ perception of their own tax burden and their perception of others’ tax burden (their progressive taxation preferences). Models 1 and 4 serve as the default models, therefore, while Model 2 examines the role played by the standard variables in Model 1 when the dependent variable is replaced with the stipulation of a tax increase and Model 3 compares the role of subjective tax perceptions with the tax increase stipulated in Model 4. If we begin by examining the factors related to self-interest and value orientation, in Model 1, objective factors of self-interest such as income level or household traits are not significantly correlated with support for welfare expansion, while among the value-oriented factors, government spending preferences and universal welfare attitude were found to have a significant positive correlation. However, the classic value-oriented factor of political ideology (divided along conservative and progressive lines) was not found to be significant in any of the models. As previously discussed, the apparent reason for this is that the progressive and conservative political ideologies in Korea do not adequately reflect value- oriented economic factors such as the improvement of equity or the need for the government to play a role in redistribution. On the other hand, the estimates in Model 2 were made by defining preferences for welfare expansion accompanied by a tax increase as the dependent variable while using the same explanatory variables as Model 1. In this case, not only was it difficult to arrive at a statistically significant estimated coefficient, but the model fit was very low, too (Wald Chi2(16) = 20.23, p>Chi2 = .2102). In our interpretation, this results from the fact that individuals view welfare expansion as a different problem from welfare expansion accompanied by a tax increase. This shows that preferences for welfare accompanied by tax increases cannot be adequately explained by the traditional factors used to explain support for welfare.

Jong Ye Kum & Hyunsub Kum 19

Models 3 and 4 compare the effect of individuals’ perception of their own tax burden and their perception of others’ tax burden. First, the perception of one’s own tax burden exerts a negative effect on welfare expansion preferences only when it is accompanied by a tax increase (Model 4), and support for progressive taxation was found to exert a positive influence on preferences for welfare expansion regardless of whether or not a tax increase was stipulated (Models 3 and 4). That is, one’s own tax burden only became a consideration when a tax increase was stipulated, while the effect of social value-oriented preferences, such as progressive taxation preferences, did not exhibit much of a correlation with whether or not a tax increase was stipulated. In contrast, the factor of income level failed to affect welfare preferences regardless of whether they were accompanied by a tax increase, despite the predictions of the median voter theorem. The noteworthy point here is that subjective factors related to taxes had a bigger effect than objective factors on preferences for welfare expansion accompanied by a tax increase. Even among these subjective factors, self-interested factors (the perception of one’s own tax burden) had a bigger effect than value-oriented factors (progressive taxation preferences). Though government spending preferences and universal welfare attitude were estimated as having a positive effect in Model 3, on the other hand, they were not found to be significant in Model 4. This tells us that, when a tax increase is stipulated, the standard factors of self-interest and value orientation are replaced with factors related to taxes. Along with this, the correlation between the control variables also underwent significant changes depending on whether or not a tax increase was stipulated. Among labor market status factors, irregular worker status was found to be positively correlated with welfare expansion preferences, but only when a tax increase was not taken into consideration. This can be regarded as resulting from the fact that employment instability increases the risk of being exposed to poverty (Models 1 and 3). Furthermore, a positive assessment of the efficient use of the budget was found to be negatively correlated with welfare expansion (Models 1 and 3), but this effect became positive when a tax increase was stipulated (Models 2 and 4).14 At the same time, Model 3 finds that government and public sector workers, who had not been statistically significant before, supported welfare more when it was accompanied by a tax increase. This is apparently not only because such people have a greater recognition of the correlation between welfare and taxation in terms of policy implementation but also because welfare expansion accompanied by a tax increase ultimately implies the expansion of the role of the government and the resources available to it.15

14 The fact that support for welfare expansion is correlated to the opinion that the budget is being managed inefficiently can be understood in terms of a sort of redistributive efficiency, reflecting the view that not enough of the budget has been invested in the high-priority area of welfare. When the government’s total budget expands in a tax increase, in contrast, the default positive assessment of budget management appears to be affecting decision making. Further research is needed to consider the conflicting effects of the budget management variable. 15 The finding that people working in the public sector have more positive welfare preferences is consistent with the findings of a study by Ahn, Sang Hoon (2009). Ahn’s interpretation was that public sector workers, given their status as the providers of welfare services, speak for the interests of the organization to which they belong in regard to expanding the public sector.

Journal of the Korean Welfare State and Social Policy 20

Table 5. Estimation results from the ordered logit model.

(1) (2) (3) (4) Welfare with tax Welfare with tax Welfare Welfare increase increase

Perception of one’s -0.0363 -0.2583 *** own tax burden (0.0556) (0.0524)

Progressive taxation 0.1853 *** 0.1428 *** preferences (0.0406) (0.0406)

Government spending 1.0217 *** -0.1117 1.0122 *** -0.1056

preferences (0.1052) (0.1025) (0.1063) (0.1037)

Universal welfare 0.4751 *** 0.0044 0.4736 *** 0.0165 attitude (0.0512) (0.0479) (0.0513) (0.0479)

Political ideology 0.0398 -0.0095 0.0308 -0.0170

(0.0498) (0.0493) (0.0497) (0.0492)

Income -0.0025 0.0027 -0.0026 0.0036

(0.0042) (0.0043) (0.0042) (0.0042)

Household w/ elderly 0.0437 -0.1448 0.0386 -0.1538 individuals (0.0980) (0.0969) (0.0972) (0.0968)

Household w/ 0.0610 0.0159 0.0701 0.0376 preschool children (0.1033) (0.0992) (0.1039) (0.0990)

Household w/ 0.2635 0.2666 0.2578 0.2399 disabled individuals (0.1804) (0.1953) (0.1797) (0.1908)

Assessment of *** -0.0677 0.0451 * -0.0597 ** 0.0416 * government (0.0194) (0.0201) (0.0196) (0.0203)

Age -0.0163 -0.0338 -0.0077 -0.0108

(0.0639) (0.0596) (0.0642) (0.0600)

Women 0.0194 0.0904 0.0236 0.0924

(0.0756) (0.0731) (0.0761) (0.0735)

Educational level 0.0455 -0.0576 0.0506 -0.0471

(0.0418) (0.0398) (0.0421) (0.0400)

Irregular workers 0.3146 ** 0.0261 0.3130 ** 0.0253 (excl. public sector) (0.1158) (0.1113) (0.1178) (0.1117)

Self-employed 0.0084 -0.0185 0.0006 -0.0413

(0.0949) (0.0938) (0.0951) (0.0939)

Government/public -0.2312 0.5912 * -0.1893 0.6011 * sector (0.2708) (0.2801) (0.2718) (0.2860)

Jong Ye Kum & Hyunsub Kum 21

Economically 0.0770 -0.0880 0.0700 -0.1125 inactive (0.0984) (0.0948) (0.0992) (0.0953)

Unemployed 0.2337 -0.0318 0.2188 -0.1168

(0.2101) (0.1777) (0.2066) (0.1808)

N 5,881 5,881 5,881 5,881

Wald Chi2 246.2 *** 20.23 260.4 *** 51.19 ***

Pseudo R2 0.0362 0.0029 0.0397 0.0079

* p<.05, ** p<.01, *** p<.001 Note: Standard errors in parentheses.

Table 6. The factors affecting welfare preferences with a tax increase by income group.

(5) (6) (7)

Low-income Middle-income High-income

Coef. OR Coef. OR Coef. OR

Perception of one’s -0.3395 *** 0.71 -0.3004 *** 0.74 -0.1061 0.90 own tax burden (0.098) (0.080) (0.094)

Progressive taxation 0.1238 1.13 0.1028 1.11 0.1988 ** 1.22 preferences (0.085) (0.059) (0.070)

Government spending -0.4653 * 0.63 0.0623 1.06 -0.1861 0.83

preferences (0.185) (0.156) (0.194)

Universal welfare 0.2324 * 1.26 0.0853 1.09 -0.2248 * 0.80 attitude (0.093) (0.067) (0.096)

Women 0.0755 1.08 0.2830 ** 1.33 -0.1279 0.88

(0.152) (0.105) (0.133)

Educational level 0.0744 1.08 0.0233 1.02 -0.1895 * 0.83

(0.095) (0.053) (0.076)

(Other control variables are not reported.a) N 1,681 2,781 1,419

Wald Chi2 38.57 ** 35.48 ** 39.60 **

Pseudo R2 0.0215 0.0098 0.0195

* p<.05, ** p<.01, *** p<.001 Note1: a) The variables of age, government assessment, occupation, and household traits were all statistically insignificant. Note2: Standard errors in parentheses.

The finding here that the effect of the factors that determine welfare preferences differ according to whether a tax increase is stipulated means that individual preferences are differentiated between welfare expansion in general, in which

Journal of the Korean Welfare State and Social Policy 22

individuals only have to consider their benefits, and welfare expansion accompanied with a tax increase, in which they have to simultaneously consider both costs and benefits. This has two implications. First, it is problematic to assume that support for welfare expansion means tacit consent for the financing that this entails. Second, considering that a tax increase is a burden that must be borne directly by the individual, in contrast with other forms of financing, the subjective experiences and perceptions about taxes evoked in such a situation vary individually. Individuals can react to a tax’s degree (rate) regardless of its character (source); in the same way, they can be sensitive to a tax’s character (source) regardless of its degree (rate). As a consequence, the moment that a tax increase is described as a condition of welfare expansion, the question of welfare expansion is reinterpreted in light of previous experiences and perceptions about the tax burden. As a result, the aforementioned subjective perceptions of taxation (tax aversion, for example) can become important factors that determine welfare preferences. Even though no evidence was found that income itself played a role in determining preferences for welfare expansion accompanied by a tax increase (Models 2 and 4), that does not allow us to state definitively that income is unrelated to welfare preferences. Given furthermore that the preceding analysis covered all respondents, there is no guarantee that identical correlations would be found in the subgroups, too. Such reasons prompted a second analysis of the findings of Model 4 at the level of the subgroups of the low-income bracket, the middle class and the high-income bracket, the results of which are displayed in Table 6. Interestingly, the role of tax perceptions was found to vary with the income bracket. In the low-income bracket and middle class, the greater the individual’s perception of their own tax burden, the more likely they are to oppose welfare expansion accompanied by a tax increase, while progressive taxation preferences (representing perceptions of other people’s tax burden) did not have a significant effect (Models 5 and 6). In other words, self-interest appears to take the form of perceived interest, and not the objective interest resulting from one’s income level. In the high-income bracket, however, individuals who held that the tax system should be more progressive were more likely to support welfare accompanied by a tax increase, while their perceptions of their own tax burden did not have an effect (Model 7). Put another way, in regard to tax perceptions, self-interest is more apparent in the low-income bracket and middle class while value orientation is more apparent in the high- income bracket. These findings show that income level functions as a third factor that conditions the relationship between tax perceptions and welfare preferences.

Changes in Preferences for Welfare Policy Expansion Accompanied by a Tax Increase

Individual preferences for welfare expansion can be distinguished between before and after a tax increase has been stipulated. This was used to estimate the direction and degree of changes in welfare preferences on the individual level occurring as a result of the stipulation of a tax increase, with the results appearing in Table 7. The same control variables were used as above, though the results are presented in a condensed form because of space constraints. Changes in welfare

Jong Ye Kum & Hyunsub Kum 23

preferences on the individual level were divided into “negative,” “positive,” and “no change” and then run through a multinomial logistic regression, using “no change” as the reference group. First, an analysis of all the respondents (Model 8) found that the more individuals perceived their own tax burden as being excessive, the more likely they were to switch to opposing welfare expansion after a tax increase was stipulated. On the other hand, even when individuals perceived their own tax burden as being light, their attitudes were not found to shift toward support of welfare expansion. Figure 2 indicated that the stipulation of a tax increase led to a significant degree of change in preferences, and individuals’ perception of their own tax burden only caused those preferences to shift toward opposition to welfare expansion. This can be interpreted as the tax aversion inclination being triggered by the proposal to raise funds through a tax increase and leading to a negative attitude toward welfare. On the other hand, progressive taxation preferences did not have a significant effect on either a negative or positive change in welfare preferences. This is consistent with the fact that the stipulation of a tax increase does not change the effect that preference for the value of redistribution has on welfare expansion preferences, as can also be seen in Models 3 and 4. In the sense that the stipulation of a tax increase constitutes a structural alteration of the individual’s costs and benefits, in other words, that stipulation changes the influence of individuals’ perceptions of their own tax burden, but does not affect the role played by their perception of values. On the other hand, when this was analyzed for each subgroup based on income level, the influence of individuals’ perception of their own tax burden was found to differ between the low-income bracket and the middle class on the one hand and the high-income bracket on the other. Among the low-income bracket (Model 9) and the middle class (Model 10), the more individuals perceived their own tax burden as being excessive, the more likely their welfare expansion preferences were to shift to opposition. Among the high-income bracket (Model 11), however, the perception of one’s own tax burden did not have a significant effect on changing welfare preferences. Unlike the low and middle class, on the other hand, when members of the high-income bracket thought the tax system should be more progressive than it currently is, their preferences were less likely to become negative. This also conforms to the results of the preceding analysis. Since a tax increase places a greater burden on the high-income bracket, it would be expected that a tax increase would push even high-income earners who support welfare in the direction of opposition. In fact, these results suggest that the stipulation of a tax increase is not an important factor for their welfare preferences. At the same time, it is also worth mentioning that the more positive an assessment of the government’s budget management, the greater the likelihood that welfare preferences will become more positive. However, this tendency was not found in the high-income bracket.

Journal of the Korean Welfare State and Social Policy 24

Table 7. Changes in welfare preferences after the stipulation of a tax increase; estimation results from the multinomial logit model.

(8) (9) (10) (11)

Low- Middle High- Total income class income Coef. OR Coef. OR Coef. OR Coef. OR

Negative change Perception of one’s 0.2465 *** 1.28 0.3328** 1.39 0.2553 * 1.29 0.1458 1.16 own tax burden (0.068) (0.126) (0.103) (0.129)

Progressive taxation -0.0740 0.93 0.0371 1.04 -0.0535 0.95 -0.2120 * 0.81 preference (0.051) (0.110) (0.075) (0.090)

Government 0.0304 1.03 0.0354 1.04 0.0298 1.03 0.0231 1.02 assessment (0.025) (0.052) (0.036) (0.046)

(Other control variables are not reported.) N 1,825 505 868 452

Base: no change

N 2,118 623 1,019 476

Positive change Perception of one’s -0.0626 0.94 -0.0177 0.98 -0.1047 0.90 -0.0683 0.93 own tax burden (0.092) (0.179) (0.134) (0.170)

Progressive taxation -0.0520 0.95 0.1167 1.12 -0.0894 0.91 -0.0932 0.91 preference (0.070) (0.134) (0.103) (0.124)

Government 0.1841 *** 1.20 0.1927* 1.21 0.2657 *** 1.30 0.0915 1.10 assessment (0.037) (0.075) (0.057) (0.064)

(Other control variables are not reported.) N 707 196 328 183

N 4,650 1,324 2,215 1,111 Wald Chi2 151.7 *** 82.42*** 95.80 *** 111.39 *** Pseudo R2 0.0323 0.0533 0.0373 0.0765

* p<.05, ** p<.01, *** p<.001 Note: Standard errors in parentheses.

Conclusion

The genesis of this paper lies in the impression that the ongoing debate about welfare expansion had not adequately discussed the essential question of how this would be funded and that this topic had been avoided or taken for granted. An attempt was made to identify the factors that determine Koreans’ preferences for increasing welfare when explicit consideration is given to a plan to raise funds for

Jong Ye Kum & Hyunsub Kum 25

such an expansion. An empirical review was conducted of the argument that, in the event that a tax increase is being explicitly considered as a way of raising money for welfare expansion, individual tax perceptions are more important than the factors mentioned in previous studies. Importantly, the assumption was made that perceptions of one’s own tax burden reflect subjective self-interest and that progressive taxation preferences (representing the perception of other people’s tax burden) reflect value orientation. This was an attempt to maintain the traditional framework of explaining policy support based on the two pillars of self-interest and value orientation while also examining their relationship on the subjective level of tax perceptions. According to the findings detailed in this paper, self-interest factors (such as income and household traits) were not found to affect welfare preferences as long as a tax increase remained unstipulated. In contrast, value-oriented factors (such as redistribution preferences and universal welfare perspective) were found to have a significant effect. But when a tax increase was stipulated, factors of objective self- interest (including not only income but also the original value-oriented factors) lost their significance even as the perceived self-interest (derived from the perceptions of one’s own tax burden) and progressive taxation preferences (representing the perception of other people’s tax burden) were found to be important factors in determining welfare preferences. This appears to result from the fact that, when welfare expansion is accompanied by a tax hike, individuals consider both their costs and benefits, and their choices appear to be affected not only by the reasonable pursuit of self-interest but also by the simultaneous consideration of the cost aspect represented by tax aversion. When it comes to individuals’ determination of their preferences for welfare and tax increases, in other words, their choices are not divorced from their self-interest. Though they are pursuing their self-interest, their decision depends more upon cognitive biases than upon an accurate calculation of the concrete costs and benefits entailed by welfare and tax increases. This would appear to be due to uncertainty deriving from the long and involved process by which welfare policy leads to concrete benefits. And while value-oriented factors do not lose their effect completely, the traditional ideological distinction between progressives and conservatives does not adequately capture value judgments about redistribution. In contrast, progressive taxation preferences, being linked to tax increases, are thought to more clearly reflect value orientation. At the same time, when the possibility of a tax increase was clearly stipulated, individuals who perceived their own tax burden as being heavy, were more likely to undergo a negative change in their support for increasing welfare, and this was the case even when the focus was placed on changes in individual preferences. This tendency was seen more clearly in the low-income bracket and the middle class than among the high-income bracket. At first blush, it may indeed appear irrational for the low and the middle class to adopt a negative attitude toward welfare because of their perception of their own tax burden when they are the ones who are likely to receive a net benefit from welfare expansion, even if their tax burden does increase. However, given cognitive biases such as present bias and loss aversion, such behavior can be interpreted as low-income earners reacting more sensitively to the short-term costs incurred by a tax increase than to the benefits paid out over the long term. In other words, such individuals are in fact pursuing their self-interest when a tax increase is explicitly mentioned, but it is their perceived interest to which they

Journal of the Korean Welfare State and Social Policy 26

are responding the most sensitively. In contrast, individuals who feel the need for a progressive system of taxation are less likely to experience a negative change in their welfare expansion preferences, and such a change in preferences is generally seen among the high-income bracket. This study’s findings show that Koreans’ support for welfare does not necessarily translate into support for a tax increase designed to fund welfare. At the same time, they show that adding the dimension of a tax increase to welfare support complicates the decision-making process. In short, this means that cost is not merely added to the determining factors; rather, experiences and judgments about the tax burden, including the fairness of the system of taxation and trust in the administration of that system, can become important factors in the formation of welfare preferences, even though they have received scant attention in earlier studies (Seo, Dae Seog, 2002; Kim, Dong Eun & Hwang, Ho Chan, 2005). In this context, this paper’s findings indicate that even members of the low-income bracket, who are expected to benefit from a welfare expansion accompanied by a tax increase, might not support welfare expansion if that tax increase felt like a major burden. The implication is that, while such behavior might appear to be irrational, this too could be the individual’s rational choice, based on their experience with the burden of taxes. This paper faces many limitations. First and foremost, it is vulnerable to the criticism that respondents in the survey that provided the data analyzed in this paper were unable to accurately judge costs and benefits because the survey questions did not provide any details about the size or method of the tax increase or the types or beneficiaries of welfare programs. The assumption here is that, if costs and benefits are provided in detail, it would be possible to make a judgment based on one’s actual (expected) benefit, even without taking an unusual interest in the subject or giving it a great deal of thought (Saez, 2009; Franko et al., 2013). Nevertheless, it is necessary to recall that, in reality, the social debate about welfare expansion generally takes the form of such generic expressions about welfare and tax increases, rather than distinguishing between individual welfare programs and specific ways of increasing taxes. Furthermore, if we consider not only that it is impractical for such a survey to provide concrete costs and benefits on the individual level but also that the very attempt to do so could elicit responses that are biased by the inclusion of distorted information, this paper’s findings can be said to still be of practical significance. That said, this paper’s findings can be used to raise the need to provide more details about tax increases and their use in future debate about welfare expansion. Since the tax aversion inclination is partially based in human nature, more uncertainty leads to more aversion, and less transparency can create a greater perception of difference between oneself and others. Therefore, reducing resistance to increasing taxes by providing details about the use of the tax, the public service benefits that can be enjoyed by paying the tax and the specific content of welfare expansion and the range of its beneficiaries could be an important way to build support for welfare expansion.

