his paper explores the dynamics of the Korea labor market based on the framework used in the matching model. Specifically, this paper estimates the dynamic impacts of fundamental structural shocks on the labor force, unemployment and job vacancy that ...
his paper explores the dynamics of the Korea labor market based on the framework used in the matching model. Specifically, this paper estimates the dynamic impacts of fundamental structural shocks on the labor force, unemployment and job vacancy that are considered to be important variables in the labor market. To this end, this paper uses the vector autoregression model to identify economic shocks in the labor market and then estimates the impulse response function and the forecast error variance decomposition. The estimation results can be summarized as follows. First, we find that a positive shocks to the labor supply lead to statistically increase th labor force and job vacancy. On the other hand, we find that unemployment rises immediately after a labor supply shock, but the effect is short-lived. Second, the shocks to the economic activity was shown to increase the labor force and job vacancy, but decrease the unemployment. Third, the reallocation shocks are estimated to have no significant effect on the labor force participation rate and vacancies, but increase unemployment. The variance decomposition results suggest that the variation in the forecast error of the labor force is due to labor supply shocks, the variation in the forecast error of vacancy is due to economic activity shocks, and the variation in the forecast error of unemployment is mainly due to reallocation shocks.