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Stabilizing the Macroeconomy with Labor Market Policies

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  • Jong-seok Oh

    (Kyungpook National University)

Abstract

This paper argues that active labor market policies such as work sharing programs should be implemented to stabilize the Korean economy. Using a two-sector post-Keynesian model consisting of manufacturing and services, we identified three directions for labor market policy applicable during a crisis. Under a wage-led demand system with a Keynesian stability condition satisfied, government can reduce the wage gap between the manufacturing and service sectors. Under a profit-led demand regime with the Keynesian stability, it is possible to implement a work sharing program centered on manufacturing. If Harrodian instability exists, the simultaneous adjustment of both wages and working hours focused on manufacturing can be considered. The last direction may be suitable for the Korean economy since the stabilizing forces taming Harrodian instability, such as exports and government expenditure, became less autonomous after the 2008 global financial crisis.

Suggested Citation

  • Jong-seok Oh, 2023. "Stabilizing the Macroeconomy with Labor Market Policies," Korean Economic Review, Korean Economic Association, vol. 39, pages 205-240.
    • Handle: RePEc:kea:keappr:ker-20230101-39-1-07
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    References listed on IDEAS

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    More about this item

    Keywords

    Institutions and the Macroeconomy; Labor Market Policy; Work Sharing Program; Business Fluctuations;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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