Jong Ye Kum & Hyunsub Kum 27

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Vol.2, No.2, December 2018, 31-72

Who are Outsiders in the Dualized Labor Market in South Korea? A Fuzzy-set Analysis

Ho-yeon Lee M.A., Graduate School of Public Administration, Yonsei University [email protected] Jae-jin Yang Professor, Department of Public Administration, Yonsei University [email protected]

Abstract The objective of this study is to explore the dual structure of the Korean labor market in depth, particularly focusing on the numbers, work status, and occupational categories of the Korean precarious workers, who are treated by the labor market as outsiders. Using the fuzzy set ideal type analysis method, we categorize the Korean labor market into eight ideal types along the dimensions of wages, social protection, and employment stability. We also divide workers into 30 groups according to combinations of gender, age, skill levels and occupations, and check which groups are situated on which labor market category. Our analysis finds that the ‘absolute internal’ labor market makes up 44 percent of the overall Korean labor market, while another 31 percent is made up of the ‘absolute external’ labor market. The ‘in-between’ labor market makes up another 25 percent. Our analysis confirms the clear dual structure of the Korean labor market, with a sizable gap between the two markets. Our analysis furthermore confirms that women, the young, the elderly, and unskilled workers are much more likely than others to be working on the external labor market. More than 50 percent of working women and 84 percent of working seniors work on the ‘absolute external’ labor market. As for workers involved in unskilled service jobs, all groups, except for middle-aged men, work in the absolute external labor market as well. The occupations in which the age- and gender- based wage disparities were most prominent were production (factory) jobs in manufacturing. Keywords Precariat; dual labor market; external labor market; internal labor market; fuzzy set

* This article is an updated English version of the original work in Korean: Lee, Ho-yeon and Yang, Jae-jin(2017). “Peojiset bunseogeul tonghae bon hanguk nodongsijangui ijunggujowa buranjeong nodongja”. Korean Policy Studies Review. 26(4): 65-103.

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Introduction

On May 28, 2016, a 19-year-old man died after being caught between malfunctioning screen doors on the platform of Guui Subway Station on Line 2 of Seoul Metro. The young man was a non-regular worker hired by a manpower outsourcing agency that was commissioned by Seoul Metro to source maintenance and repair workers for screen doors in subway stations across Seoul. Before he died, the young man had been working as the sole maintenance technician for screen doors at a total of 16 subway stations in Seoul, on a meager monthly wage of KRW 1.44 million (Hankyoreh 21, No. 1115). On the day of the young man’s death, there were a number of other workers in the office of the manpower outsourcing agency that had dispatched the man to the site. These employees had worked in Seoul Metro before their retirement and had now found work as regular employees of an agency that worked closely with the transportation company. These regular employees all worked in office jobs, seldom making trips to the subway platforms, and received KRW 4.01 million a month on average each for handling “managerial” tasks (Yonhap News, June 12, 2016). The tragedy of a young subway worker’s death confirmed two facts about the Korean labor market. First, not only the labor market, but also individual workplaces are divided between two completely different groups of workers given different wages and working conditions. Second, workers in one group are forced to work in poor conditions, while those in the other enjoy relative security and comfort. In 2016 the Bank of Korea’s Economic Research Institute released a report entitled “Study on the Dual Structure of the South Korean Labor Market,” emphasizing that the large gap between the primary market of relatively well-paid regular employees and the secondary market of underpaid precarious (non-regular) employees was what “has been compromising the growth potential of the Korean economy” (Chung and Jung, 2016). The persistent dualism is found not only industry- and occupation-wide, but even within a growing number of individual workplaces. The labor market polarization is manifest in the deteriorating working conditions for underpaid and non-regular workers who form South Korea’s precariat. According to statistics from the Organization for Economic Cooperation and Development (OECD), the precariat, earning less than two-thirds of the wage of the average Korean worker, made up 24 percent of the nation’s workforce in Korea, which came in second among OECD member states in that regard. The vast majority of these underpaid workers are also denied basic social protection provisions, such as coverage for public pension and severance pay. A nation’s labor market may remain dualized, but such a dual structure in itself would not be so problematic insofar as workers are relatively free to move between the two labor markets. The Korean labor market, however, is the least open, among OECD member states, to upward movement by the precariat into the primary, higher, regular labor market. The probability of Korean workers becoming regular employees after three years of working as non-regular workers is 22.4 percent, less than half of their peers in France (45.3 percent), a nation infamous for its own labor market rigidity, and Italy’s 47.2 percent. The Korean labor market, in other words, is not only dualized, but also segmented (OECD, 2013: 125; Yang, 2015).

Ho-yeon, Lee & Jae-jin, Yang 33

Another key characteristic of the Korean labor market is the prevalence of low- wage jobs while the rigid duality of the labor market structure persists, defying efforts at moving from one to the other. In this situation, simply multiplying short- term, temporary and contract-based jobs merely worsens the overall quality of employment available in the overall economy. Tackling any of the problems with the Korean labor market requires an in-depth analysis of that market in its current status and a policy design based on that analysis. In other words, policymakers should shift their focus from merely increasing the number of jobs created to the a more meaningful improvement of working conditions for existing jobs, particularly by paying attention to the most precarious workers. However, literature in Korea analyzing the range and characteristics of the internal and external labor markets in the country is not sufficiently developed clarifies, so that the question on who is the precariat employed, most likely for a lifetime, in the external labor market, remains still unaddressed. One of the main objectives of this study is to identify and characterize the workers that form the precariat on the Korean labor market today. To find an answer to this question, we review the existing literature on the dual structure of the Korean labor market, the precariat, and decent jobs, and employ a method known as fuzzy set ideal type analysis. As part of our analysis, we divide the Korean labor market into a number of categories and examine what workers form the most precarious type. Specifically, we divide the Korean labor market into eight ideal types along the dimensions of wage, social security, and employment security, and divide workers into 30 groups according to combinations of age, gender, skill levels, and occupations. We rely significantly on Kitschelt and Rehm (2005) and Schwander and Hausermann (2013) for the categorization of workers. The variables underlying the typology of the Korean labor market are those of precarious labor (Chang, 2009; Vosko, 2010 & 2011; Kalleberg & Hewison, 2013) and the employment quality index (Jencks et al., 1988; ILO, 2001; Bang, 2007; Nam, 2011) modified and adapted to our study. The remainder of this study is structured as follows. First, we review the literature on the dual structure, precarious labor, and the marginalized groups in the labor market. Next, we explain and discuss our method of analysis, as part of which we also explain the types of labor market and the types of workers we have identified. Then we proceed with our main analysis, followed by the conclusion.

Literature Review

Dual Structure and Characteristics of the Labor Market

The dual structure of a labor market indicates that the given labor market is divided into two or more sections, with each being governed by its own set of rules and mechanisms and segmented from the other(s) (Lee et al., 2016). The specific lists of characteristics and the ways to describe such markets vary, but it is an established consensus in today’s research community that the Korean labor market indeed has a dual structure (Lee, 2001; Hwang, 2003; Chung & Jung, 2016).

Journal of the Korean Welfare State and Social Policy 34

At the root of a dual-structure labor market is a dual-structure economy. A monopolistic firm emerges in a given economic system. In order to maintain its dominant position on the market, the firm forms its own labor market regulated by rules and principles distinct from those governing the general labor market outside. The internal labor market (ILM) on which such a firm recruits and hires its employees may consist of more than one firm enjoying similar positions and influence on the market (Doeringer & Piore, 1971; Lee, 2001). How does this ILM arise and what are its characteristics? An ILM provides distinct privileges and a superior position for its workers that are not afforded to workers outside it. Firms forming an ILM attract talented workers by promising higher wage levels and better working conditions, and motivate them to work hard by guaranteeing them job security (Weiss, 1980; Williamson, 1981). The ILM is open to workers from outside only at its bottom entry level. All the positions above this entry level are almost exclusively filled by workers sourced from within the firms (Doeringer & Piore, 1971). Firms on the ILM therefore form quasi-bureaucratic organizations in which employees are valued and promoted according to their seniority and hierarchical positions.

Table 1. Internal Labor Market(ILM) Vs. External Labor Market(ELM)

ILM ELM Firm Competitive (monopolistic) Less competitive competitiveness Firm size Relatively large Relatively small Organizational Seniority-centered Task-centered characteristics (bureaucratic) Hiring skilled workers or Internal training in firms Skill development operating unskilled jobs only Organizational Closed (open only at the Open throughout hierarchy openness bottom) Secure (long-term Unsecure (short-term Employment security employment) employment) Wage level High (efficient wages) Relatively low Social security Strong Relatively weak Inter-market mobility Mobility limited from both directions

The presence of an ILM, however, should lead us to see that there is a different market that is not the ILM. This labor market lying outside the ILM is often referred to as the external labor market (ELM) (Osterman, 1975; Cain, 1976; Dickson & Lang, 1984; all quoted in Hwang, 2003). Numerous studies on the dualization of labor markets compare and contrast ILMs and ELMs, describing the discriminatory conditions faced by the latter at length. Workers on the ILM are guaranteed high degrees of job security, higher wages, and superior working conditions. Workers alienated from the ILM, in contrast, are offered relatively lower wages, less secure employment, and no social security benefits even if they have the same expertise and experience as those on the ILM (Bergmann, 1974; Canoy & Rumberger, 1980; both

Ho-yeon, Lee & Jae-jin, Yang 35

quoted in Hwang, 2003). Once workers are forced out of the ILM, they face significant difficulties in trying to return to it (Dickens and Lang, 1985a), as it is open only narrowly at its bottom entry level. On the ELM, by contrast, all positions within the corporate hierarchy remain up for grabs. Labor market dualization has become characteristic of all post-industrial modern economies, although the depth of disparity varies somewhat. Labor markets worldwide have become dualized and segmented, with polarization between ILMs and ELMs growing ever more entrenched (Berger & Piore, 1980; Davidson & Naczyk, 2009; Chung & Jung, 2016). Table 1 summarizes the characteristics of the dual labor market.

Entrenchment of Labor Market Dualism and the Korean Case

There are mainly two theories explaining the entrenchment of the dual structure of the labor market: the theory of industrial structural change and the theory of skills-oriented technological change (Bluestone and Harrison, 1986; Freeman and Katz, 1994; Autor et al., 2006). The industrial structural change theory attributes labor market dualization to the proliferation of underpaid jobs under the changing structure of industries. The manufacturing-centered industrial regime of the past required intermediate and high levels of skills as a precondition for continued improvements in productivity. The ascent of service industries in the post-industrial era, however, has increased demand for less-skilled and lower-paid workers instead (Jeong, 2006). The skills-based technological change theory, on the other hand, emphasizes technological innovation over post-industrialization as the main factor of labor market dualization, focusing on differences within, rather than between, industries. In the post-industrial era, firms’ internal demand for highly-skilled workers remains more or less the same, but automation and other such technological progresses reduce firms’ demand for less-skilled workers. Technological innovation is thus seen as inevitably leading to differences, between skilled and less-skilled workers, in terms of wage levels, extent of social security, and degree of employment security (Freeman & Katz, 1994; Autor et al., 2006). As a result, firms hire regular employees for core tasks only, and increasingly resort to non-regular workers or outsourced manpower to handle relatively peripheral tasks (Jeon, 2005 & 2007). Regular employment is no longer the dominant form of employment on a severely dualized labor market. As the expression, “typical atypical employment,” suggests (Schwander & Hausermann, 2013), much of the new jobs being created on such a labor market involve non-regular employment (Ploughmann, 2003). The rise of competition and the flexibilization of labor under the march of globalization continue to churn out precarious workers (Kalleberg, 2009; Kalleberg & Hewison, 2013). In a growing number of developed countries, including the United States, Spain and other European states, firms have been rapidly converting regular jobs into non-regular ones, emphasizing the flexibility of labor markets as the key to competitiveness (Polavieja, 2005; Burgoon & Dekker, 2010). The disparity of quality between regular jobs and non-regular ones has also been growing wider (Jencks et al., 1988; ILO, 2001; Bang, 2007; Nam, 2011).

Journal of the Korean Welfare State and Social Policy 36

The dual structure of the labor market, moreover, has begun to influence working conditions within the labor market and the extent of social security afforded workers (Hausermann & Schwander, 2012; Baek, 2014). Pensions and other such social insurances are chiefly designed for workers in regular employment with steady income. Non-regular workers are thus naturally alienated from several social security programs (Burgoon & Dekker, 2010). The increasing dualization of the labor market has also begun to make a difference in the extent to which workers can express their political opinions freely by forming unions and engaging in other such activities (Lindvall & Rueda, 2012; Schwander & Hausermann, 2013). The difference between regular and non-regular workers is thus apparent not only in their working conditions, but also in areas of society and life outside of work. Where does South Korea stand in all these trends? The consensus is that the Korean labor market, too, is deeply dualized (Lee, 1992; Jeong, 1992; Nam, 1991, 1995, and 2001; Lee, 2001; Hwang, 2003; Chung & Jung, 2016). Recall that labor market dualization begins in the industrialization process and grows all the more entrenched in the post-industrial age amid continuing technological innovation. Multiple researchers have noted the rise of a dual structure on the Korean labor market since 1990, particularly with an ILM formed in the manufacturing sector— the heavy and chemical industries, more specifically (Lee, 1992; Jeong, 1992; Nam, 1995). South Korea has undergone industrialization at an astonishingly rapid and compressed pace that has no precedent worldwide. The Korean manufacturing sector transformed itself in just a few decades through intensive investment of public resources, which, in turn, has given rise to an ILM. Another important factor contributing to the rise of the ILM in Korea around the same time was the major shift in firms’ labor management strategies, prompted by the Great Workers Struggle of 1987. Having experienced a series of massive strikes by workers during the democratization movement of the late 1980s, major corporations in Korea switched from a confrontational stance to an inclusive one, emulating their Japanese counterparts’ new management strategy by internalizing labor unions. From this point onward, Korean corporations began to recognize labor unions, raise wage levels to meet their demands, and gave union members distinctly superior working conditions not provided to other workers (Gu, 2001; Yang, 2017, Chapter 3). Since 2000, dualization has become the central feature of the overall Korean labor market. Large corporations, regular employees, unionized workers, and men generally had better working conditions than others (Hwang, 2003), while small and medium-sized enterprises (SMEs), non-regular workers, non-unionized workers, and women face worsening working conditions (Kim, 2010; Lee et al., 2016). The proliferation of temporary work agencies, contract-based work and subcontracting in recent years has also rapidly dualized work within the same workplaces and even in the same jobs and tasks. Workers dispatched by temporary work agencies or working as contract-based or subcontract workers face discriminatory conditions, in terms of wages and other benefits, that do not confront regular employees even when both handle the same tasks (Chung & Jung, 2016). The dual structure of the Korean labor market is rising rapidly and evolving with great complexity today. Whereas labor market dualization was mostly confined to industries in the past (Lee, 2001), dualization is a key trend affecting individual workplaces today (Chung & Jung, 2016). Moreover, it has begun to affect Korean

Ho-yeon, Lee & Jae-jin, Yang 37

workers’ quality of life and rights outside of work as well (Baek, 2014).

Who Are the Outsiders? Workers on the ELM

The Unskilled

The first and foremost victims of the post-industrial age on the labor market are workers with few or no skills (Kitschelt & Rehm, 2005; Oesch, 2006; Hausermann, 2010; Schwander & Hausermann, 2013). Unskilled workers refer to those who lack professional capabilities or knowledge needed to perform certain forms of work. They also include those working in jobs that do not require special education or learning or that can be handled after very short and basic training. Employers have no incentive to set high wages or guarantee favorable working conditions to attract unskilled workers (Freeman & Katz, 1994; Autor et al., 2006), as they can always find other unskilled workers or even automated systems to handle simple tasks. Employers thus either outsource jobs handled by unskilled workers, or retain unskilled workers while paying the minimum market levels of wage (Jeon, 2005, 2007).

Women

The Women are also vulnerable to joining the precariat. Industrialization increased labor demand explosively, providing more opportunities for women in terms of education and training and thereby facilitating their entry into the job market. Nevertheless, women face diverse forms of deprivation and alienation on the labor market irrespective of their competency or education (Estevez-Abe, 2015; Estevez-Abe & Hobson, 2015). First, it is more difficult for women to land jobs than men. When women find jobs, those jobs are likely to be low-paying and involve poor working conditions. Women receive less in wages, pension benefits and other social insurance benefits than men at similar levels of competency and education. The number of reports that women are systematically disadvantaged in promotion than men in the same industries or occupations continues to grow (Ehrenberg & Smith, 2016). In Korea, too, women who have never been on the ILM and who enter the labor market for the first time have been almost exclusively given non-regular work under policy measures to mobilize the economically inactive (Lee et al., 2016). In Japan, women’s employment has also grown thanks to the proliferation of non-regular part-time jobs, which has helped to consolidate the social perception of women as secondary sources of labor (佐藤香 & 元治惠子, 2015; quoted in Lee et al., 2016). The outsourcing of house work in the 21st century has multiplied jobs for women in certain service industries providing care and domestic help. The vast majority of these jobs, however, are underpaid and situated outside the social security net (Estevez-Abe & Hobson, 2015; Estevez-Abe, 2015). It is just as challenging for highly-educated and skilled women on the ILM to

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retain their employment because marriage and childbearing threaten to force them into the ELM (Schwander & Hausermann, 2013). As the labor market is segmented, women tend to be the first group of workers to be forced out of the ILM and remain outside (Kim, Kang & Jeong, 2005; quoted in Lee et al., 2016).

The Age Factor: Young and Old

Age is another important variable. Young and old workers are also vulnerable to the various risks of the increasingly dualized labor market. When economic growth is slow or does not translate into increased job opportunities, it becomes much more difficult for young people, compared to the cohorts who preceded them, to find secure and decent jobs on the ILM. The experiences of multiple developed countries show us that, while it was quite easy to find jobs during the golden period of economic growth in and after the 1950s, generations that joined the labor market in or after the 1980s started with far fewer job opportunities than their predecessors (Myles, 2002; quoted in Kim, 2016). Technological innovation and automation have also compromised the value of youth and physical strength for which young workers used to have a comparative advantage in the past. Young people are increasingly becoming easy prey for the labor market as a result (Chauvel, 2010; Chauvel & Schroder, 2014). The more advanced an economy, the more value it places on experience and skill. Middle-aged workers already established securely on the ILM continue to provide the skills required for production, while young people are relegated to the ELM to provide unskilled labor (Chauvel, 2010). We should not forget, however, that aged workers have also always been the most poorly treated since the beginning of labor markets in human history. They are neglected for the significantly lower labor productivity they provide. Older workers cannot claim advantages except in a very limited number of occupations in which experience and skills are valued above all else. Forced out of competition, these aged workers end up concentrated in jobs that pay very little and offer poor working conditions. The elderly who have not accumulated enough assets to last through their retirement are thus forced to work in these unsatisfactory jobs, even delaying retirement (Yang et al., 2016). In Korea, the average de-facto retirement ages were 71.5 and 70.5 years old, respectively, for men and women in 2016. Most Korean workers, in other words, are forced to quit their main careers in their late 50s and work for another decade or longer in worse conditions. Now that we have reviewed the literature on the characteristics of the dual structure of the labor market and the people most disadvantaged in that structure, we need to divide the Korean market into types and identify the outsiders forming the Korean precariat.

Ho-yeon, Lee & Jae-jin, Yang 39

Research Method and Data

Research Strategy and Fuzzy Set Ideal Type Analysis

The fuzzy set ideal type (FSIT) analysis method has rarely, if ever, been used to approach the dual structure of the labor market so far. Much of the literature on the topic has been lopsidedly focused on whether a given society’s labor market is indeed dualized or not, stopping at simply defining and describing the precariat. Factor analysis and switching regression models with unknown regimes have been the traditionally favored instruments of analysis in studies on the dual structure of the labor market. While both are capable of demonstrating the presence of a dualized labor market, neither is capable of clarifying the extent to which specific groups of workers are disadvantaged in specific occupations or industries. Some have begun to attempt, recently, to divide workers into a number of groups according to predefined criteria and examine each group’s status under a given unemployment rate (Schwander & Hausermann, 2013). This method, however, has the pitfall of relying solely on a single variable—the unemployment rate—to distinguish between labor market insiders and outsiders. Most researchers so far have focused their attention on defining the precariat and examining the origins and causes thereof (Kalleberg, 2009; Chang, 2009; Vosko, 2010, 2011; Kallebert & Hewison, 2013; Standing, 2016). The relative novelty of the topic itself may explain why they are so focused on understanding/defining the precariat and portraying specific cases. Although a growing number of studies confirm that the precariat is emerging as a new socioeconomic class in many developed countries, such as the United States, Japan, Korea, and certain parts of Europe, their authors are more interested in identifying the patterns and origins of the precariat in general rather than identifying what types of individual workers are most prone to joining this newly emerging class. In this study, the FSIT method is used on the basis of existing research findings to identify and determine the types of workers that form the Korean precariat. The greatest advantage of FSIT is that, by creating a number of theoretically possible ideal types using the combinations of a few simple variables, it affords an intuitive understanding of which types the objects of research form. In this study, we shall identify a number of theoretically possible labor markets using combinations of the core characteristics of the precariat and explore how each group of workers, defined by demographic and occupational characteristics, is found on which section of the labor market. Through this process, we can discover which group of workers is found on the labor market with the poorest working conditions. Let us first divide the Korean labor market into eight ideal types derivable from different combinations of wage levels, extent of social protection and degree of employment security. Let us then divide Korean workers into 30 groups depending on different combinations of age, gender, skill level, and occupation. We then shall proceed to identify the wage level, social protection, and employment security of each of the 30 worker groups, and match it with one of the eight labor market ideal types that are the most closely correlated to it. We shall resort to the existing conceptualizations of the precariat (Kalleberg, 2009; Kalleberg & Hewison, 2013;

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Standing, 2016), and to the existing conceptualizations of decent work (Jencks et al., 1988; ILO, 2001; Bang, 2007; Nam, 2011) in order to determine the labor market ideal types. The data at the center of our analysis is that from the 17th wave of the Korea Labor and Income Panel Survey (KLIPS), conducted in 2014. The scope of our targets are wage-earning workers currently on the Korean labor market. Self-employed persons and unemployed jobseekers are therefore excluded from our analysis. Our final sample includes 4,296 units, not counting missing responses for the relevant questions on the survey. Three aspects are key for a successful FSIT analysis. First, the values of individual variables must be standardized. Pre-standardization variables are based on different units, making it impossible for the researcher to compare them. In this study, we shall standardize wage levels, enrollment to the National Health Insurance (NHI) scheme and employment status (regular or non-regular) using the equation shown below. The values of post-standardization variables are once again converted into fuzzy set scores using a calibration function (Jeong & Yang, 2012).

