: Evidence from job creation programs in South Korea

Kilkon Ko, Hyunwoo Tak, Daejung Kim (Seoul National University)

Abstract

Background: Facing an aging society and a growing demand of government intervention in the job market for minorities, the Korean government has introduced and implemented numerous job creation programs such as job training and provision of part-time jobs in the public sector since the year of 1998. While these programs result in some positive impacts, some theories raise hypothetical criticisms that such public job creation programs would increase dependence of labor forces on the government. In addition, literature point out the possibility of crowding-out effect in the potential labor forces from private labor market to inefficient public jobs.

Research objectives: This paper empirically analyzes the existence and strength of welfare trap found among job programs of the Korean government. Meantime, we examine whether or not the moral hazard of individuals is a major cause of welfare trap.

Data: This paper analyzes 3,542,734 participants of job creation programs of the Korean government from 2005 to 2012. The data was retrieved from the Korean Ministry of Employment and Labor’s database which covers most job-related programs’ administrative information. As the database collects on most nation-wide job creation programs with continuous monitoring, it can be interpreted as the most qualified and comprehensive on the job creation programs.

Method: Both statistical and qualitative methods are adopted for this research. First, we apply basic descriptive analysis and logistic regression to find out the existence of welfare trap and its potential causes. In the analysis, we operationalize welfare trap by the length of stays in the job programs. Types of programs and other demographical variables are controlled in the logistic regression.

After validating the existence of welfare trap and different characteristics by types of job programs, we interview the participants and public officials of the programs showing the high level of welfare trap. The interview examines if the welfare trap is the result of moral hazard of individuals or just a managerial failure.

Finding: We find that some participants show the high level of dependency on job program. Approximately, 49,258 participants (1.5% of total participants) repeatedly participated in the public job programs more than 1,000 days. Some participants fell into the welfare trap not because of their moral hazard but inability to join the private job market due to their age and inferior skills. Notably, the possibility of falling into welfare trap is strongly associated with the types of programs and the age of participants.

Keywords: Welfare Trap, Job Creation, Moral Hazard