Equation 1: Standardization of Variables

V − m Standard(V) = , V = 푣푎푟푖푎푏푙푒, M = 푚푎푥푖푚푢푚, m = 푚푖푛푖푚푢푚 M − m

Second, the qualitative standards necessary to process the variables must be defined in creating a fuzzy set function. Whether a variable should be reflected in a fuzzy set score can be expressed in three stages: namely, zero for not included at all, one for completely included, and 0.5 for being perfectly in the middle (Kim, 2010). The variable types to be included in fuzzy set analysis vary by the qualitative standards used. In this study, we shall use the means of the standard variables as such standards. Where the mean of the given sample fails to reflect the sample’s reality, we ought not to use the mean values as qualitative standards. We shall, nonetheless, proceed with our analysis on the confidence that the KLIPS data reliably and adequately capture the real status of the Korean labor market.

Equation 2: Determining Inclusion in the Fuzzy Set Score

퐞퐱퐩(퐥퐨퐠퐨퐝퐝퐬) 퐅퐮퐳퐳퐲 퐬퐞퐭 퐬퐜퐨퐫퐞 = ퟏ + 퐞퐱퐩(퐥퐨퐠퐨퐝퐝퐬)

Third, the fuzzy sets should be combined to create spaces of attributes, i.e., ideal types. If, for example, we were to create combinations of fuzzy sets along three dimensions or attributes named A, B and C, we would derive eight spaces of attributes depending on whether each variable is big (A) or small (a). The key to remember in this process is that our interest is not in designing simple fuzzy set combinations, but in designing fit fuzzy set combinations based on preliminary research (Choi, 2009). In this study, we shall establish eight spaces of attributes using

Ho-yeon, Lee & Jae-jin, Yang 41

three variables (wage levels, social protection, and employment security) and use those spaces as our labor market ideal types.

Dividing the Korean Labor Market into Fuzzy Set Ideal Types

The variables used in the International Labour Organization (ILO)’s quality of work index have been modified and adapted to identify the characteristics of the precariat on the Korean labor market (ILO, 2001). The three defining characteristics of precarious labor, are, as mentioned above, uncertainty, instability, and insecurity. Specifically, these involve low wages, lack of guarantee of working until retirement age, and alienation from the social security net (Chang, 2009; Vosko, 2010; Kalleberg & Hewison, 2013; Standing, 2016, 30). Numerous researchers have located the core criteria of decent work in wages, employment security and social protection (Jencks et al., 1988; ILO, 2001; Bang, 2007; Nam, 2011). In this study, we shall therefore divide the Korean labor market into ideal types along the three dimensions or variables, i.e., wage levels, social protection, and employment security. Specifically, the wage levels underlying our analysis are based on hourly wages; social protection is measured in terms of whether a worker is subscribed to the NHI scheme; and employment security is gauged in terms of whether a worker is a regular employee. We use hourly wages instead of salaries, or the like, because short-term workers, temporary workers, and freelance professionals work relatively shorter hours and are paid by the hour. Using monthly salaries to measure these workers’ wage levels will therefore make it impossible to distinguish the actual wage gap from seeming wage gaps due to differences in working hours. We base workers’ social protection levels on whether they hold workplace-based NHI coverage, as this public health insurance applies to all industries and occupations. Alternative representatives of social protection, such as subscription to the National Pension, Employment Insurance, Workers’ Compensation Insurance, and severance pay schemes are not applicable to certain occupations (e.g., government employees, teachers, and military personnel). Employment security is determined on the basis of whether a worker is a regular employee at his/her workplace. See Table 2 for the definitions and operationalization of the variables.

Table 2. Variables of Korean Labor Market FSITs

Variable Definition KLIPS-based operationalization Monthly wage (P_1642) / weekly Wage level Hourly wage regular working hours (P_1006)*4.35 Subscription to NHI scheme Subscription to the NHI Social security (P_172103) scheme Subscriber = 1; Non-subscriber = 0 Employment Regular employment (P_0317) Regular employment security Regular = 1; Non-regular = 0

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We can combine these three variables to arrive at eight FSITs as shown in Table 3. The higher and lower levels of each variable are divided by the standardized mean value of each variable. For instance, a worker group whose standardized wage level is higher than the standardized mean wage of the entire sample of 4,296 workers would be labeled as a high-wage group indicated by the uppercase “W.” Similarly, a group whose standardized social protection level is higher than the standardized mean of the entire sample would be labeled as a group with a high level of social security and indicated by the uppercase “H.” A group whose standardized employment security level is higher than the standardized mean of the entire sample would be labeled as a group with a high level of employment security and indicated by the uppercase “F.” A group high on all three dimensions would thus be indicated as “W*H*F.” A labor market ideal type high on all three dimensions (W*H*F) would constitute a labor market with superior working conditions and therefore form the ‘absolute’ ILM.

Table 3. Eight Fuzzy Set Ideal Types

Employment Labor market FSIT Wage Social security Labor market label security category W*H*F W (high) H (high) F (high) Absolute ILM Absolute ILM ILM with no W*H*f W (high) H (high) f (low) Relative ILM employment security ILM with no social W*h*F W (high) h (low) F (high) Relative ILM security w*H*F w (low) H (high) F (high) Relative ILM Low-wage ILM W*h*f W (high) h (low) f (low) Relative ELM High-wage ELM ELM with social w*H*f w (low) H (high) f (low) Relative ELM security ELM with employment w*h*F w (low) h (low) F (high) Relative ELM security w*h*f w (low) h (low) f (low) Absolute ELM Absolute ELM

‘Relative’ ILMs are labor markets that are high in two of the three dimensions. The ILM with little or no employment security (W*H*f), for example, is named an ILM with no employment security. This market guarantees the other two conditions, and features a very high level of employment flexibility. An ILM low only in social protection (W*h*F) is insufficient in social security. An ILM with low wages (w*H*F) is a low-wage ILM. This market consists of workers who have found relatively secure and regular employment, but are new to their occupations, and also of workers who form the core human resources required by employers, but perform tasks that do not require much skill. The ‘relative’ ELMs are labor markets that are high in only one of the three dimensions. A labor market that offers high wages and no social or employment security (W*h*f) is a high-wage ELM. This market is likely made up of freelance professionals who offer their expert services for high fees. An ELM that is high in

Ho-yeon, Lee & Jae-jin, Yang 43

social protection corresponds to a specific type on its own (w*H*f). An ELM that is high in employment security only represents another type (w*h*F). A labor market that is low in all three dimensions is the ‘absolute’ ELM (w*h*f) that is the center of our attention in this analysis.

Dividing Workers into Groups

The existing literature divides workers according to diverse criteria, including occupation, duties, skill level, degree of control over work, gender, and age. In this study, we use three core variables that divide labor market insiders from outsiders, i.e., age, gender, and occupation. Age is a decisive factor in labor productivity. Young workers may lack experience and skill, but have enough physical capability and strength to contribute to their jobs. Older workers may be experienced and more skilled, but find it difficult to continue to work for a long time at a high intensity. Middle-aged workers may therefore be the most advantaged group when it comes to labor productivity.

Age

In this study, workers are divided into three groups, (1) young workers, aged 15 to 29, (2) middle-aged workers, aged 30 to 54, and (3) older workers, aged 55 and older. This grouping reflects the Special Act on the Promotion of Youth Employment and the Act on Prohibition of Age Discrimination in Employment and Elderly Employment Promotion, which both define young workers as aged 15 to 29 and older workers as aged 55 and older.

Gender

Gender is another key demographic factor of labor productivity. As affirmed by the existing literature, gender is one of the core factors that decide differences in working conditions. Women tend to be at a greater disadvantage than men on the labor market irrespective of their age, education, and work experience.

Occupation

While there are myriad ways to classify occupations, we group those on the Korean labor market into five groups according to combinations of skill levels and job characteristics. Skill levels are the single most decisive factor of employment likelihood and working conditions (Hausermann, 2010). Given a dual-structured labor market, low-skilled workers are likely to be found on the ELM while highly- skilled workers have higher chances to be on the ILM. We employ multiple skill levels for our analysis, such as professional managerial skills, semi-professional managerial skills, general technical skills, and lack of skills (Hausermann & Schwander, 2013). Job characteristics, such as independent work, technical work, organizational work, and interpersonal work, also influence working conditions (Kitschelt & Rehm, 2005; Oesch, 2006). Workers’ positions and discretional powers within the given

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organizational hierarchy, differ according to their professionalism and skill levels. The more professional and skilled, and the older a worker is, and the greater his/her employment security is, the more likely he/she is to work in a decent job (Kitschelt & Rehm, 2006). In reference to Kitschelt and Rehm (2005) and Hausermann and Schwander (2013) on the correlations of skill levels and job characteristics to working conditions and labor markets, we divide Korean workers into five groups as shown in Table 4. We also match the Korean Standard Classification of Occupations (KSCO) codes with these five groups of workers.1 Our five occupational groups include (1) the capitalist accumulator group (CA), (2) the social and cultural professional group (SCP), (3) the mixed service functionary group (MSF), (4) the blue collar group (BC), and (5) the low service functionary (LSF) group.

Table 4. Occupational Groups Based on Job Characteristics and Skill Levels

Job Interpersonal Technical Organizational Independent characteristics / work work work work skill levels

Highly SCP CA skilled •Full or semi- • E.g., CTOs CA professionals CA • Employers performing • E.g., CEOs MSF • Self- social and and CFOs Middle • employed cultural <-- Technicians/engi professionals -skilled functions; e.g., Hierarchy neers and teachers authority within BC organizati LSF • Technical MSF Gener on--> • Workers workers or • Office MSF al or providing skilled workers workers • Small-time or unskilled engaged in handling self- low- services; e.g., repeated tasks; technical employed skilled sales clerks, e.g., machine and/or persons waiters operators, repetitive tasks factory workers

Sources: Adapted from Kitschelt and Rehm (2005) and Hausermann and Schwander (2013).

The the capitalist accumulator group (CA) group includes persons who are professional and highly-skilled and with high levels of authority and control over their and others’ work within their organizations. Professional managers who possess considerable professional skills, but who mainly work in interpersonal settings, are classified as social and cultural professionals (SCPs). The mixed service functionary group (MSF) group includes mid-level managers whose main focus is

1 The occupational categories are closely based upon those provided in Hausermann and Schwander (2013), except for a few that are particular to Korea. See Appendix 2 for a detailed list.

Ho-yeon, Lee & Jae-jin, Yang 45

technical work, self-employed persons for small businesses, and office workers generally known as white-collar workers. The blue collar group (BC)includes technical workers who operate machines, perform repetitive tasks in factories, or work in agriculture and other such primary industries. The low service functionary (LSF) group consists of sales clerks, waiters and other workers who require little to no training in order to perform their jobs. With the occupational groups so defined, we can now proceed to divide Korean workers into 30 groups in total, according to their age, gender, and occupational group, as shown in Table 5.

Table 5. Grouping Workers by Age, Gender and Occupational Group

Worker groups Fem Middle Fem 1 Young LSF 11 Female LSF 21 Older LSF ale -aged ale Middle 2 Young Male LSF 12 Male LSF 22 Older Male LSF -aged Fem Middle Fem 3 Young BC 13 Female BC 23 Older BC ale -aged ale Middle 4 Young Male BC 14 Male BC 24 Older Male BC -aged Fem Middle Fem 5 Young MSF 15 Female MSF 25 Older MSF ale -aged ale Middle 6 Young Male MSF 16 Male MSF 26 Older Male MSF -aged Fem Middle Fem 7 Young SCP 17 Female SCP 27 Older SCP ale -aged ale Middle 8 Young Male SCP 18 Male SCP 28 Older Male SCP -aged Fem Middle Fem 9 Young CA 19 Female CA 29 Older CA ale -aged ale 1 Middle Young Male CA 20 Male CA 30 Older Male CA 0 -aged

Descriptive Statistics

The data of our analysis is that from the 17th wave of the KLIPS conducted in 2014. Table 6 summarizes the descriptive statistics of the Korean labor market based on a final KLIPS sample of 4,296 units, excluding wage-earning workers that did not answer the relevant questions on wage levels, membership in social insurances and employment security and also excluding the extreme values. 2 The workers in our sample earn KRW 12,807 per hour on average, have an average NHI subscription rate of 79.77 percent, and 68.18 percent are regular employees. Wage levels, social protection and employment security do vary across

2 For reference, the minimum wage in Korea was KRW 5,210 per hour in 2014.

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worker groups in patterns that mostly confirm the conclusions of earlier studies. Young and older workers, women, and unskilled service workers tend to be the ones with lower wages, lower NHI subscription rates, and more commonly of non- regular worker status than other groups.

Descriptive Statistics

The data of our analysis is that from the 17th wave of the KLIPS conducted in 2014. Table 6 summarizes the descriptive statistics of the Korean labor market based on a final KLIPS sample of 4,296 units, excluding wage-earning workers that did not answer the relevant questions on wage levels, membership in social insurances and employment security and also excluding the extreme values. 3 The workers in our sample earn KRW 12,807 per hour on average, have an average NHI subscription rate of 79.77 percent, and 68.18 percent are regular employees. Wage levels, social protection and employment security do vary across worker groups in patterns that mostly confirm the conclusions of earlier studies. Young and older workers, women, and unskilled service workers tend to be the ones with lower wages, lower NHI subscription rates, and more commonly of non- regular worker status than other groups.

Table 6. Descriptive Statistics

Percentage of NHI Hourly wage regular N subscription (KRW) employees rate (%) (%) Basic statistics Total and average 4296 12,807 79.77 68.18 Minimum - 3,735 0 0 Maximum - 34,482 100 100 Standard deviation - 6,806 40.17 46.58 Specific statistics Young (15 to 29) 509 9,923 82.32 71.91 Middle-aged (30 to 54) 3006 14,052 83.33 75.15 Older (55+) 781 9,893 64.40 38.92 Female 1808 9,933 72.95 57.80 Male 2488 14,895 84.73 75.72 CA 340 19,145 0.98 0.91 SCP 579 14,339 0.86 0.79 MSF 1105 14,558 0.83 0.80 BC 1084 12,282 0.81 0.68 LSF 1188 9,095 0.68 0.46

3 For reference, the minimum wage in Korea was KRW 5,210 per hour in 2014.

Ho-yeon, Lee & Jae-jin, Yang 47

Matching Worker Groups with Labor Markets: Fuzzy Set Analysis

In which labor market section is each of the 30 groups of workers found? The 30 workers groups are assigned fuzzy labor market type scores according to the mean levels of their wages, social security, and employment security.

Table 7. Fuzzy Score List

‘Absolute ‘Absolute ‘Relative’ ILMs ‘Relative’ ELMs Worker ILM’ ’ ELM category WHF WHf WhF wFH Whf whF wHf whf Young female LSF 0.16 0.16 0.16 0.38 0.16 0.38 0.41 0.59 Young male LSF 0.20 0.20 0.20 0.30 0.20 0.30 0.38 0.62 Young female BC 0.31 0.10 0.16 0.69 0.10 0.16 0.10 0.10 Young male BC 0.37 0.32 0.21 0.63 0.21 0.21 0.32 0.21 Young female 0.25 0.25 0.25 0.63 0.25 0.37 0.25 0.25 MSF Young male MSF 0.34 0.34 0.34 0.50 0.34 0.50 0.43 0.43 Young female 0.29 0.19 0.14 0.71 0.14 0.14 0.19 0.14 SCP Young male SCP 0.31 0.31 0.31 0.48 0.31 0.31 0.52 0.31 Young female CA 0.51 0.42 0.13 0.49 0.13 0.13 0.42 0.13 Young male CA 0.53 0.07 0.05 0.47 0.05 0.05 0.07 0.05 Middle-aged 0.20 0.20 0.20 0.28 0.20 0.28 0.41 0.59 female LSF Middle-aged male 0.46 0.46 0.51 0.46 0.48 0.49 0.46 0.48 LSF Middle-aged 0.15 0.15 0.15 0.37 0.15 0.37 0.43 0.57 female BC Middle-aged male 0.56 0.29 0.25 0.44 0.25 0.25 0.29 0.25 BC Middle-aged 0.46 0.46 0.46 0.47 0.46 0.52 0.47 0.48 female MSF Middle-aged male 0.66 0.09 0.15 0.34 0.09 0.15 0.09 0.09 MSF Middle-aged 0.52 0.34 0.27 0.48 0.27 0.27 0.34 0.27 female SCP Middle-aged male 0.70 0.13 0.30 0.30 0.13 0.30 0.13 0.13 SCP Middle-aged 0.63 0.18 0.13 0.37 0.13 0.13 0.18 0.13 female CA Middle-aged male CA 0.74 0.06 0.05 0.26 0.05 0.05 0.06 0.05 Older female LSF 0.10 0.10 0.10 0.10 0.10 0.10 0.23 0.77 Older male LSF 0.12 0.13 0.12 0.12 0.13 0.12 0.41 0.59 Older female BC 0.13 0.13 0.13 0.32 0.13 0.32 0.39 0.61 Older male BC 0.30 0.40 0.30 0.30 0.40 0.30 0.40 0.60 Older female MSF 0.14 0.14 0.14 0.18 0.14 0.18 0.18 0.82 Older male MSF 0.62 0.37 0.23 0.38 0.23 0.23 0.37 0.23

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Older female SCP 0.40 0.40 0.44 0.36 0.56 0.36 0.36 0.36 Older male SCP 0.49 0.27 0.51 0.22 0.27 0.22 0.22 0.22 Older female CA 0.79 0.05 0.05 0.21 0.05 0.05 0.05 0.05 Older male CA 0.47 0.53 0.19 0.29 0.19 0.19 0.29 0.19

Table 8. Matching Worker Groups with Labor Market Types: FSIT Results

Mean NHI Regular Labor market Fuzzy N wage subscription employees Worker group ideal type score (KRW) (%) (%) Older female CA 0.79 Middle-aged male CA 0.74 Middle-aged SCP 0.70 Middle-aged MSF 0.66 W*H*F Middle-aged female CA 0.63 1907 16,258 89.93 84.90 Absolute ILM Older male MSF 0.62 Middle-age male BC 0.56 Young male CA 0.53 Middle-aged female SCP 0.52 Young female CA 0.51 W*H*f ILM with no 38 19,315 89.47 65.79 Older male CA 0.53 employment security W*h*F Older male SCP 0.51 ILM with no 329 13,151 75.38 68.69 social security Middle-aged male LSF 0.51 Young female SCP 0.71 w*H*F Young female BC 0.69 249 10,142 87.95 80.72 Low-wage ILM Young male BC 0.63 Young female MSF 0.63 W*h*f High-wage 16 17,010 68.75 62.50 Older female SCP 0.56 ELM w*H*f ELM with social 27 10,323 85.19 66.67 Young male SCP 0.52 security w*h*F Middle-aged female MSF 0.52 ELM with 380 12,069 76.84 69.47 employment Young male MSF 0.50 security Older female MSF 0.82 Older female LSF 0.77 Young male LSF 0.62 Older female BC 0.61 w*h*f 1347 8,273 65.40 41.65 Older male BC 0.60 Absolute ELM Young female LSF 0.59 Middle-aged female LSF 0.59 Older male LSF 0.59 Middle-aged female BC 0.57

Ho-yeon, Lee & Jae-jin, Yang 49

Fuzzy scores work in the following way. First, each group is assigned a fuzzy score indicating its match with each of the given labor market ideal types. When a group’s fuzzy score is over 0.5, it is matched with the correspondent labor market type. The closer a group’s fuzzy score is to one, the more closely it matches the given labor market type. For example, as Table 7 shows, there are 10 worker groups with fuzzy scores over 0.5 with respect to the ‘absolute’ ILM (W*H*F). Yet the scores of all these 10 groups vary. The young female CA with its fuzzy score of 0.51, for instance, has barely made it into the absolute ILM compared to the other nine groups. The middle-aged male CA, with its fuzzy score of 0.74, is the group that is most closely matched with the absolute ILM in terms of wage, social security, and employment security. Table 8 lists the matching results. Our FSIT analysis shows that there are a total of 10 worker groups belonging to the absolute ILM (W*H*F), which offers decent wages, social protection and employment security (1,907 workers or 44.39 percent of the sample). The mean hourly wage for this market is KRW 16,258, NHI subscription rate is 89.93 percent, and 84.9 percent of workers on this market are regular employees. Not a single LSF group was included in the absolute ILM. Aside from those in the CA groups, no young or older workers were found on this market, either. As for the ‘relative’ ILMs that fare above average in two of the three dimensions, we found the following. The ILM with no employment protection (but with decent wages and social security, W*H*f) includes the older male CA group. While it was this ILM with no employment security that featured the highest mean hourly wage, regular employees made up 65.8 percent - below the total sample mean. This is most likely because the market consists of male executives of corporations who lose employment security as they join the corporate boards of directors. As for the ILM with no social security (W*h*F), the older male SCP and middle-aged male LSF groups are found. Of these workers, only 75.3 percent had workplace-based NHI policies. The low-wage ILM (w*H*F) included the young female SCP, young female BC, young male BC, and young female MSF groups. Their mean hourly wage, at KRW 10,142, was approximately KRW 2,000 lower than the total sample mean. Young workers are found in a relatively greater number on the low-wage ILM because they are mostly involved in jobs whose pay grades rise on the basis of seniority. Turning to the ‘relative’ ELMs that fare above the mean in only one of the three dimensions, the high-wage ELM (W*h*f) included the older female SCP group. While this group earned quite a high hourly wage of KRW 17,010, they fared slightly below the sample-wide means in terms of the other two variables. The ELM with social protection (w*H*f) included the young male SCP, while the ELM with employment security (w*h*F) was made up of middle-aged female MSF and young male MSF groups. Finally, the ‘absolute’ ELM (w*h*f) included the older female MSF, older female LSF, young male LSF, older female BC, older male BC, young female LSF, middle-aged female LSF, older male LSF, and middle-aged female BC groups (1,347 workers or 31.35 percent of the sample). This market’s mean hourly wage was KRW 8,273, NHI subscription rate is 65.4 percent, and regular employees made up 41.65 percent. The market mostly included unskilled and blue-collar workers, older workers, and women.

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Korean Labor Market Characteristics

Our FSIT analysis confirms the following facts about the Korean labor market. First, the Korean labor market is significantly polarized. Of the eight labor market types, the absolute ILM (W*H*F, 1907 workers or 44.39 percent of the sample) and the absolute ELM (w*h*f, 1,347 workers or 31.35 percent of the sample) together make up 75.94 percent of the entire labor market. The two groups differ widely in terms of wage levels, working conditions (social security), and employment. Specifically, whereas the mean hourly wage, NHI subscription rate, and percentage of regular employees in the absolute ILM were KRW 16,258, 89.9 percent, and 84.9 percent, respectively, those in the absolute ELM were KRW 8,273, 65.4 percent, and 41.64 percent, respectively. These findings reaffirm the conclusions of earlier studies that the Korean labor market is clearly divided between the high-wage and secure primary market and the low-wage and insecure secondary market and that the percentage of low-wage workers remains alarmingly high (OECD, 2013; Chung and Jung, 2016). The Korean labor market is considerably dualized, and the disparity continues to widen.4

Figure 5. ‘Absolute’ Internal Labor Market Vs. ‘Absolute’ External Labor Market in South Korea

Second, this study reveals that the size of the absolute ILM is significantly larger than popularly perceived (1,907 workers or 44.39 percent of the sample). The view

4 The wage gap between regular workers and non-regular ones, measured in terms of the average monthly income, has more than doubled over the last decade. The difference of KRW 0.62 million between non-regular workers’ average monthly wage of KRW 1.15 million per capita and regular workers’ KRW 1.77 million per capita in 2004 had grown to KRW 1.27 million by 2017, between non- regular workers’ KRW 1.56 million per capita and regular workers’ KRW 2.84 million per capita (Statistics Korea, 2017).

Ho-yeon, Lee & Jae-jin, Yang 51

that there is a decisive dearth of decent jobs in Korea prevails in the general public and among scholars alike. Much of the underestimation of the ‘absolute’ ILM in existing literature can be attributed to defective interpretations of statistics. The Census on Establishments of 2014, for example, argues that the SMEs, employing fewer than 300 workers each, make up 99.9 percent of all hiring businesses, while large corporations hiring 300 or more workers each make up a pale 0.1 percent only. In terms of the number of employees, the former account for 86.4 percent, while the latter take the remaining 13.6 percent. The Ministry of Employment and Labor (MOEL)’s Workforce Survey by Workplace presents similar statistics as well.5 Based on a simple reading of these statistics, many argue that over 85 percent of jobs available in the Korean economy are at SMEs that offer less than the “decent” conditions of work offered by large corporations. However, it is necessary to re-examine whether small businesses with less than 300 employees, which account for 85 percent of employment, are small businesses. According to the Census of Establishments, the branches of large companies, branches of banks, schools, post offices and community centers, which include jobs belonging to large companies and the public sector, are classified as 'corporations' of less than 300 people (Oh, 2017). The Employment Status Disclosure Requirement Program, in effect since July 2014, indeed counters our tendency to underestimate the number of decent jobs available throughout our economy. The program requires the disclosure of employment scales and status by “enterprises” rather than individual workplaces. According to this program, enterprises hiring 300 or more workers accounted for 29.1 percent or 4.74 million of all wage-earning workers in Korea as of 2016. The majority of these workers were regular employees directly hired by enterprises themselves and not temporary workers hired by work agencies or subcontractors. This counterintuitive finding is further supported by Statistics Korea’s Administrative Statistics on Paid Jobs. As of 2014, 43.3 percent of all paid workers, or 7.38 million of 17.05 million workers, not counting self-employed persons or unpaid family business workers—belonged to enterprises employing 300 or more workers each. There are, of course, decent jobs even within enterprises employing fewer than 300 workers each. Our estimate, therefore, that the absolute ILM (W*H*F) is where 44.39 percent of all wage-earning Korean workers are found is therefore not too far from reality. Third, our analysis also confirms the significant presence of workers in the “gray zone” of ‘relative’ ILMs and ELMs (1,122 workers or 25.06 percent of the sample). Although we group the six ‘relative’ ILMs and ELMs into a single gray zone, all of these labor market ideal types feature quite distinctive characteristics. Consider, for example, that the ILM with no employment security (W*H*f) is made up of the older male CA group. This group mostly includes owners of SMEs, contract-based government employees hired to provide professional services, and the executives and CEOs of medium and large enterprises. While these workers may lack employment security, they most certainly do not constitute the Korean precariat.

5 The survey (2014) reported that 84.2 percent of all workers were hired by companies hiring fewer than 300 workers each, while the remaining 14.8 percent were hired by companies hiring 300 or more workers each.

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The ILM with no social protection (W*h*F), on the other hand, consists of the older male SCP and middle-aged male LSF groups. The former includes teachers and professors at advanced ages. The latter is made up of experienced middle-aged workers in specialized service industries, such as restaurants and hairdressing. While these male workers lack social security, they enjoy relatively decent wages and employment security. The low-wage ILM (w*H*F) includes the young female SCP, young female MSF, and young male and female BC workers. These are mostly young workers who have entered decent jobs only recently. They do not have enough seniority to earn high wages, but enjoy high levels of social and employment security, instead. Although they are grouped with other more precarious workers in the gray zone now, they will naturally make their way into the absolute ILM over the years as they gain seniority and their wages rise. The fact that the middle-aged female BC group is in the ‘absolute’ ELM with poor working conditions in all three dimensions (w*h*f), however, suggests that young female BC workers, currently in the low-wage ILM, are likely to slip into an ELM. Marriage, childbearing, childbirth, and childcare will likely force these young women to leave the labor market temporarily and return via the ‘absolute’ ELM. The high-wage ‘relative’ ELM (W-h*f) includes older female SCP workers, who are mostly freelance workers providing professional services for high fees after their retirement. These women earn significantly more in hourly wages—KRW 17,010 on average—than the overall sample (KRW 12,807) and even more than the absolute ILM (KRW 16,258). Although these older women are grouped into a ‘relative’ ELM, their work is far from the types of work associated with the precariat. The ‘relative’ ELM with social security (w*H*f) includes young male SCP workers, who are mostly contract-based young male workers working in the public sector, such as government agencies and public corporations. The ELM with employment security (w*h*F), on the other hand, is made up of young male and middle-aged female workers working at SMEs. The gray zone is not a mere bridge between the primary/internal labor market and the secondary/external one. A labor market that offers great flexibility, mobility, and security for employers and workers alike can be achieved first and foremost by strengthening this gray zone. Policy attention and resources are especially required to help young female BC workers avoid the discontinuation of their careers, to enhance the employment security of young people working in the public sector, and to raise the wage level and strengthen social security for those working at SMEs.

Korean Precariat: Labor Market Outsiders

The ‘absolute’ ELM in Korea, offering poor wage, social protection and employment security conditions, accounts for 31.35 percent of all wage-earning workers (or 1,347 of the sample). These workers are predominantly female, older, and involved in unskilled service industries. In other words, older, female and unskilled service workers are the most precarious of all workers in Korea. This type are mostly street sweepers/janitors, domestic helpers, caregivers, private nurses, retail sales clerks and kitchen helpers.

Ho-yeon, Lee & Jae-jin, Yang 53

Women

Our analysis confirms that over 50 percent of working women in Korea were confined to the ‘absolute’ ELM as of 2014. Of the 1,808 women included in the sample, 941 (52.05 percent) were found in the ‘absolute’ ELM, while another 422 (23.34 percent) were found in the ‘relative’ ELMs. Only 344 women, or 18.86 percent, were found in the ‘absolute’ ILM. The pattern is reversed for men, with 1,563 of the 2,488 working men making up the sample (62.82 percent) included in the ‘absolute’ ILM and another 545 (21.9 percent) found in ‘relative’ ILMs. Working women are also predominantly underpaid, except for the relatively few women included in the CA groups and the middle-aged and older SCP groups. Young women, in particular, were paid low wages even when they were included in the SCP group. Across the sample, women’s mean hourly wage was a meager KRW 9,933, NHI subscription rate was 72.95 percent, and the percentage of regular employees was 57.8 percent. The rise in the education level of Korean women has led more and more of them to join the labor market. Yet the majority of working women in Korea continue to find and work in jobs in the ‘absolute’ ELM. This finding should lead us to reflect on whether we, as a society, continue to treat women simply as a secondary source of labor (佐藤香 & 元治惠子, 2015; quoted in Lee et al., 2016).

Young and Old

Our analysis also confirms that young workers are at a significant disadvantage on the Korean labor market. Except for those in the CA groups, young men and women of all occupational groups are left out of the ‘absolute’ ILM. Given the Korean labor market’s strong bias in favor of seniority, even young workers in relatively secure and regular jobs are paid little. Young workers in the LSF groups have it the worst, being relegated to the ‘absolute’ ELM with poor working conditions. It is known that young workers are reluctant to enter the labor market except via decent jobs when the given labor market is segmented, with mobility between the internal and external markets greatly restricted, as young people perceive such market conditions as a threat to their long-term future (Kim, 2016). A significant percentage of young people, in other words, opt to remain unemployed unless they land the decent jobs that would carry them safely into one of the ILMs. The poor quality of many jobs for young people is therefore one of the main reasons for the drop in the employment rate among young Koreans today.6 Older workers are also the biggest victims of the current dualized labor market. The vast majority are relegated to the ‘absolute’ ELM (84.19 percent or 655 of the 778 seniors included in the sample). Older people are, in fact, far more likely than young people (26.9 percent) and middle-aged people (18.46 percent) to be working in the ‘absolute’ ELM. For workers aged 55 or older, the mean hourly wage amounts to a meager KRW 9,890, the NHI subscription rate to 64.4 percent, and regular

6 As of 2017, the employment rate of young people in South Korea was 42.1 percent, ranking the country in the 30th place among OECD member states.

Journal of the Korean Welfare State and Social Policy 54

employment to 38.92 percent. Older people, however, are forced to bear with these poor working conditions because they have to work into old age for their own livelihood (Yang et al., 2016). Older workers in the absolute ELM are outsiders denied not only proper wages, social protection and employment security, but also the right to retire.

Unskilled Occupations

Unskilled workers are another category of those disadvantaged by the dualized labor market structure. Nearly all decent jobs in the ‘absolute’ ILM are concentrated in the CA and SCP groups. The vast majority of workers in the CA groups (88.82 percent or 302 workers) are in the ‘absolute’ ILM, as are workers in the SCP groups (75 percent or 432 workers). Workers in the MSF, BC, and LS groups, and working in occupations requiring little to no skill, tend to be concentrated in the ‘absolute’ ELM. Our analysis reveals that both the ‘absolute’ ILM and much of the gray zone are off limits to unskilled workers in the LSF groups. Aside from male LSF workers, all workers in these unskilled occupations are found in the ‘absolute’ ELM. It is, in other words, nearly impossible for workers in unskilled service industries to land decent and secure jobs. Unskilled service workers earned a mean hourly wage of KRW 9,095, with a mean NHI subscription rate of 67.5 percent and a mean regular employment rate of 45.62 percent - figures that are considerably lower than those of other occupational groups. Even within the same occupational groups, age and gender divides persist. Middle-aged male workers tend to have the most decent jobs and best working conditions of all occupational groups. Consider the example of MSF professionals. The middle-aged and men of this group are situated in the ‘absolute’ ILM, while young, older, and female workers if the same group are relegated to ‘relative’ ILMs or even ‘relative’ ELMs. Older and female MSF workers are all found in the ‘absolute’ ELM. BC groups are where age and gender wage divides are the most prominent. Of BC workers, 54 percent (586 workers) are found in the ‘absolute’ ILM, all of who are middle-aged men. Young BC workers are in the low-wage ‘relative’ ILM (6.8 percent, or 74). Female and older BC workers are concentrated in the ‘absolute’ ELM (39 percent or 424). In other words, of all BC workers in Korea, only middle-aged men have decent jobs, while young workers struggle with low wages, and older and female workers are relegated to the poorest working conditions of all. Within the KLIPS sample, middle-aged male BC workers had a unionization rate of 21.3 percent, double the sample-wide average of 10.8 percent, while all other BC groups had an average unionization rate of 10.26 percent. Middle-aged male BC workers, moreover, tended to work in large corporations employing 813 workers on average each, while the other BC groups were found in smaller companies with 102 employees each on average. Middle-aged male BC workers, in other words, are doubly protected by their union membership and their companies’ strategy of offering superior working conditions for unionized workers to have them remain in the absolute ILM. The Korean blue collar labor market is thus severely polarized in terms of job quality.

Ho-yeon, Lee & Jae-jin, Yang 55

Table 10. BC Workers in Korea: Middle-Aged Men Vs. Others

Hourly NHI Regular Unionizati Labor Firm size wage subscription employment on rate market average (KRW) rate (%) rate (%) (%) Middle- ‘Absolute’ aged 14,432 87.04 78.82 21.33% 813 ILM men Low-wage ILM or Other 9,752 72.89 55.62 10.26% 102 ‘absolute’ ELM

Conclusion

In this study, we apply the fuzzy set analysis method to examine the dualized structure of the Korean labor market and determine the groups of workers most closely matched with each of the labor market ideal types. We divide the Korean labor market into eight ideal types and analyze how each of the 30 groups of workers, divided according to combinations of age, gender, and occupation, fits into any of these market types. Our findings can be summarized as follows. First, the Korean labor market is polarized between the ‘absolute’ internal labor market (ILM) and ‘absolute’ external labor market (ELM). Of the sample of workers included in our analysis, 44.39 percent worked in the ‘absolute’ ILM, making it the largest of the eight labor market ideal types. Yet there is also a significant ‘absolute’ ELM, in which 31 percent of all sample workers were found. The two labor market types are marked by considerable and growing disparity in terms of wages, social protection, and employment security. Second, there are also ‘relative’ labor market types found in between the two extremes. Much of the existing literature focuses exclusively on the dual structure of the labor market and polarization, dealing short shrift to this gray zone of less extreme markets. Our analysis confirms that approximately 25 percent of all workers work in one of the ‘relative’ ILMs and ELMs. This in-between zone has the potential to serve as a bridge of mobility between the two polarized labor markets. A few changes can be made to some of these relative markets to make jobs available within them more decent. Third, 31 percent of all Korean workers belong to the ‘absolute’ ELM and form the Korean precariat. The vast majority of these workers are female, young and old, and unskilled. The specific groups found in this market include older female MSF, older female LSF, young male LSF, older female BC, older male BC, young female LSF, middle-aged female LSF, older male LSF, and middle-aged female BC groups. The specific occupations where all three major risk factors - precarious labor, i.e., being female, old, and unskilled - overlap are street sweepers, domestic helpers, caregivers for patients in convalescence, private nurses, retail shop sales clerks, and kitchen helpers.

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What are the policy implications of our analysis? First, policy measures are needed beyond simply bringing women into the labor market. The vast majority of working women in Korea today are found in the ELMs. We need specific and effective policy strategies to move them from the ‘absolute’ ELM to ‘relative’ ILMs. As for working women already on ‘relative’ ILMs, policy measures and support are needed to enable them to continue to hold and work in decent jobs irrespective of whether they marry, have children and care for children themselves - events that often serve to force them to discontinue their careers and return to the workforce at a later date via worse jobs. As in the Netherlands and Sweden, policy measures are needed to allow these women to work flexible hours and enhance their employment and social security, while raising their hourly wages, to enable them to maintain work-family balance. It is especially important to find ways to increase flexible-hour or part-time work among regular employee positions for women, such as the selected-hour work arrangement recent introduced by the Korean government. Second, we need policy measures tailored specifically to older workers’ needs. While lifelong work is an ideal that is to be encouraged, older workers in Korea are forced to work well past their retirement age for a living and not to make the most of their lives. Policy intervention is especially needed to raise the wages and the level of social security in the ‘absolute’ ELM, where the majority of older workers can be found today. Appropriate raises in the minimum wage, expansion of earned income tax credits, and an increase in the number of ‘Durunuri’ programs for employers hiring older workers can be of practical help.7 it is also important to increase opportunities for occupational training and re-training for the middle-aged so that they can go on to find fruitful second careers in the absolute and relative ILMs after they retire from their primary/main careers. These policy changes are all the more strongly needed when we consider that nearly seven million Korean baby boomers are about to retire en masse. The incremental raising of the retirement age and policy support for retirees to re-land jobs in their old workplaces, as practiced in Singapore, carry significant implications for Korea’s situation as well. Third, policy support is needed to establish a skills development system specifically for unskilled service workers. As our analysis demonstrates, unskilled workers in Korea have no way of accessing the ILMs. This is why occupational training is centrally important. The occupational training infrastructure should be innovated at the same time as customized employment support services are introduced. Working hours should be made more flexible so that unskilled workers can continue training and working side by side. Workers should be given greater power to control their working hours as part of their basic labor rights. All these required policy changes point toward the need to establish, in the long run, a stable and flexible labor market. A labor market may remain dualized between internal and external markets, but that market as a whole can still function and grow effectively insofar as worker mobility between the two sectors is guaranteed. When the labor market is so severely segmented that workers cannot move so freely between internal and external markets, however, the labor market serves to distort the whole economy in major ways. Although worker mobility in the

7 ‘Durunuri’ is the name of the policy program via which the Korean government subsidizes part of premiums to be paid by SME employees and employers for social insurance policies, particularly the Employment Insurance and the National Pension.

Ho-yeon, Lee & Jae-jin, Yang 57

Korean labor market has not been subjected to our analysis, the existing literature confirms at length that the Korean labor market is indeed dualized and segmented. Now is the time for policy measures that are designed to improve the quality of jobs on the external labor markets, while also reducing the rigidity of the insider-outsider barrier within that market. More detailed analysis should be performed on the dualism of the Korean labor market and the Korean precariat in the future to find effective solutions to the country’s labor problems.

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Appendix 1. Worker Groups and Descriptive Statistics

Regular Hourly wage NHI subscription N employment (KRW) rate (%) rate (%) Single-dimensional statistics Young (15 to 29) 509 9,923 82.32 71.91 Middle-aged (30 to 3006 14,052 83.33 75.15 54) Older (55+) 781 9,893 64.40 38.92 Women 1808 9,933 72.95 57.80 Men 2488 14,895 84.73 75.72 CA 340 19,145 97.65 91.47 SCP 579 14,339 86.18 78.93 MSF 1105 14,558 83.35 80.18 BC 1084 12,282 80.54 67.62 LSF 1188 9,095 67.51 45.62 Composite-dimensional statistics Young female LSF 76 7,706 69.74 56.58 Young male LSF 61 8,702 67.21 49.18 Young female BC 11 10,449 90.91 90.91 Young male BC 63 11,157 88.89 76.19 Young female MSF 90 9,417 83.33 80.00 Young male MSF 59 10,774 79.66 71.19 Young female SCP 85 10,117 91.76 83.53 Young male SCP 27 10,323 85.19 66.67 Young female CA 14 13,016 92.86 71.43 Young male CA 23 13,588 100.00 95.65 Middle-aged female 398 8,569 69.85 46.73 LSF Middle-aged male 313 12,954 75.72 69.01 LSF Middle-aged female 157 7,678 71.97 56.05 BC Middle-aged male 586 14,432 87.03 77.82 BC Middle-aged female 321 12,307 76.32 69.16 MSF Middle-aged male 537 17,646 91.43 92.55 MSF Middle-aged female 301 13,330 86.38 75.42 SCP Middle-aged male 131 18,779 85.50 88.55 SCP

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Middle-aged female 26 16,749 92.31 84.62 CA Middle-aged male 236 20,244 99.58 97.03 CA Older female LSF 203 6,134 47.78 17.24 Older male LSF 137 7,142 70.07 23.36 Older female BC 59 7,026 67.80 50.85 Older male BC 208 11,629 69.23 48.56 Older female MSF 48 7,372 39.58 33.33 Older male MSF 50 16,460 88.00 74.00 Older female SCP 16 17,010 68.75 62.50 Older male SCP 19 22,054 78.95 78.95 Older female CA 3 22,510 100.00 100.00 Older male CA 38 19,315 89.47 65.79 Overall mean 4296 12,807 79.77 68.18

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Appendix 2. Worker Groups and Descriptive Statistics Graph

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Appendix 3. Classification of Occupations in Korea According to Skill Level and Degree of Workers’ Own Control

CA SCP MSF BC LSF KSCO codes and KSCO codes and KSCO codes and KSCO codes and KSCO codes and occupations occupations occupations occupations occupations Health workers, Accounting and Technical sales and Transportation 1 Administrators 24 social workers, and 274 431 313 secretarial office intermediary workers service workers clergy clerks Culture/arts/sports Public-sector and Medical practitioners Skilled primary Secretaries and 11 241 28 professionals and 6 314 corporate executives (doctors) industry workers office assistants related workers Legislators, high-level Pharmacists, Skilled agriculture civil officials, public Writers, journalists, Travel guides and 111 242 traditional medicine 281 61 and livestock 392 organization publication experts agency workers doctors workers executives Customer Curators, librarians, Crop cultivation 112 Corporate executives 243 Nurses 282 611 399 representatives, archivists experts other office workers Administrative and Theater, cinema and Horticulturists, Security and 12 management- 244 Nutritionists 283 612 412 video professionals landscapers protection workers supporting managers Administration and Artists, Hairdressers, Therapists, medical Livestock industry 120 management- 245 284 photographers, 613 42 ceremony planners, technicians workers supporting managers performance artists medical assistants Professional service Health and medical Skilled forestry Medical and welfare 13 246 285 Designers 62 421 managers workers workers service workers Hairdressing and Insurance and finance Sports and recreation 132 247 Social workers 286 620 Forestry workers 422 beauty service managers professionals workers Celebrity managers Health and social Religion-related Wedding and funeral 133 248 289 and other culture- and 63 Skilled fishers 423 service managers workers workers arts-related workers Education Hairdressing, Culture/arts/design/vid 134 25 professionals and 3 Office workers 630 Fishers 429 ceremony planning, eo service managers related workers medical assistance

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service workers Management and University lecturers Technicians and Recreation and 135 ICT managers 251 31 accounting-related 7 432 and professors related workers sports workers office workers Other professional Administrative office Food processing 139 252 School teachers 311 71 5 Sales specialists service managers workers technical workers Construction, Kindergarten Management-related Food processing 14 electricity and 253 312 710 51 Sales clerks teachers office workers workers production managers Other construction, Textile, apparel, and Literature, technique, Finance/insurance 149 electricity and 254 32 72 leather technical 510 Sales workers or art instructors office workers production managers workers Sales and customer Other education Finance/insurance- Textile, apparel, and Retail shop sales 15 259 320 721 52 service managers professionals related office workers leather workers clerks Apparel Customer service Legal/administrative Legal/auditing office Retail shop sales 152 26 33 722 manufacturing 521 managers professionals workers workers technical workers Wood/furniture/musi Environment, cleaning Legal/auditing office Product rental 153 261 Legal professionals 330 73 cal instrument/sign 522 and security managers workers workers technical workers Consulting, guidance, Door to door sellers, General professionals Administrative Metal molding 2 262 39 statistics and other 74 53 street vendors, and and related workers professionals technicians office workers telemarketers Door to door sales, Management/finance Science professionals Statistics-related Molding, casting, street sales and 21 27 professionals and 391 741 530 and related workers office workers and forging workers telemarketing related workers workers Human resource and Police, firefighting, Car manufacturing Life and natural 211 271 management 41 and security service 742 and sheet metal 9 Unskilled laborers science professionals professionals workers workers Finance and Unskilled Humanities and social Police, firefighting and 212 272 insurance 411 743 Welders 92 transportation science professionals correctional officers professionals laborers Merchandising, PR Transportation and Life and natural Cooking and food Unskilled loading and 213 273 and market research 44 75 machinery technical 921 science testers service workers unloading workers professionals workers

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ICT professionals and Automobile 22 98 Military personnel 441 Cooks 751 922 Delivery workers engineers mechanics Computer hardware Transportation and communication Unskilled cleaning 221 981 Military officers 442 Food service workers 752 equipment 94 engineering and janitorial workers mechanics professionals Machinery Information system Long-term non- Information system installation and Cleaners and street 222 development 982 commissioned 223 753 941 administrators (MSF) maintenance sweepers professionals officers workers Communications and Engineering Electricity and Unskilled domestic, broadcasting 23 professionals and 224 76 electronics-related 95 food and sales equipment engineers technical workers workers technicians (MSF) Architecture and civil Electricity/electronic Safety managers and Domestic helpers 231 engineering engineers 236 761 s installation and 951 inspectors (MSF) and baby sitters and testers repair workers Chemical engineers Electricity Unskilled food 232 762 952 and testers technicians workers Metal/material Construction/mining Unskilled sales 233 77 953 engineers and testers technicians workers Construction Environmental Meter, toll-collecting, 234 771 structure technical 992 engineers and testers and parking agents workers Electric/electronic Construction Other unskilled 235 772 999 engineers and testers workers service workers Video and Other engineers and Construction communications 239 773 780 related workers finishing workers equipment repair workers Mining and civil Unskilled 131 - 774 engineering 910 construction and technicians mining workers Construction, Video and Security guards and 141 electricity and 78 communications 942 ticket collectors production-related equipment

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managers technicians Video and Sales and communications Domestic helpers 151 transportation 780 equipment 951 and baby sitters managers installation/repair technicians Other sales and 159 customer service 79 Other technicians managers Handicraft and 791 jewelry makers 792 Plumbers Other technical 799 workers Device/machinery 8 operators/assembler s Food processing 81 machinery operation workers Food processing 811 machinery operators Beverage 812 manufacturing machinery operators Other food 819 processing machinery operators Textile and shoe 82 manufacturing machinery operators Textile and shoe manufacturing 822 machinery operation workers

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Laundry machinery 823 operators Chemical-related 83 machinery operators Petrochemical 831 processing machinery operators Metal and non- 84 metal-related machinery operators Molding and metal 841 processing machinery operators Painting and gilding 842 machinery operators Non-metal 843 manufacturing machine operators Machinery 85 manufacturing machinery operators 851 Metal tool operators Heating and air- 852 conditioning equipment operators Automobile assembly line and 853 industrial robot operators Transportation 854 vehicle and machinery operators Metallic mechanical 855 part assemblers 86 Electric/electronic

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equipment operators Power generation/transmiss 861 ion equipment operators Electric/electronic 862 facility operators Electric/electronic 863 part manufacturing machinery operators Electric/electronic 864 part and product assemblers Transportation 87 workers and managers Railway and motor 871 vehicle engineers Freight train 872 managers and workers 873 Drivers Product mover 874 machinery operators Construction/mining 875 machinery operators Deck crew and 876 related workers Water and 88 wastewater recycling machinery operators Water and wastewater 881 treatment machinery operators

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Recycling treatment 882 and incinerator operators Wood, printing and 89 other machinery operators Pulp and paper 891 machinery operators Printing and photograph 892 development machinery operators Unskilled 91 construction/mining workers Unskilled 93 manufacturing workers Unskilled 930 manufacturing workers Unskilled primary 99 industry and other service workers Unskilled primary 991 industry workers Aircraft/ship 237 engineers and controllers Wood/furniture/musi 730 cal instrument/sign technical workers Textile manufacturing and 821 processing machinery operators

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Chemical/rubber/pla 832 stic manufacturing machine operators Other manufacturing- 899 related machinery operators

Vol.2, No.2, December 2018, 73-108

Population Aging and International Migration Policy in South Korea

Dong-Hoon Seol

Professor, Department of Sociology, Chonbuk National University [email protected]

Abstract South Korea todays enjoys a demographic dividend, or bonus, resulting from its abundant working age population. In the near future, however, this may turn into a demographic onus with a high potential support ratio, according to the Population Projections for Korea 2015-2065, released by Statistics Korea. Fears will spread about stagnant population growth and the aging population and about the consequent graying of the workforce. This paper examines four aspects of the question of whether inter- national migration can ameliorate the shock of population aging in Korea or at least slow the aging trend. First, it looks at the relationship between migration policy and pro- natalist policy as methods of dealing with the aging shock. Second, it identifies the scale and trend of international migration in Korea and assesses the government’s migration policy. Third, it analyzes future population estimates to identify Korea’s demand for immigration, or in other words, the size of the population required for the Korean economy to keep growing, known as replacement migration. Finally, it discusses the future direction of Korea’s migration policy while reviewing current issues related to the use of such policy to counter population aging.

Keywords International migration, migration policy, replacement migration, migrant workers, marriage-based immigrants, foreign students, diaspora

* This article is an updated and revised English version of the original work in Korean: Seol, Dong-Hoon (2015). “Hangukui ingugoryeonghwawa iminjeongchaek.”. Gyeongje wa sahoe. 106 (summer): 73-114.

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Introduction

The movement of people across national borders is known as immigration, overseas movement, or international migration. Several criteria are used for determining international migration—including nationality, place of residence, length of stay, purpose of stay, and place of birth—and each country has its own set of criteria. The UN Population Division uses the criteria of place of residence and length of stay in drafting its international migration statistics so as to create indices that enable international comparisons. The United Nations defines long-term migration as moving one’s routine place of residence across national borders for more than a year, and short-term migration as moving one’s place of residence for more than six months but less than one year (United Nations, 1998a). When these two categories are combined, immigration is defined as people moving their place of residence to another country for more than six months. The UN’s definition of immigrant includes migrant workers and students whose stay lasts more than three months but does not include commuters or seasonal migrants, cross-border traders, travelers, and tourists whose stay lasts less than six months. International migration policy can be divided into state policy about allowing its own citizens to cross the national borders and state policy about allowing foreign citizens to enter those borders. Each government determines its migration policy in consideration of such factors as conditions in the domestic labor market and attitudes prevalent in its society (Zolberg, 1999; Seol, 2000: 57–66). However, the actual phenomenon of migration is affected by various factors, including the global labor market and the varying economic conditions in different countries. For example, even if a government implements a policy of attracting immigrants to compensate for its shrinking domestic population, there will be little actual inflow of immigrants if that country’s labor market is not capable of absorbing foreign workers. Likewise, even if a government implements a policy of aggressively sending workers overseas out of concern for its surplus population, such an attempt to reduce the population is unlikely to succeed if foreign countries are unwilling to accept immigrants from that country. International migration, therefore, can be understand as a social phenomenon that occurs through the choices of migrants and their families under institutional conditions that are formed by the markets, societies, and governments of the countries out of which, and into which, those migrants are moving. In short, the flow and the scope of international migration can be explained through the choices of individuals and families; the developmental disparity between countries; and the nexus between historical and social structures, as well as state policy (Portes, 1987; Castles, De Haas, & Miller, 2013; Seol, 2015). Nevertheless, it is undeniable that various governments use international migration policy as a kind of demographic policy, and to good effect. Migration policy can be understood as action by the state to control the movement of people across its borders in consideration, either selectively or comprehensively, of the needs of the market and society. In this context, “control” can mean actively encouraging or suppressing the movement of people, but in some cases it can also mean ignoring such movement. The majority of countries today strictly control their national borders so as to let in the wanted and keep out the unwanted, especially foreigners from the poorest of countries. By controlling the influx and efflux of people, in other words,

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Dong-Hoon Seol migration policy has the effect of managing the volume and quality of international migration (United Nations, 1998b, 2013b). Since South Korea has not only achieved economic growth and political democracy, but also enjoys a sophisticated culture, it possesses economic and social conditions that are attractive to migrants from other countries. However, the Korean government has remained reluctant to welcome immigrants because of the long- standing homogeneity of Korean culture and society. If the government were to clear the obstacles to immigration, therefore, it would immediately increase the population to an extent that far exceeds its measures to address the low birthrate. Although the Korean government asserts that its citizens have the choice to go abroad if they wish, it pursues a policy of discouraging international adoptions, maintaining a hands-off approach to studying overseas, and encouraging overseas employment. In that sense, an examination and assessment of the current status of the Korean government’s international migration policy would also be meaningful for establishing a basis for Korea’s continuing economic and social development. The goal of this paper is to examine and assess the content of the Korean government’s international migration policy. This consists of four sections. First, it will look at the relationship between migration policy and pronatalist policy as methods of dealing with the aging shock. Second, it will examine in detail the scale of Korea’s international migration and the related trends. Koreans go to other countries with such goals as residing there, getting a job, investing, and studying, while foreigners come to Korea with such goals as getting married, finding a job, investing, and studying. This paper will identify and assess migration trends and the government’s migration policy. Third, it will analyze future population estimates to identify Korea’s demand for immigration, or in other words, the size of the population required for the Korean economy to keep growing (known as replacement migration). Finally, this paper will conclude by discussing major debates related to using migration policy as a way to counter population aging.

Dealing with the Shock of Population Aging

The storm of population aging is raging. In 2013, Korea had a total fertility rate of 1.19. If aging continues according to current trends, it will have a huge impact on the Korean economy and society. According to Population Projections for Korea 2015-2065, which was composed by Statistics Korea using the data from the 2015 population and housing census according to medium-variant assumptions about population growth, Korea’s total population will grow from 51.01 million people in 2015 to 52.96 million in 2031 and then subsequently decline (Statistics Korea, 2016:1). As can be seen in Figure 1, the total population peak could come a little earlier or later than that, depending on the components of population change, but it is certain that the total population will began to decline after a certain period of time. Korea’s working age population (15–64) will reach a peak of 37.63 million in 2016 and then decline rapidly after that (Statistics Korea, 2016:1). This means that the working age population, or in other words the workforce, will begin to shrink much sooner than the total population.

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Figure 1. Population projections for Korea, 1965–2115.

Note 1: Statistics Korea provides population estimates for past years, reflecting the mid-year population (as of July 1), and population projections that account for future components of population change (births, deaths, and international migration). Note 2: The future levels of the components of population change (births, deaths, and international migration) are defined as being high-variant, medium-variant, and low-variant. When all assumptions for each component of population change are combined, they produce 27 (3x3x3) scenarios, but this graph focuses on three scenarios that exhibit a large difference with respect to the amount of future population growth. Medium-variant population growth was chosen as the basic scenario for our projections by combining the medium-variant assumptions for each component of population change. In addition, the low-variant and high-variant assumptions for population growth were defined by combining the low-variant and high-variant assumptions for each component of population change. Source: Statistics Korea, Population Projections for Korea, 2015–2065: Press Release, 2016, p. 45.

A decrease in the working age population leads to a decrease in the potential support ratio (PSR), or in other words, the ratio of the working age population to the elderly population calculated on the assumption that the working age population (aged 15–64) supports the elderly population (aged 65 and above). That is likely to drag down the potential economic growth rate: put more starkly, people will spend less, and the economy will lose its vitality. There have also been warnings about a demographic cliff (Dent, 2014), in which one generation reaches its “peak spending,” giving way to a rapidly shrinking population and sluggish economy until the emergence of the next generation of big buyers. Korea’s social welfare programs— including its national pension service and national health insurance service—are currently posting a surplus. At some point, however, that will switch to a deficit, and the accumulated deficit will continue to balloon. That is the gloomy outlook for Korea as its society ages. And that is not in the distant future, but in the near term. The Korean government has enacted programs designed to avert the catastrophe of population aging, but their results have been meager. A government committee charged with devising countermeasures for the aging population has been in place since the presidency of Kim Dae-jung (1998–2003), and a basic plan for low fertility and aging society that was drafted in 2006 has been implemented in stages since then. The government spent KRW 42.2 trillion during the five years of the first stage and KRW 56.5 trillion during the three years of the second stage, which began in 2011, but the fertility rate remains very low. Despite wide-ranging efforts by the government to overcome low fertility by laying the foundation for child care, strengthening

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Dong-Hoon Seol incentives for corporations, and encouraging parents to take child care leave, Korea had a total fertility rate of 1.3 over the past decade, leaving it near the bottom of OECD member states. What is the cause of low fertility, and why have the government’s policies had hardly any effect? Six causes can be identified. First, women are getting married at an older age and have a higher social status because of their greater educational attainment and their increased participation in economic activity. As a result, the proportion of women who are getting married later or not at all is gradually rising. A second cause is changing attitudes toward having children. The weakening of the traditional belief that the family line must be carried on through offspring has altered the value attributed to childbirth. Another cause is that people are more likely to prefer having a few children and raising them well to having lots of children. In addition, the cost of raising and educating children has become a burden, creating an incentive to have fewer children. A third way to explain low fertility is as the effect of a slowing economy. One Korean newspaper coined the term “sampo generation,” meaning the generation that abandons three things. This sampo generation, the newspaper said, consists of “young people who have indefinitely postponed or even abandoned romance, marriage, and childbirth because of unstable jobs, outstanding student loans, a seemingly unending job search, and the excessive cost of living, including soaring housing prices” (Yoo & Park, 2011). As suppressed spending and a stagnant domestic economy drag on, young Koreans have put off having children or given up the idea altogether. Fourth, Koreans can be regarded as having strategically chosen “low fertility” or a “baby strike” in an attempt to survive the extreme competition for survival in Korean society. When risk and anxiety increase in society, individuals tend to make choices that minimize that risk and anxiety. This means that individuals are more likely to choose survival through competition in the market over having children. Fifth, some scholars have argued that, while economic and social development have typically exhibited a negative correlation with fertility in the twentieth century, this development has caused fertility to rebound in a J-curve in the early twenty-first century (Myrskylä, Kohler & Billari, 2009; Goldstein, Sobotka, & Jasilioniene, 2009; Luci, & Théveron, 2010). Since low fertility is a structural phenomenon that underdeveloped countries undergo for a certain period of time when rapid growth is bringing them into the ranks of the developed countries (Robey, 1991), fertility is unlikely to rebound in the short term, but it could rebound eventually if economic and social development progresses even further. According to this perspective, Korea’s current stage of development leaves it with no choice but to endure an extremely low level of fertility. Sixth, it is also necessary to note that low fertility is a contemporary social phenomenon that the entire world has been experiencing in the early twenty-first century. The phenomena of low fertility and the resulting aging of the population are observed not only in the Western developed world but also in a number of developing countries in Asia, such as Thailand, China, and Vietnam (United Nations, 2013a; Longman, 2010; Lee & Lee, 2011). Low fertility ought to be regarded as being the result not of any single cause but of a combination of causes (Eun, Kwon, Kim, Park, Cho & Choi, 2011). It is obvious, therefore, that the problem of population aging cannot be resolved through short-term

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Dong-Hoon Seol measures such as introducing a bachelor tax or running campaigns to encourage childbirth. It is essential that the society as a whole works to identify the structural and individual causes of low fertility and eliminate the obstacles to childbirth. In 2018, Korea is enjoying the effects of the demographic dividend, or bonus. The demographic dividend is the beneficial economic effect of having an increasing working age population, which pushes down the cost of supporting the young and old. For now, Korea’s working age population is still increasing. But according to Population Projections for Korea 2015-2065, which was released by Statistics Korea, Korea’s demographic dividend will soon come to an end. Korea’s working age population will peak in 2016 and rapidly decline after that. This will cause the demographic bonus to vanish and be replaced by a demographic onus. This means that the population will become a strain on the economy. From that point, the impact of population aging will gradually become more palpable. Mortality will continue to decrease, which will further accelerate aging. A dramatic boost of fertility levels in the future could definitely reverse the aging trend, but the effect of that reversal would not become tangible for at least twenty years. If fertility is maintained at the current level or falls even lower, it will further accelerate the aging trend. Examining Korea’s current fertility and mortality levels shows that it would be very difficult to reverse the aging trend in the short or mid-term. If that is true, immigration is the only way to reduce the trend of population aging while buying time for demographic restructuring.

Korea’s International Migration Policy and the Current State of Migration

International Migration Trends in Korea

Since 2000, Statistics Korea has been counting and releasing the number of Korean citizens and foreign nationals who are international migrants (that is, who have spent more than 90 days outside of their country of usual residence, according to the Departures and Arrivals Control Act) based on data and statistics maintained by the Korea Immigration Service, under the Ministry of Justice. The statistics include not only individuals who entered or left the country after receiving visas for a stay of more than 90 days but also those on a short-term visa (of 90 days or less) who either overstayed their visa or altered their original period of sojourn to allow them to stay longer than 90 days. Table 1 shows migration trends in Korea during the 2000s. In 2000, the number of foreigners entering Korea exceeded the number of Koreans leaving the country by 8,000, but between 2001 and 2005, this trend reversed, resulting in a net outflow. The inflow of foreigners once again exceeded the outflow of Koreans in 2006, with the gap between the two figures gradually increasing since then. The years with the largest number of net migrants since the switch to a net inflow in 2006 were 2014, with 142,000 migrants, and 2017, with 107,000 migrants.

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Since international migration has a direct impact on demographic fluctuation, careful consideration should be given to which factors are driving migration. I will be examining those factors in respect to two directions of migration: incoming and outgoing.

Table 1. The scale of international migration1 in Korea between 2000 and 2017: flow (unit: thousands) Total migration² Net migration³ No. of immigrants No. of emigrants Year Total Korean foreign Total Korean foreign Total Korean foreign Total Korean foreign 2000-2017 20,383 11,388 8,997 625 -640 1,264 10,504 5,374 5,131 9,879 6,013 3,868 2000 734 473 262 8 -76 84 371 198 173 363 274 89 2001 780 507 273 -32 -87 55 374 210 164 406 297 109 2002 790 518 272 -16 -62 46 387 228 159 403 290 113 2003 851 528 323 -42 -57 15 404 236 169 447 293 154 2004 894 565 329 -49 -77 28 423 244 179 471 321 151 2005 1,155 637 518 -95 -84 -11 530 277 254 625 360 265 2006 1,180 703 477 48 -81 129 614 311 303 566 392 174 2007 1,183 731 452 78 -71 148 630 330 300 553 401 152 2008 1,262 750 512 55 -37 92 659 356 302 603 393 210 2009 1,163 697 466 20 21 -1 592 359 233 571 338 233 2010 1,182 693 489 82 -15 97 632 339 293 550 354 196 2011 1,226 701 525 91 1 90 658 351 307 568 350 218 2012 1,279 689 590 7 -4 10 643 343 300 636 346 290 2013 1,307 679 629 85 -7 92 696 336 360 611 343 268 2014 1,329 651 678 142 5 137 735 328 407 594 323 271 2015 1,306 632 674 61 -10 72 684 311 373 622 321 301 2016 1,353 626 727 75 -2 77 714 312 402 639 314 325 2017 1,409 608 801 107 3 104 758 305 453 651 303 349

Note 1: International migration: the number of people who have left their country of usual residence and stayed elsewhere for more than 90 days. Note 2: Total migration = number of immigrants + number of emigrants Note 3: Net migration = number of immigrants - number of emigrants Source: Statistics Korea, 2017 Annual Report on International Migration Statistics, 2018

Outgoing Migration

Emigration by Koreans began in the 1860s, in the late Joseon Dynasty, when starving people in Hamgyong Province crossed the border into Manchuria, Jiandao, or Primorsky Krai. But on an official level, migration can be traced back to 121 coolies who left Incheon for the sugarcane plantations of Hawaii in 1902 according to an agreement between the governments of the United States and the Korean Empire. During the Japanese colonial occupation of Korea, many Koreans migrated to various parts of Japan, Manchuria, and Primorsky Krai. A substantial portion of these returned home after Korea’s liberation from Japanese rule in 1945, but quite a few remained where they were. Their descendants settled permanently in those countries and formed communities known respectively as Zainichi (Koreans in Japan), Joseonjok

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(Korean-Chinese), and Goryeoin (ethnic Koreans in post-Soviet states). Returnees continued to stream into Korea while the Korean Peninsula was being divided and separate governments were being established in the northern and southern halves in 1948, but this migration was cut off during the Korean War, which was fought between 1950 and 1953 (Seol, 2000). After the Korean War ended in 1953, the only international migrants were a tiny number of people going overseas because of adoption or marriage. Overseas adoption took off in 1954 in connection with international relief efforts designed to deal with the issue of war orphans. On orders from the president, a bill was passed in 1955 that legalized international adoption, called the Act on Special Measures for Orphans and Adopted Children. When the number of international adoptions began to soar, the National Assembly passed the Act on Special Cases for the Adoption of Orphans in 1961, which formalized the procedures by which foreigners could adopt Korean orphans. At the time, the bulk of the children being given up for adoption were abandoned poor children, rather than war orphans (Hübinette, 2009; Kim, Kim, Jun, Ahn, Kim, Shin & Lim, 2013). Since American troops with United States Forces Korea (USFK) remained stationed in major cities in Korea after the Korean War, an increasing number of Korean women got married to these soldiers and later accompanied their spouses back to the United States (Yuh, 2004). During the 1950s, however, there were just a few overseas adoptees and international marriage emigrants. In the early 1960s, the Korean government pursued a policy of sending Korean workers overseas with the hope of relieving demographic pressure at home, reducing the surplus workforce, assisting the unemployed, and earning foreign currency. In 1962, the National Assembly passed the Emigration Act, which sought to suppress population growth and stabilize the national economy by encouraging Koreans to go overseas. It was through this Act that 92 Koreans emigrated to Brazil in December 1962 as agricultural migrants. In 1976, the National Assembly replaced the Act on Special Cases for the Adoption of Orphans with the Act on Special Cases Concerning Adoption. After this new act took effect in January 1977, the government changed its stance to encourage domestic adoption over international adoption. Then on January 1, 1983, the government began issuing tourist passports good for one trip a year to Koreans aged 50 and above on the condition that they make a one-year deposit of KRW 2 million. This was the first time that Korea had liberalized overseas travel for the purpose of tourism, albeit with age and asset requirements. Subsequently, the government lowered the age at which overseas travel was permissible a little more each year. In 1984, the government transferred the responsibility for emigration from the Ministry of Health and Social Affairs to the Ministry of Foreign Affairs and cleared obstacles to investment migration by helping exchange money to cover the cost of relocation. Around this time, the government regarded the emigration of Koreans as an opportunity for reciprocal international cooperation. As great strides were being made toward the democratization and liberalization of Korean society as a whole after 1987, the government began to regard emigration as being connected with the “basic rights” of the individual to choose their place of residence. Over the course of a decade, the government boldly lifted regulations. In 1989, it fully liberalized overseas travel for Korean citizens; in 1991, it lifted the requirement for would-be emigrants to get permission for their emigration through the introduction of the notification system); and in 1999, it allowed emigration brokers

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Dong-Hoon Seol to simply register their business without getting a permit and also abolished restrictions on the regions to which emigration was allowed (Ministry of Foreign Affairs and Trade, 2009: 311–312).

Figure 2. Number of emigrants from Korea each year, 1962–2017: flow

Note 1: Emigration Statistics was compiled by the Ministry of Health and Social Affairs between 1962 and 1983, by the Ministry of Foreign Affairs between 1984 and 1991, by the Korea International Cooperation Agency between 1992 and 1995, and by the Ministry of Foreign Affairs again since 1996. Note 2: When the Emigration Act took effect in 1962, it established a permit system under which the government reviewed the suitability of applicants for emigration and decided whether or not to issue a permit. This was replaced in 1992 with a system under which individuals intending to emigrate only needed to notify the Minister of Foreign Affairs of their intention. In 1991, new emigration brokers were exempted from the requirement of applying for a permit and were allowed to simply register their business instead, while the restrictions on the regions to which emigration was allowed were abolished at the same time. Note 3: The statistics for international adoptions are taken from Emigration Statistics from 1962 to 1983 and from Statistics on the Current Status of International Adoption from 1984 to 2017. Note 4: The government only tracked the number of individuals granted permission to emigrate from 1962 to 1991 and the number of individuals reporting their intention to emigrate from 1992 to 2001. But in 2002, computerized statistics became available for individuals who reported their emigration in other countries, and since then the government has tracked both individuals reporting their intention to emigrate (Ministry of Foreign Affairs) and individuals reporting their emigration in other countries (Korean consulates in host countries). Sources: Ministry of Foreign Affairs, Emigration Statistics, each year; Ministry of Health and Welfare, Statistics on the Current Status of Internal Adoption, each year.

Figure 2 shows the number of migrants who left Korea each year since 1962, when the Emigration Act took effect. In December 1962, 17 families composed of 92 individuals went to Brazil as agricultural migrants, and in 1963 and 1965, Koreans went to West Germany to work as miners and nurses. The number of emigrants reached its peak in 1976, at 46,533. The largest category in that year was family-based emigration (that is, people living in Korea who are invited to join relatives who have already migrated), which amounted to 28,885. This was followed by international adoption, at 6,671; international marriage, at 5,667; and employment migration, at 5,310. The year with the second largest amount of emigration was 1986, totaling 43,957 people. The largest category in that year was family-based emigration, which

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Dong-Hoon Seol amounted to 27,218; international adoption, at 8,680; international marriage, at 4,456; employment migration, at 3,098; and business and investment migration, at 2,325. Business and investment migration began to rapidly increase in the mid-1980s, numbering 2,325 in 1986 and 4,269 in 1987. But the number of emigrants fell rapidly after 1987. This rapid decline can be attributed to several causes. First, the governments of the main countries receiving immigrants (such as the United States) tightened their requirements for immigration. Second, Korea‘s economic development brought an overall improvement in the standard of living, which reduced the appeal of emigrating and living overseas. Third, globalization and the information age made it easier for people to engage in transnational activities without permanently changing their place of residence. At the same time, there was a rapid increase in the number of people residing overseas for long periods of time for purposes such as employment and study. Another kind of emigration is called locally obtained emigration, referring to Koreans who went to another country to work or study and then acquired permanent residency or an equivalent status in that country. In such cases, individuals who notify their emigration from overseas can apply for a residential passport (formerly called an emigration passport).1 That is, individuals who migrate overseas to work or study can become emigrants through the overseas emigration notifying system. Figure 2 shows that, after the introduction of this system, the number of people using it steadily increased to a peak of 21,875 in 2011 and then fell rapidly after 2012. Known as “manpower exports” in the 1960s, overseas employment means going to another country temporarily to work there for a certain period of time. This concept is distinguished from employment migration, which is intended to be permanent. The first example of the Korean government sending migrant workers overseas with the hope of resolving the domestic unemployment issue and acquiring foreign currency was the assignment of nurses and miners to West Germany in the early 1960s. A total of 10,226 nurses were dispatched to West Germany between 1960 and 1976, along with 6,546 miners between 1963 and 1976. In addition, 19,587 Koreans were employed in Vietnam by Korean companies between 1966 and 1973, and large numbers of Koreans have worked on deep-sea fishing vessels trawling the world’s oceans since the late 1960s. The Koreans who worked in West Germany and Vietnam were greatly outnumbered by the Korean migrant workers who worked on construction sites in the Middle East between 1974 and 1995, totaling 1,112,611 altogether. The number of Korean migrant workers in the Middle East rapidly increased from 395 in 1974 to 151,583 in 1982, but this number plunged as Koreans’ enthusiasm for overseas employment rapidly cooled during the mid-1980s (Seol, 2000). In recent years, Koreans have also been finding employment overseas, though the occupations and arrangements are different. Three of these arrangements will be introduced here. First is the working holiday, a route to overseas employment that is available to young Koreans. Under this arrangement, which is based on intergovernmental agreements, young people are given special permission to work for up to one year in a host country (Kim, 2009). A working holiday visa to the country in question can be issued one time to young people between the ages of 18 and 30, with a one-year period of sojourn. This unique system was set up to promote exchange and mutual understanding between countries, by providing young people with the

1 The residential passport program was abolished in 2017.

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Dong-Hoon Seol opportunity to explore the unknown. As of May 2014, 20 countries had concluded working holiday agreements with Korea, including Australia, Japan, Canada, and New Zealand. Second, there is the WEST (Work, English Study and Travel) program for Korean and American university students. Under this program, up to 5,000 Korean university students and recent graduates each year are allowed to stay in the United States on the J-1 cultural exchange visa for 18 months while they study English, do internships, and travel on their own. Participants in WEST take classes that are focused on systematic English language study, business duties and practices in the United States, corporate culture, and routine office work. After studying the English language, students are placed into an internship in an area that corresponds to their academic field, interests, and abilities. The third such arrangement is K-move, a program organized by the Human Resources Development Service of Korea that helps Korean young people go overseas. The administration of former president Lee Myung-bak created the 100,000 Global Youth Leaders Training Initiative, which focused on helping young people find employment abroad. Under the next president, Park Geun-hye, this program was renamed “K-move.” This overseas activity brand integrates a hodgepodge of programs initiated by various government departments. A range of programs for overseas employment are provided under the K-move umbrella, including the worldjob.or.kr online job portal, the K-move mentoring program, a program that arranges jobs in the private sector, overseas internships that strengthen capabilities through practical work experience, a job training program called K-move School, and an incentive given to those who line up work overseas. In fact, Koreans have a long history of studying overseas. Back in 1955, the Korean government created a test that assessed applicants’ qualifications for studying overseas with the goal of creating an elite workforce, and the government issued another set of regulations about studying overseas in 1957. The government strictly limited studying abroad in the 1950s but began to gradually ease those restrictions after the Passport Act took effect in the 1960s. But because of the government’s financial limitations and its policy of preventing citizens from traveling overseas, the government did little to promote study abroad until the mid-1970s. The government finally started paying attention to studying abroad when it set up a study abroad scholarship program in 1977 and updated its regulations for studying abroad in 1979. In subsequent years, the government managed state-funded and self-funded studies separately. Demand for self-funded studies began to soar in the 1980s, which prompted the government to completely overhaul its regulations for studying overseas in November 1983. Taking effect in 1984, the revised regulations got a new name and opened the door to Koreans studying overseas at their own expense. In 1986, the government temporarily tightened the qualifications for self- funded study abroad by requiring applicants to have completed at least one semester in university or to have been in the top 10% of their high school graduating class. But in 1988, it once again eased these qualifications, allowing individuals with a high school diploma or higher and those recognized as having the academic equivalent thereof to study abroad. While the Korean government under former president Kim Young-sam was promoting a policy of globalization in the 1990s, the regulations for studying abroad were further eased in what basically constituted complete

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Dong-Hoon Seol liberalization. According to the Statistical Yearbook of Education, there were 150,000 Koreans studying at foreign institutions of higher education in 2000. That number has been above 200,000 since 2007 and reached 239,824 in 2017.

Table 2. Number of overseas Koreans by region, 1991–2017: stock (unit: thousands) Asia-Pacific Ocean The Americas Europe

1

2

States

Total

Year

Africa

Misc. Misc.

Japan

China

Canada

Subtotal Subtotal America Subtotal

Middle East

Central S. &

United

Former Bloc Soviet

1991 4,602 2,655 695 1,921 40 1,486 1,337 63 86 460 437 23 0 1 1993 4,705 2,644 680 1,923 41 1,577 1,421 68 88 483 457 25 0 1 1995 5,229 2,724 697 1,940 87 1,965 1,802 73 90 527 461 66 9 3 1997 5,544 2,801 703 1,986 113 2,209 2,000 110 99 523 450 72 7 3 1999 5,645 2,811 660 2,044 108 2,271 2,058 111 103 551 487 64 6 4 2001 5,654 2,671 640 1,888 143 2,376 2,123 141 111 595 522 73 7 5 2003 6,077 2,980 639 2,145 196 2,433 2,157 170 106 652 558 94 7 5 2005 6,638 3,590 901 2,439 250 2,393 2,087 198 107 640 533 108 8 7 2007 7,042 4,040 894 2,762 384 2,341 2,017 217 108 645 534 111 8 6 2009 6,823 3,711 913 2,337 461 2,433 2,102 223 107 656 538 118 14 10 2011 7,176 4,071 913 2,705 453 2,420 2,076 231 113 657 536 121 16 11 2013 7,013 3,953 893 2,574 486 2,408 2,091 206 111 616 492 124 25 11 2015 7,185 3,953 856 2,586 511 2,568 2,239 224 105 627 497 130 26 12 2017 7,431 3,925 819 2,548 558 2,840 2,492 241 107 631 482 149 25 11

Note 1: The statistics between 1970 and 1990 show that the number of overseas Koreans increased from 672,660 in 1970 to 920,358 in 1975, 1,470,916 in 1980, 1,905,181 in 1985, and 2,320,099 in 1990. When exchange with China and the countries of the former Soviet Bloc resumed after the Berlin Wall came down in 1989, ethnic Koreans with citizenship in China and the post-Soviet states were added to the statistics for overseas Koreans in 1991, nearly doubling the number. Since 2005, this figure has also included ethnic Koreans who have been naturalized as Japanese. Note 2: The Korean Chinese in this table include not only people on the Chinese mainland but also residents of Hong Kong. In 2007, 2011, and 2013 there were tabulation errors in the number of Korean Chinese. In 2013, for example, the eight consular offices in China (not including Hong Kong) stated that there are a total of 2,561,655 Koreans in China, the sum of 338,256 Korean nationals and 2,223,399 Chinese nationals. But the sixth population census carried out in 2010 by China’s statistics bureau found that there were 1,830,929 Korean Chinese (Joseonjok). Presuming there was no major population fluctuation in the meantime, 392,470 people appear to have been duplicated in the statistics. Sources: Ministry of Foreign Affairs, Status of Overseas Koreans, each year.

In short, as we can see in Table 2, more than a century’s emigration has caused the number of Koreans overseas to increase from 46.02 million in 1991 to 66.38 million in 2005 and 68.23 million in 2009. After remaining around the same level from 2005 to 2015,2 this figure spiked again in 2017, to 74.31 million. This can be attributed to the major increase in the number of Koreans living in the United States.

2 Although the 2013 issue of the Ministry of Foreign Affairs’ Status of Overseas Koreans reported that there

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Incoming Migration

1987 was the year when Korea’s democratization really took off, but it was also the year that international migration in Korean society changed directions. Since that year, the number of Koreans going overseas has rapidly decreased even as the number of foreigners coming into the country has soared. In the 1980s, the Korean government basically had no policy for incoming migrants, and as a result, most of the foreigners at this time became undocumented migrant workers (Seol, 1999; Seol & Skrentny, 2004). In the early 1990s, the Korean government pondered whether or not to allow foreign migrant workers to legally enter the country. Ultimately, it adopted the Industrial Technical Training Program for Foreigners (ITTP) as a way to sidestep resistance from domestic labor unions, which were opposed to importing foreign workers, while still supplying workers to small and medium-sized enterprises that had trouble finding workers. But the ITTP was crippled by illegal immigration, corruption by job brokers, and human rights violations, causing the government to switch to the Employment Permit Program for Foreigners (EPP) in 2004. The EPP is Korea’s current system for less-skilled foreign workers. The EPP is based on five basic principles (Seol, 2010). The first of these is the principle of complementing the domestic labor market by only admitting migrant workers when there are gaps in the market. The second principle is banning employers from discriminating against migrant workers on the basis of their nationality. The third principle is preventing less-skilled migrant workers from settling permanently in Korea by limiting their period of employment to a maximum of 4 years and 10 months. Toward that end, migrant workers must come to Korea on their own, unaccompanied by their families. The fourth principle is ensuring the transparency of the selection process for migrant workers and eliminating corruption in the recruitment process. The fifth principle is ensuring that bringing in migrant workers does not have a negative impact on the restructuring of domestic industries or corporations, which is accomplished by controlling the length of employment permits and the number of migrant workers admitted to each industry. In a similar vein, the government implemented the Service Sector Employment Management Program for Ethnic Koreans with Foreign Citizenship in December 2002, which permitted employment for a fixed period in areas of the service sector that Koreans tend to avoid, such as restaurants, caregiving, and cleaning, as a way of ensuring a steady supply of workers in those areas. This program was part of the government’s policy of prioritizing the employment of ethnic Koreans with passports from other countries, such as China, Uzbekistan, Kazakhstan, Kyrgyzstan and Russia. In 2007, that program was relaunched in an expanded form as the Visit and Employment Program for Ethnic Koreans with Foreign Citizenship (VEP), which effectively opened up all occupations to them. The VEP was adopted as part of a policy of embracing ethnic Koreans in China and the post-Soviet states who had been at a comparative disadvantage in the practical application of the Act on the Immigration and Legal Status of Overseas Koreans. Regardless, this program has been criticized for being discriminatory in comparison to the preferential treatment given to Korean- were 7.013 million overseas Koreans, this number can be adjusted to 6.62 million if we take into account the duplication of ethnic Koreans with Chinese nationality (see Seol, 2014d).

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Americans (Seol & Skrentny, 2009). The biggest categories of Korea’s less-skilled migrant workers are migrant workers with the visit and employment (H-2) and non-professional employment (E-9) visas and undocumented migrant workers. The majority of ordinary foreign migrant workers with the E-9 visa are employed in the manufacturing sector, and the majority of foreign nationals of Korean descent with the H-2 visa work in the service, construction, and manufacturing industries. In terms of company size, a very large percentage of both regular foreigners and foreign nationals of Korean descent are working at small companies, with fewer than 30 employees. In terms of the distribution of country of origin, regular foreigners tend to come from Vietnam, Thailand, the Philippines, Indonesia, and Sri Lanka, in that order, while 98% of foreign nationals of Korean descent are from China, compared to 2% from Russia and the other post-Soviet states. In terms of gender distribution, foreign migrants are 90% male and 10% female, while foreign nationals of Korean descent are 51% male and 49% female. Undocumented less-skilled migrant workers are employed in the same areas, industries, and occupations as their documented counterparts, and it is not uncommon for them to even work at the same company (Seol, 2012, 2014c). Seol & Rhee (2006) analyzed the substitute and complementary relationship between domestic workers, foreign nationals of Korean descent, and foreign migrant workers in a number of industries, including manufacturing and construction. Their study found that foreign migrant workers and domestic workers form a substitute relationship in some parts of the manufacturing industry and that foreign nationals of Korean descent and domestic workers form a substitute relationship in the construction industry. After analyzing how the employment of migrant workers affects Koreans, Choi (2013) reported that migrant workers cause unskilled young Koreans to receive lower wages and worse jobs. Such studies suggest that particular care should be taken in the operation of the EPP to prevent the loss of Korean jobs. Moving on to professional migrant workers and foreign investors, the most widely held visas, ranked numerically, are foreign language teacher (E-2), specially designated profession (E-7), corporate investor (D-8), entertainer (E-6), researcher (E- 3), and university professor (E-1). Most of the people holding these visas are either from developed countries or from countries that satisfy the relevant requirements. Some of the typical countries of origin are the United States, Japan, Canada, and China. One of the programs for high-skilled workers and professionals from abroad is the preferred immigration card system, which includes the “Gold Card” issued by the Ministry of Trade, Industry, and Energy and the “Science Card” issued by the Ministry of Science and ICT. These are essentially a multiple-entry visa for exceptionally talented workers. There are two systems for investment immigration, one focused on real estate and the other on public welfare projects. Under the first system, foreigners who invest a certain amount of money in domestic real estate are given long-term resident status (F-2), which enables freedom of economic activity, and if they maintain their investment for five years, their status is upgraded to permanent residency (F-5). Since this program was first implemented on Jeju Island in February 2010, it has been applied at six sites, including Alpensia in Pyeongchang, Gangwon Province; the

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Figure 3. Number of foreign migrant workers in Korea, 1987–2017: stock

A. Line Graph

B. Cumulative Frequency Graph

Note 1: The category of professionals, managers and investors is defined as legal aliens whose status of sojourn is one of the following: university professor (E-1), foreign language teacher (E-2), researcher (E-3), technical instructor (E-4), professional consultant (E-5), entertainer (E-6), specially designated profession (E-7), short-term employment (C-4), and corporate investor (D-8). Note 2: The category of general (non-Korean) workers in the Employment Permit Program for Foreigners (EPP) is defined as legal aliens whose status of stay is one of the following: non-professional employment (E-9), vessel crew (E-10), industrial trainee (D-3), post-training employment (E-8), and working holiday (H-1). Note 3: The category of ethnic Korean workers in the Visit and Employment Program for Foreigners (VEP) is defined as legal aliens whose status of stay is one of the following: visit and employment (H-2) and employment management (F-1-4). Note 4: Undocumented migrant workers are defined as illegal aliens between the ages of 16 and 59 in this figure. Source: Ministry of Justice, Korea Immigration Service Statistics, calculated for each year.

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Table 3. Number of immigrants in Korea, 2005–2017: stock (units: thousands, %) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total population 48,782 49,092 49,355 49,594 49,773 50,516 50,734 50,948 51,141 51,328 51,069 51,270 51,423 Immigrants (=A+D) 654 819 986 1,102 1,111 1,203 1,325 1,338 1,451 1,647 1,497 1,706 1,816 Share of total 1.3% 1.7% 2.0% 2.2% 2.2% 2.4% 2.6% 2.6% 2.8% 3.2% 2.9% 3.3% 3.5% population (%) Immigrants and their 679 863 1,044 1,210 1,233 1,354 1,494 1,529 1,655 1,855 1,694 1,897 2,028 children (=A+D+E) Share of total 1.4% 1.8% 2.1% 2.4% 2.5% 2.7% 2.9% 3.0% 3.2% 3.6% 3.3% 3.7% 3.9% population (%) Foreign residents (A) 614 765 920 1,029 1,015 1,092 1,202 1,204 1,305 1,489 1,347 1,547 1,646 Migrant workers with 255 260 438 576 559 553 589 521 539 608 573 542 496 work visas (B) Marriage migrants 62 88 103 126 125 142 144 148 150 147 145 160 161 Foreign students 21 30 56 77 81 87 87 83 81 84 82 96 117 Foreign nationals of 25 29 35 44 50 84 135 188 233 286 216 236 277 Korean descent Other foreigners 147 253 171 103 106 137 162 181 217 250 202 381 429 Undocumented 104 104 118 103 94 89 84 84 86 113 128 133 167 foreigners with short- term visas (C) Naturalized residents 40 54 66 74 96 111 124 134 146 158 150 159 170 (D) Children with immigrant 25 44 58 108 122 151 169 191 204 208 198 191 212 background (E) Migrant workers 359 364 556 679 652 642 673 605 625 721 701 674 663 (=B+C)

Note 1: The reference time point for the Justice Ministry’s Korea Immigration Service Statistics is 24:00 on December 31 of each year. The reference time point used to tabulate the number of foreign residents living in the various administrative regions by the Ministry of the Interior and Safety has varied over the years: from 2005 to 2008, it was 00:00 on May 1 of the next year; from 2009 to 2014, it was 00:00 of January 1 of the next year; and in 2015, it was 00:00 of January 1 of the same year. Though the reference time points for the two statistics are identical between 2009 and 2014, the years displayed are one year apart. In this table, therefore, the years displayed were synchronized to the Justice Ministry’s reference time point (namely, the end of the year). Incidentally, the Ministry of the Interior and Safety overhauled its data collection standards for foreign residents living in administrative regions in 2015 to match the UN’s migration statistics by omitting those who were not residing in the country for at least three months around the survey reference point. That could make it problematic to directly compare the 2015 figures with previous years. Note 2: Immigrants = foreign residents + naturalized residents Note 3: Foreign residents = registered foreigners + registered foreign nationals of Korean descent + undocumented foreigners with short-term visas Note 4: The figures for marriage migrants in 2005, foreign students in 2005–2006, foreign nationals of Korean descent in 2005–2007, marriage migrants in 2005, and other naturalized residents in 2005 were estimated using the Statistical Yearbook of the Korean Immigration Service for the years in question. Note 5: The figures for undocumented foreigners with short-term visas in 2005-2014 were calculated using the Korea Immigration Service Statistics. In 2015, this figure was calculated using the values provided by the Ministry of the Interior and Safety’s report on foreign immigrants, with the figure for “other foreigners” reduced accordingly. Note 6: The figure for “children with immigrant background” refers to minors (below 19 years of age) and does not include the children of undocumented foreigners with short-term visas. “Korean parent” refers to cases in which at least one parent is a naturalized resident. Note 7: Since the category of “foreign migrant workers” in Figure 3 includes not only “migrant workers with work visas (B)” and “undocumented foreigners with short-term visas (C)” but also portions of this table’s category of “other foreigners,” it greatly outnumbers “migrant workers (=B+C)” in this table. Sources: Ministry of the Interior and Safety, Status of Foreign Residents by the Administrative Regions in Korea, each year; Ministry of Justice, Korea Immigration Service Statistics, each year; Seol (2011, 2014a).

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Daegyeongdo Tourism Complex in Yeosu, South Jeolla Province; Yeongjong District in Incheon; the Haeundae Tourism Resort in Busan; and the East Busan Tourism Complex. Under the second system, foreigners who invest at least KRW 500 million in eligible areas, including public welfare funds, are also given residency, which can once again be upgraded to permanent residency if the investment is maintained for five years. As can be seen in Figure 3, the number of foreign migrant workers in Korea has steadily increased overall, despite dipping several times because of slowdowns in the domestic economy (Seol, 2014c). The 2017 figures for foreign migrant workers in Korea break down as follows: 55,235 professional workers and investors, 406,801 less- skilled migrant workers not of Korean descent, 246,185 less-skilled migrant workers of Korean descent, and 243,272 undocumented migrant workers, adding up to 781,157. In addition to foreign migrant workers, Korea is also home to at least 238,000 marriage migrants. As of 2015, 145,000 of them were still foreign nationals while 93,000 had been naturalized as Koreans. Although a change of statistical practices has made it impossible to precisely determine the number of migrants married to Koreans who have been naturalized since 2016, it is safe to assume that this number has steadily increased since 2015.3 The surge in international marriages between Korean men and foreign women since 1990 has led to a rapid increase in the number of marriage migrants residing in the country. Since international marriage is regarded as being part of citizens’ constitutionally protected privacy, the government has taken no measures to either suppress or encourage it, but the government does regulate the actions of international marriage brokers through the Act on Regulation of Marriage Brokerage Agencies (Seol, Han, Kim, Park, Shim, Park, Shim & Cho, 2014). As the number of marriage migrants has increased, there has also been a dramatic increase in the number of their children. In 2017, there were 212,000 children with immigrant backgrounds, an overwhelming majority of whom were the children of such marriage migrants. The Korean government provides services for multicultural families (including family education, counseling, and cultural programs) to help marriage migrants adapt more quickly to Korean society while also taking measures to help multicultural families enjoy a stable family life (Seol, Suh, Lee & Kim, 2009; Seol & Lee, 2013; Seol, 2011). In 2017, the number of foreign students in Korea reached 117,000. The Korean government regards its foreign student policy as being connected not only with educational policy but also with its policy for attracting skilled workers and helping migrants integrate into Korean society (Seol & Kim, 2013; Seol & Lee, 2011; Lee, 2014). Foreign students serve as a pipeline that provides various organizations, including domestic corporations, with a steady supply of talented workers. The government regards foreign students as a potential source of talents and is exploring ways to use them more effectively.

3 Since changing its statistical standards in 2016, the Ministry of the Interior and Safety has been publishing statistics about the number of people acquiring citizenship without distinguishing between those who were naturalized through marriage and those who acquired citizenship through other means.

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Table 4. Number of foreigners in Korea by visa status, 2000–2017: flow (units: thousands, %)

Long-term/permanent residency and overseas Employment³ Study and training

Koreans

Year

Total¹

term and visiting⁴ and term

skilled

-

-

Miscellaneous

Study

workers workers

Training

Subtotal Subtotal Subtotal

Koreans

Ordinary

Marriage Marriage

residency Overseas

migration²

Permanent Permanent

Low

Professional Professional

Short

’00-’17 5,131 850 510 39 301 2,102 271 1,831 449 251 198 1,652 78 2000 173 13 12 0 1 55 11 44 3 2 1 100 2 2001 164 17 15 0 2 37 13 25 4 2 1 101 5 2002 159 19 17 0 2 42 14 29 4 3 1 88 5 2003 169 24 22 0 2 67 11 56 6 4 2 67 5 2004 179 35 32 0 2 62 11 51 10 7 4 67 4 2005 254 35 32 0 3 130 13 117 13 9 4 70 5 2006 303 35 32 0 3 167 15 153 21 13 8 75 4 2007 300 36 32 0 3 161 17 145 28 15 14 71 4 2008 302 36 31 1 4 176 19 157 28 15 14 58 3 2009 233 34 29 1 5 124 19 104 26 15 11 46 3 2010 293 50 33 1 16 131 19 112 29 17 12 80 3 2011 307 55 32 3 21 126 19 107 29 16 13 93 4 2012 300 54 31 4 19 121 19 101 28 15 12 92 6 2013 360 65 31 5 29 151 16 135 32 19 12 108 5 2014 407 74 28 6 41 165 15 150 37 22 15 126 5 2015 373 80 28 6 46 137 14 123 40 23 17 111 5 2016 402 94 36 6 52 128 14 114 53 27 25 122 6 2017 453 94 36 6 52 121 12 109 58 28 30 175 5

Note 1: These statistics refer to foreigners who have left their country of usual residence and stayed in Korea for at last 90 days, including both legal residents and undocumented migrants. Note 2: The visas covered by “marriage migrant” include long-term resident (F-2), foreign spouse (F-6), visiting or joining family (F-1), and accompanying spouse (F-3). Note 3: “Professional workers” in the “employment” category includes the visas of university professor (E- 1), foreign language teacher (E-2), researcher (E-3), technical instructor (E-4), professional consultant (E-5), entertainer (E-6), specially designated profession (E-7), short-term employment (C-4), and corporate investor (D-8), and while “less-skilled workers” includes the visas of non- professional employment (E-9), vessel crew (E-10), industrial trainee (D-3), post-training employment (E-8), visit and employment (H-2), and employment management (F-1-4). Note 4: The category of “short term and visiting” includes the visas of visa exempted (B-1), tourist/transit (B-2), and short-term general (C-3). Source: Statistics Korea, International Migration Statistics in 2017: Press Release, 2018, calculated on p. 38.

Along with this, there were 277,000 foreigners with the status of “overseas Koreans” in accordance with the Act on the Immigration and Legal Status of Overseas Koreans and 429,000 legal aliens in the miscellaneous category. The visa for “overseas Koreans” offers the widest range of benefits of any visa that is issued to foreigners. Not only does it provide a two-year period of sojourn that is normally renewable, but it also permits all employment activities in the country aside from manual labor and speculation. As such, this visa is reserved for foreign nationals of Korean descent who meet the given requirements. When this system was first introduced, “overseas

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Korean” visas were typically only issued to ethnic Koreans from developed countries (Seol & Skrentny, 2009), but in more recent years, eligibility has gradually been extended to Korean-Chinese as well. A large percentage of legal residents in the miscellaneous category have permanent residency. When the permanent residency system was first introduced in 2003, 99% of permanent residents were Taiwanese, but the share of Chinese and Korean-Chinese grew rapidly after foreign nationals of Korean descent were allowed to acquire permanent residency in 2010. As of 2017, permanent residents’ nationalities consisted of 57.5% Korean-Chinese, 20.8% non-Korean Chinese, and 9.6% Taiwanese, confirming that the percentage of permanent residents with Taiwanese nationality is gradually decreasing. It is also necessary to note the phenomenon of reverse migration, in which Korean emigrants return to Korea from overseas. Such returnees represent one of the subcategories in the miscellaneous category of legal foreign residents in Table 4. There has been a steady increase in reverse migration since 1980. This trend was temporarily halted by the severe economic slowdown caused by the Asian financial crisis in 1997, but reverse migration picked up once more after the economic recovery in the 2000s. The Korea Immigration Service Statistics tracks the number of Koreans who recover their nationality each year: 648 in 2006, 3,740 in 2007, 2,265 in 2011, 1,978 in 2012, 2,686 in 2013, 2,886 in 2014, 2,610 in 2015, 2,303 in 2016, and 2,775 in 2017. The primary reasons for reverse migration to Korea can be identified as old age and employment. In other words, the elderly have a tendency to want to spend their final years in their home country, and second- and third-generation Korean immigrants are increasingly finding jobs in Korea. Table 4 shows the total number (flow) of foreigners who entered Korea each year and stayed for 90 days or more. When foreign visitors between 2000 and 2017 are analyzed by their purpose of entry, the most common purpose is employment migration (by migrant workers), followed by marriage migration, overseas Koreans, studying, normal training, and permanent residency. The Korean government’s current policy toward incoming migration can be summed up as “passive.” While the government claims to be strictly preventing settlement by less-skilled migrant workers and actively encouraging settlement by investors and migrant workers with professional skills, there are no programs in place to implement those goals. Since 2015, however, the government has tried to move away from its passive migration policy (Ministry of Economy and Finance, 2014). In a document titled the Direction of Economic Policy in 2015, which was jointly drafted by relevant ministries in December 2014 under the lead of the Ministry of Economy and Finance, the government emphasized the need to open the doors to foreign workers.4 This document calls for bringing in professional foreign workers to counter Korea’s shrinking working age population and to revise the EPP to adjust the workforce ratio in each industry and thus increase the utility of skilled workers. The two basic ideas can be summarized as follows. The first idea is revising the visa system and expanding the point system for immigration. Since 2010, the government has been running an immigration point system that encourages foreigners with professional jobs in Korea who satisfy certain

4 This report does include several innovative ideas, but it is limited by the fact that these ideas are only proposed as policy directions and are not actually being implemented.

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Dong-Hoon Seol requirements to settle down in the country. After being assessed for their abilities and qualifications, including academic attainments and income, eligible applicants are allowed to convert to the long-term resident visa (F-2) after a one-year stay and to the permanent resident visa (F-5) after a three-year stay. The government announced that, in the future, it will expand the immigration point system so that high-scoring professional workers can be given permanent residency after staying in the country for just one year. In the mid- and long-term, the government said, it will furthermore be introducing an “employment visa point system” that combines the professional visas (E-1 to E-7), which are currently divided by industries. Visa holders will be given points according to their income, age, and academic background, and these points will then be taken into account during future applications for permanent residency. In addition to this, not only outstanding workers and investors who meet certain criteria, such as income level and investment amount, but also students who excel in undergraduate and graduate programs at Korean universities will be allowed to bring their parents to Korea to live with them. The government will also be pursuing a plan to expand industry-academy connections and ease requirements to encourage foreign students to settle in Korea. By providing talented foreigners with such generous treatment, the government seeks to pave the way for them to find work and become established in the country. Second, the EPP for less-skilled migrant workers will be improved to enable the workforce to be utilized more efficiently. The method of allocating migrant workers will be altered to prevent the appearance of idle manpower, and additional industries will be selected to have access to migrant workers. This will redress the manpower mismatch between the manufacturing industry, which has too many workers, and the agriculture, fishing, and livestock industries, which have too few. A carrot-and-stick policy will also be adopted for companies that hire less-skilled migrant workers. In industries with growth potential, the government is pushing to allow companies to hire as much as 140% of their normal quota of migrant workers. Currently, each industry is assigned a quota of workers that can be hired for simple jobs. In contrast, the government is considering the idea of imposing a “levy” on companies that hire low-wage migrant workers for ten or more years in industries without growth potential (Seol, Lee & Nho, 2011). In the mid- and long term, the government will also pursue a policy of embracing foreign nationals of Korean descent and adding them to the workforce to combat the shrinking working age population. This will mean augmenting the VEP for foreign nationals of Korean descent while easing the employment restrictions on people on the “overseas Koreans” visa. Furthermore, the Foreigner Policy Committee, which is chaired by the Prime Minister, will be empowered to set immigration policy overall.

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Future Demand for Immigrants in Korea

Before making a concrete prescription for Korea’s future migration policy, it is necessary to ascertain the extent of demand for immigration here. Immigration is given the lowest priority among the various ways of dealing with the shortage of workers resulting from population aging. First priority is given to using the Korean workforce and improving its quality, while immigrants will be used to compensate for any shortfall that may arise (Seol, 2005; Yoo, Lee, Seol & Park, 2005). Korea’s demand for immigration can be assessed by measuring how many immigrants would have to be accepted while regarding immigrants as the last resort for dealing with a shortage of workers in the labor market in Korea. In 2000, the UN Population Division published the results of a study of how many immigrants each country would need to receive over the next fifty years in order to offset the effect of population aging (United Nations, 2000). This study defined replacement migration as the international migration necessary to counteract the decline in the total population and the working age population and the aging of the population overall. In this paper, the amount of replacement migration is defined as the number of people entering the country in a given year minus the number of people leaving it, or in other words net immigration. That can be determined in terms of person-years. Drawing upon population projection methods, the UN report calculated the size of replacement migration for eight countries with comparatively large populations whose total fertility rate is much lower than 2.1 (that is, which have a low fertility rate), namely France, Germany, Italy, Japan, South Korea, Russia, the United Kingdom, and the United States, along with the two regions of Europe and the EU. In order to obtain figures that could be compared across different countries, this study assumed that the immigrants to each country would have an identical age composition, that immigrants and locals would exhibit an identical fertility pattern, and that those values would remain approximately the same for 50 years into the future. The UN report subdivided its projections for immigration demand in each of these countries into six scenarios. Table 5 shows that the amount of net immigration must be increased not only in South Korea but also in the other countries and regions in the study if they are to achieve their target population. Scenario I estimates the amount of migration between 2000 and 2050 using the median variant assumption of demographic growth from the 1995 population figures in the UN’s World Population Prospects: 1998 Revision (United Nations, 2013a). In the twentieth century, more people were leaving Korea than entering it, and that trend is assumed to continue in Scenario I. Under that scenario, an average of 7,000 people a year, or 350,000 people over the course of 50 years, would migrate overseas. Scenario II adds the assumption of “zero migration” to the median variant of population growth after 1995. Under this scenario’s assumptions, no international migration occurs in Korea. Scenario III estimates the net migration necessary to maintain the total population at the highest level that would be reached assuming no immigration since 1995. Between 2000 and 2025, Korea would have no demand for immigrants, but from 2025 to 2050, it would have to accept around 60,000 immigrants every year. Averaged

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Table 5. Net number of migrants, 1995–2050, by scenario and country or region (unit: thousands) Scenario Ⅰ Ⅱ Ⅲ Ⅳ Ⅴ Ⅵ Constant Medium Ratio 15- Constant Constant ratio Medium variant with 64/65+ total age group 15-64/65 variant zero not less than population 15-64 years migration 3.0 Country or Region or older A. Total number France 325 0 1,473 5,459 16,037 89,584 Germany 10,200 0 17,187 24,330 40,481 181,508 Italy 310 0 12,569 18,596 35,088 113,381 Japan 0 0 17,141 32,332 94,837 523,543 Korea -350 0 1,509 6,426 11,595 5,128,147 Russia 5,448 0 24,896 35,756 26,604 253,379 United Kingdom 1,000 0 2,634 6,247 13,674 59,722 United States 38,000 0 6,384 17,967 44,892 592,572 Europe 18,779 0 95,869 161,346 235,044 1,356,932 European Union 13,489 0 47,456 79,375 153,646 673,999 B. Average annual number France 7 0 29 109 321 1,792 Germany 204 0 344 487 810 3,630 Italy 6 0 251 372 702 2,268 Japan 0 0 343 647 1,897 10,471 Korea -7 0 30 129 232 102,563 Russia 109 0 498 715 532 5,068 United Kingdom 20 0 53 125 273 1,194 United States 760 0 128 359 898 11,851 Europe 376 0 1,917 3,227 4,701 27,139 European Union 270 0 949 1,588 3,073 13,480

Note: Scenario VI is considered to be unrealistic. Source: United Nations, Replacement Migration: Is It a Solution to Declining and Ageing Populations?, 2000, p. 27.

Scenario IV estimates the amount of migration necessary to maintain the working age (15–64) population at the highest level that would be reached assuming no immigration since 1995. According to this scenario, a yearly average of 41,000 immigrants would have to be admitted between 2000 and 2025 and an average of 216,000 a year between 2025 and 2050. This would mean admitting an average of 129,000 immigrants a year and a total of 6,426,000 immigrants between 2000 and 2050. Scenario V estimates the amount of migration necessary to prevent the potential support ratio (that is, the ratio of the population aged 15–64 to the population aged 65 and over) from falling below 3.0. The potential support ratio is taken into account because issues related to population aging and financing social welfare in particular are connected to policies aimed at sustaining economic growth and supporting the elderly by admitting working age immigrants. According to this scenario, there would be no need for immigration between 2000 and 2025, while an average of 464,000

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Dong-Hoon Seol immigrants would be needed per year between 2025 and 2050. Averaged across a 50- year period, Korea would have to admit 232,000 immigrants per year between 2000 and 2050, or a total of 11,595,000 immigrants during that period. Scenario VI estimates the amount of migration necessary to maintain the potential support ratio at the highest level that it would reach assuming no immigration since 1995. According to Scenario VI, the average number of immigrants needed each year would be 4.16 million between 1995 and 2000, 15.15 million between 2000 and 2025, and 189.97 million between 2025 and 2050. According to this scenario, Korea would have to admit a yearly average of 102,563,000 people between 2000 and 2050, or a total of 5,128,147,000 people during that period. Even granting that this figure represents person-years, this scenario has been criticized as unrealistic because it implies that half of the world’s population would have to immigrate to Korea. Demographers have responded by suggesting that the exact figure is less important than the implication that there is an enormous demand for immigrants (United Nations, 2000; Keely, 2001; Coleman, 2002; Bijak, Kupiszewska & Kupiszewski, 2005).

Table 6. Amount of net migration needed to meet Korea’s population targets, 2010– 2060: flow (unit: thousands) Ⅲ Ⅳ Ⅵ Ⅶ Constant Constant Scenario¹ Constant total Constant age group ratio 15-64/65 population spending class² 15-64 years or older A. Total number 106,923 323,937 2,928,569 382,759 B. Average annual number for 2,138 6,479 58,571 7,655 50 years C. Average annual number 3,564 7,362 58,571 7,655 since initial acceptance D. Annual number Year 2011 0 0 973 0 Year 2012 0 0 2,312 9 Year 2015 0 0 6,761 131 Year 2017 0 21 9,961 266 Year 2020 0 476 16,786 772 Year 2025 0 2,137 33,276 2,482 Year 2030 0 4,145 50,861 4,655 Year 2031 43 4,522 53,935 5,078 Year 2035 423 6,149 66,454 6,986 Year 2040 1,379 8,166 80,024 9,533 Year 2045 2,823 9,867 88,104 11,781 Year 2050 4,670 11,692 93,381 13,993 Year 2055 6,809 13,222 93,078 15,712 Year 2060 9,099 15,174 94,424 17,786

Note 1: The scenario numbers were added for purposes of comparison with Table 5. Note 2: The spending class is defined as the population aged 64 and below. The figures here assume there is a ratio of 1:1 between per capita spending in the population aged 19 and below and in the population aged 20–64. Note 3: The “annual number” is only provided for major years. Source: Chung, Jun, Eun, Kim, Kang, Rhee & Choi, Research on Policy Direction of Immigration and Social Integration: A Response to Demographic Changes in Korea, Ministry of Justice (2011: 139– 168, 178, 182).

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On the other hand, Jun and his colleagues (Jun, 2014; Chung, Jun, Eun, Kim, Kang, Rhee & Choi, 2011) have recalculated the size of replacement migration using a population projection based on the results of Korea’s 2010 census. The latest figures were used in this recalculation since the data used by the UN dates back to 1995. The researchers provided not only the UN’s scenarios but also a scenario in which replacement migration compensates for the decline of the consumer population. Table 6 shows the results of estimating the replacement migration in four scenarios that assume the median variant of population growth. Under Scenario III, in which the goal is a constant total population, Korea would have to start accepting 43,000 immigrants a year in 2031 and gradually increase that number to 423,000 in 2035, 1,379,000 in 2040, and 9,099,000 in 2060. Between 2031 and 2060, Korea would have to admit an average of 3,564,000 immigrants a year. That amounts to 7.2% of the Korean population in 2010. The scale here is far greater than the United Nation’s projections seen in Table 5. The demographic changes that have occurred between 1995 and 2010 have increased Korea’s demand for immigrants. In Scenario IV, where the goal is a constant working age population, the replacement migration between 2017 and 2060 amounts to an average of 7,362,000 a year. That is the amount of net migration that Korea must admit in order to maintain economic vitality and prevent its growth drivers from slowing. That is an extremely large amount of people, representing 14.9% of Korea’s population in 2010. In Scenario VI, the replacement migration needed to keep the potential support ratio constant is a total of 2,928,569,000 people during the fifty years between 2010 and 2060, or a yearly average of 58,571,000. The number of immigrants that Korea would have to admit every year is greater than the total population of Korea in 2010. In short, this amount is unrealistically large. It would be meaningless, therefore, to establish policy based on that figure. Instead, this should be taken as evidence that Korea will have to open up its borders and accept huge numbers of immigrants in order to prevent its economic vitality from declining because of population aging. Scenario VII calculates the replacement migration necessary to maintain a constant spending class (64 and below). According to projections that assume a 1:1 ratio between per capita spending by minors (0–19 years old) and by adults (15–64 years old), Korea would have to admit a yearly average of 7,655,000 immigrants during the 50 years between 2010 and 2060 in order to reach its demographic goals. On the assumption that replacement migration began in 2010, the yearly average of net immigration amounts to 17.4% of the Korean population in 2010. In short, the size of replacement migration can be calculated for different scenarios reflecting a range of goals, such as keeping the total population constant, keeping the working age population constant, preventing the population from aging further, and keeping the spending class constant. It is not advisable, therefore, to treat the amount of replacement migration or the necessary size of the population calculated through a replacement migration analysis as the actual number of workers needed to compensate the shortfall in the labor market (Lee, Park & Nakagawa, 2012). At any rate, these two calculations of replacement migration in Korea demonstrate that Korea will have to boldly pursue an open immigration policy if it is to sustain the demographic dividend it currently enjoys.

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Discussions of Issues in Migration Policy

Pursuing Migration Policy Alongside Pronatalist Policy

If Korea’s complacency with its current demographic dividend and its abundant and well-trained workforce lead it to maintain superficial policies without fully appreciating the severity of the impending crisis, it will gradually sink deeper and deeper into the bog of population aging. Two steps that can be taken to counteract the problems caused by population aging are expanding the workforce and improving productivity. The workforce can be expanded by delaying the retirement age to keep the working age population in the labor market longer and by moving women and those aged 55–64 out of the economically inactive population and into the labor market.5 Productivity can be improved by using organizational reform to increase the amount of work done per hour by each worker (Magnus, 2008). In addition to that, the paradigm of migration policy needs to be changed in two respects. First, social institutions should be reformed to help Korean society escape the low fertility trap. Rather than short-term prescriptions, the key here is making fundamental changes to social institutions (including employment, education, family, and welfare) to engineer a rise in fertility. We must bear in mind that economic and social development can bring about a rebound in fertility (Myrskylä, Kohler, & Billari, 2009). Second, the talented workers that Korea’s economy and society need should be actively recruited from around the world. That will require a major upgrade of Korea’s migration policy, which currently does little more than support marriage migrants’ integration into society (Kwon, 2014; Mo, 2013). There are some who say it is too soon to adopt migration policy, which they regard as being in a substitute relationship with pronatalist policy. But the impossibility of keeping our economy closed in the present day shows that this argument is not even worthy of consideration. There are others who cite the increasing likelihood of South and North Korea’s reunification to argue that there is no need to pursue migration policy since unification will make it easy for Korea to avoid the shock of population aging. What must be taken into account is the fact that population aging is already underway in North Korea, too, and that people aged 65 and above accounted for 7.2% of the North’s total population as of 2003 (Statistics Korea, 2010: 23–24). While it is undeniable that Korean reunification would help mitigate the shock of population aging, it would still only earn us a few years’ respite. The Korean government needs to begin pursuing pronatalist policy and migration policy at the same time.

5 The requirements for this are different in countries like Korea that can increase women’s economic participation rate and countries like China that cannot. In order to increase the economic participation rate for women and the middle-aged, it is necessary to eliminate age- and gender-based discrimination in the workplace and to create the conditions under which women can enjoy work-life balance. Companies must be convinced to keep middle-aged workers employed for longer.

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Re-establishment of Migration Policy

Immigration alters the composition of the citizenry and changes the social structure. Research is needed on the question of how such change transforms a society’s engine for growth. As Koreans enter an “age of immigration,” they need to be able to redefine the concept of citizenship and turn cultural diversity into a driving force for social development. If they do so, immigration will enrich Korea’s economy and society, rather than threatening Koreans’ identity (Seol, 2014b; Cho, 2012). There are two aspects of migration policy: immigration and emigration. The first thing to assess is the list of policies related to emigration. As a country that espouses a free market economy, Korea long ago liberalized its citizens’ emigration. Koreans’ sphere of activity extends around the world, and if a large number of Koreans left the country, it could further exacerbate population aging. In that sense, it is necessary to define the foundation of policies related to Koreans’ overseas activities (that is, emigration policy, overseas adoption policy, overseas study policy, overseas employment policy, and diaspora policy) and to accurately assess their current status. Next, Korea should define its immigration policy as the selective admission and continuing supervision of immigrants who are young, passionate, diligent, and talented on a scale that is appropriate and necessary for the Korean economy and should devise a multistage plan to implement that policy. If Korea is to shed its reclusive reputation as the “hermit kingdom” or “land of the morning calm” and become one of the world’s key countries, it is essential that it open its doors to immigration. Considering that a closed-door policy and national isolation are not an option, the important thing is not which path we will choose but rather how we can eliminate the obstacles in our way. Migrant workers are constantly being recruited to fill the gaps in the domestic labor market. Workers who are recognized as diligent are guaranteed continuing employment, increasing the possibility that they will settle in Korea. Marriage migrants, foreign students, and foreign investors are also increasing rapidly in number. In other words, Korea has effectively become a de facto immigration country. Since the social situation has changed, institutions should be changed accordingly. The various foreigner and multicultural policies need to be reorganized under a basic framework of immigration policy. The government’s Second Basic Plan for Foreigner Policy in 2012 stated that the time had come to begin using the term “immigration policy,” but the title of that document remained “foreigner policy.” With the basic concepts of policy undefined and the legal regime disorganized, there is sometimes confusion about which departments play which roles and about what those roles involve. While the inefficient duplication of policies between departments is one problem, an even more serious problem is that various areas are not covered by policy. The first step toward untangling these knots is to combine the Departures and Arrivals Control Act and the Refugee Act. The state should be made responsible for educating immigrants about social integration, and foreigners who seek Korean nationality should be required to receive such education as well. The government should use the Korea Immigration Service at the Ministry of Justice as a template for a new service that could be called the “Ministry of Naturalization and Immigration Service” (Seol, 2017).

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Outgoing Migration Policy

Following democratization in 1987, the Korean government liberalized its emigration policy and lifted all restrictions on its citizens’ overseas, travels, studies, and emigration. Even if population aging worsens, the government will not be able to stop its citizens from moving overseas. Since it is certain that the global economy will become ever more closely integrated, the number of Koreans going overseas will increase even further. That means the departure of even more citizens from a country that already has the world’s lowest birth rate and its highest level of population aging. It is essential, therefore, to create legal and institutional mechanisms to manage “outgoing migration” and to build a network capable of tying those individuals to Korean society. As part of such measures, the National Assembly revised the Nationality Act in 2010 and introduced a system of multiple citizenship for select individuals, including males who have completed their military service. This creates the institutional framework for keeping talented Koreans in the country and attracting talented foreign workers as well (Seol, 2013). Koreans’ leaving the country can be a “brain drain,” but that should not be regarded as being entirely negative. A brain drain has several positive effects on the source country. By demonstrating the possibility of getting jobs in high-income countries and making a lot of money, the brain drain has the effect of motivating young people in the source country to get a good education. When there is a crowd of young people dreaming of winning the lottery, so to speak, by studying and working overseas, it can create an opportunity for underdeveloped countries to escape from the poverty trap. The enthusiasm in Korean society for studying abroad is connected to the fact that such studies are a short cut to advancement, or in other words to upward mobility in society. In an economy based on information and knowledge, Koreans who find jobs overseas are likely to produce research that is of much higher quality than if they had remained in Korea. Overseas employment by professional workers also serves as a social “safety valve” that mitigates unemployment for professionals at home. It goes without saying that wire transfers by Koreans working overseas directly benefit the domestic economy, and when those workers eventually return to Korea, they bring with them a skill set that has been refined through employment overseas. For these reasons, Koreans overseas can be an asset for Korea. Even Koreans who have gone overseas and taken up residence there will retain Korean society as the reference group for their thoughts and actions (as long as they continue to identify as Korean), and such individuals should be regarded as serving to expand Koreans’ scope of activity around the entire world. If this diagnosis is correct, the negative term of “brain drain” should be changed to “brain expansion.” This idea could even be expressed as “brain circulation,” as Saxenian proposed (2007). After working for a certain period of time at competitive companies in Silicon Valley, professional entrepreneurs have gone back to their home countries to launch businesses, establish R&D centers, and operate startups with the support of their home government. Considering that young people who get jobs overseas tend to return home at some point to integrate the domestic economy into the global network of technology and product manufacturing, the “brain drain” turns out to be merely the first phase of “brain circulation.” In that regard, attention should be given to the plan for encouraging overseas

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Dong-Hoon Seol talent to start businesses in Korea that the government announced in 2015 (Park, 2015). Overseas talent as mentioned here includes both Koreans and foreigners. Under the plan being considered by the government, Koreans living overseas as students, researchers, or executives of foreign companies who return to Korea to start a business would be provided with as much residential, educational, and medical support as they needed to establish themselves in Korea. Koreans finding work overseas is a phenomenon that will continue in the future. Considering that overseas employment clearly helps improve the individual’s skills and qualifications and serves as an investment in human resources from the long-term perspective of Korean society as a whole, there is absolutely no reason to see it in a negative light. In order to maximize the positive effect of Koreans going overseas, a close relationship needs to be maintained between overseas Koreans and Korean society. In that sense, creating a network for overseas Koreans must be an important component of migration policy.

Incoming Migration Policy

An active migration policy presumes that immigrants will be admitted on a selective base. Korea ought to accept both talented workers who will serve the national interest and the public welfare and foreigners who deserve admittance on humanitarian grounds in keeping with Korea’s national prestige. It is necessary to orient the policy framework on the selective recruitment of immigrants, their efficient utilization, and their effective integration into society. It is also necessary to promote policies that distinguish between temporary migrants, who will be sent back to their home countries after a certain period of sojourn, and permanent migrants, who will be provided with wide-ranging services for social integration on the assumption that they will settle down in Korea. All countries compete to bring in foreign professionals, skilled workers, and investors. In today’s winner-take-all capitalistic global economy, a creative economy has become established in which a small number of talented workers support a large number of people. The US Congress revised its immigration legislation to greatly increase the number of employment visas available to foreigners with degrees in the STEM fields, namely science, technology, engineering, and math. And while the United States is a nation of immigrants, countries like Germany and Japan with a stronger sense of ethnic nationhood have also been working hard to attract talented immigrants. This is a particularly striking change for Japan, considering its consistent support of what was nearly a closed-door policy. What about Korea? Despite the ubiquitous slogans about attracting foreign talent, actual progress has been miniscule. Although there are around 50,000 professional and skilled visa holders in the country, the majority of them teach foreign languages like English, Chinese, and Japanese at cram schools. Other types of professional and skilled workers represent only a small fraction of the total. The reason is that relatively few corporations and universities have the resources to aggressively recruit foreign talent by offering them high wages and various incentives. This means that corporations and universities have in fact continued their closed-door employment practices despite the lip service they pay to globalization.

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One alternative that is being explored is making better use of foreigners studying at Korean universities, but little headway has been made even there. The top graduates move on to global corporations or universities, and only a few remain in Korea to work. That is why it is necessary to make institutional changes, such as running employment programs for foreign students, extending their period of sojourn upon graduation and making it easier to change their visa status when they are hired. The government’s programs for foreign professionals are dispersed across several ministries, with the result that they are not being managed coherently. The government also seems to assume that the more foreign professionals that are employed in Korea, the better, without even measuring the effect they have on the domestic labor market and economic development. The government brings up its preferred immigration card system (including the “Gold Card” and “Science Card”) every time it makes an announcement about its policy of recruiting foreign talent, but it is a mistake to assume that this system will actually aid recruitment. Incheon Airport has been ranked number one in the world for several years in a row for its immigration and logistics services, and even economy-class passengers make their way through airport security faster than their luggage, whether or not they have a preferred immigration card. What the government should be paying attention to is finding and eliminating the obstacles to recruiting foreign talent at corporations, universities, and research institutes while simultaneously creating a system to aid the search for foreign talent. To shift focus a little, Korea has been running the EPP since 2004 as a way of mitigating the labor shortage at small and medium-sized enterprises. When the EPP was first instituted, migrant workers were allowed to work in the country for a maximum of three years. But later, the maximum stay was extended to four years and ten months, and in 2012, the government made it possible for good workers to be “reemployed,” which resets that clock. In short, migrant workers are now able to remain legally employed in Korea for almost ten years. This is reminiscent of the situation in West Germany in the 1960s. The increasing number of migrant workers at the time caused social tension to rise. The West German government’s principle of rotating workers out met fierce resistance from employers, NGOs, and the migrant workers themselves. Employers took issue with the inefficiency of the foreign worker system, which sent skilled workers home and replaced them with unskilled workers. They emphasized the need for a skilled workforce and asked the government to give migrant workers a chance to settle down. For their part, NGOs argued that migrant workers should be allowed to settle in West Germany on humanitarian grounds. Furthermore, many of the migrant workers preferred to settle in Germany and make their fortune there rather than returning to their home countries after their period of employment. The West Germany government accepted the NGOs’ demands. Migrant workers’ period of employment was extended; they were allowed to bring their spouses with them to Germany; and the visa system was altered to enable migrant workers and their families to settle in the country. In recognition that the migrant workers were contributing to economic growth by offsetting the labor shortage in West German society, the country implemented institutional changes, throwing open the doors to migrant workers and letting them settle down. But migrant workers who enter Korea under the EPP are not allowed to bring their spouses or minor children with them. The Korean government does not issue the

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Dong-Hoon Seol dependent family (F-3) visa to the family members of less-skilled migrant workers. Action will have to be taken about this policy, which violates the international norm stating that legally employed migrant workers have the right to enjoy the company of their family members. The policy can also be interpreted as infringing the right to enjoy family life, which is enshrined in the Korean constitution But that is not all. The migrant workers who are in the re-employment system began reaching their ten-year maximum several years ago, and the government has to seriously consider whether to allow them to settle in the country. After ten years of work, a machine turns into scrap metal, but a person who has held the same job for ten years becomes a master of their responsibilities, or in other words, a skilled worker. Koreans will have to decide whether to treat these people as professionals or skilled workers or to keep regarding them as unskilled workers. Korea’s EPP currently stands at a crossroads. There are a number of possible paths, and only one can be chosen. The key question is whether Korea will stay on the current path of rotating out workers or whether it will walk down the path once chosen by West Germany by expanding the re-employment system for good workers. The fact that reuniting legal migrant workers with their families is an international norm of human rights narrows the government’s options even further.

Conclusion

The state has a crucial role to play in overcoming the crisis brought about by population aging. This problem cannot be resolved by leaving it to the free market or civic society; it demands changes spanning public policy in its entirety. The government will have to play an active role if Korea’s migration policy is to secure a substantial number of highly educated and skilled workers while maximizing the beneficial effects of migration and minimizing its negative ones. The first step must be taken by the government, as it frames and implements its migration policy. First, the Korean government needs to recognize the importance of outgoing migration and actively manage it. Young people and professional and skilled workers who get jobs overseas can become permanent or family-based emigrants at any time. When they emigrate permanently or bring family members to join them, the benefits accrued from wire transfers back home shrink or disappear altogether. If the Korean government is not proactive in implementing a policy for the Korean diaspora and does not attempt to draw foreign talent and entrepreneurs to Korea, the conversion from the “brain drain” to the “brain circulation” will not occur. In that regard, it is necessary to encourage Koreans to go overseas while developing a wide range of programs to prevent a brain drain. Next, migration policy needs to be adjusted in light of the effect that “incoming migration” has on Korea’s society and economy. This policy debate should focus on how many migrants should be accepted, in what way, and in what fields in consideration of the migrants’ level of training and conditions in the domestic labor market. Obviously, there should be different methods in place for low-skill migrant workers, professional and skilled workers, and marriage migrants, which will require making definite decisions about what policies to implement. In general, an influx of migrants expands the domestic market. When the

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Dong-Hoon Seol domestic market expands, R&D profitability and consequently R&D investment expand along with it, which has the long-term effect of increasing productivity and per capita GDP. When migrant workers become long-term residents, they assume a larger role not just as workers but also as consumers. When migrants spend part of their income in their host country, it has a ripple effect on labor. Furthermore, the low labor cost of migrant workers boosts the supply of products, which causes product prices to drop and enables Koreans to buy goods for less (U.K. House of Lords, 2007; Bodvarsson & Van den Berg, 2009; Nam & Jung, 2014; Kim, Jun, & Nam, 2015; Cho & Kang, 2015). On top of that, the influx of migrants has the effect of increasing the society’s cultural diversity. But if the productivity of the migrant workers is so low that it drags down labor productivity overall or if government transfer payments to migrants increase rapidly, the influx of migrants cannot be expected to bring about an increase in the per capita GDP. Since migrants typically bring their family members with them rather than staying alone, the state is obliged to provide their family members with social welfare benefits. And since migrants are entitled to receive social welfare benefits when they retire, the state might end up spending more on migrants’ social welfare than the migrants’ previously contributed to the host society through their economic activity, given the increase in life expectancy. Considering further that most of migrants’ jobs are in poorly paid sectors, the percentage that they contribute to the host society might be even lower (Magnus, 2008; Chun, 2012). For Korea to maximize the effect of an influx of immigration in light of these considerations, it needs to run a worker rotation system similar to that currently used by migrant workers while simultaneously letting in long-term migrants who have the option of settling down permanently. Furthermore, there needs to be a social integration policy to help long-term migrants settle down successfully. The state needs to upgrade its civil rights system to ensure that migrants can enjoy all their social, economic, and political rights and duties. Along with this, the government must strive to reduce the social conflict and cost that result from incoming migrants (Seol, 2014b). Immigrants have an impact on their host country in a wide range of areas, including lower wages for domestic workers, unemployment, housing, the school-age population, crime, the breakdown of culture and community, welfare spending, public services, and public finance. The Korean government must identify the negative effects that could be caused by the influx of immigrants and make an effort to prevent or resolve them. The government must bear in mind that tardiness in these efforts or failure to integrate migrants into society could cause the conflict between migrants and Koreans to emerge as a social problem.

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