JAKARTA - South Korea’s pandemic-era shortage of low-skilled migrant workers raised closure risks and reduced wages for Korean employees at surviving manufacturing firms, according to a National Bureau of Economic Research working paper published in March.
Jongkwan Lee, Giovanni Peri and Hee-Seung Yang examined the abrupt fall in workers admitted through the country’s Employment Permit System, or EPS, after the 2020 COVID-19 border closure.
The number of EPS workers fell from about 276,000 in 2019 to 217,000 in 2021, a decline of roughly 22%, the paper said. The researchers studied 761 manufacturers and used differences in statutory hiring quotas to compare companies with higher and lower reliance on EPS workers before the border restrictions sharply reduced new arrivals.
Of the 761 firms, 33, or 4.3%, closed between January 2020 and January 2021. An expanded measure that included companies unreachable during follow-up raised the total to 59, or 7.8%. Under a stricter matched comparison, firms with high pre-pandemic exposure to EPS workers were 2.5 percentage points more likely to close than comparable firms with low exposure.
Among 517 surviving firms, a one-percentage-point larger decline in EPS workers was associated with a 1.7-percentage-point higher probability of reporting a revenue drop and a 1.4-percentage-point higher probability of reporting production setbacks. The researchers found no statistically significant increase in local hiring or automation. Companies instead reported stronger demand for additional EPS workers.
“The lost labor input was not easily substitutable in the short run,” the authors wrote. The paper found statistically significant wage declines among Korean employees at surviving firms that lost more EPS workers. Companies retained existing Korean staff rather than increasing new local recruitment. The authors said the pattern was consistent with Korean workers being reassigned to lower-skilled tasks.
South Korea introduced the EPS in August 2004. The programme allows small and medium-sized companies unable to find enough local staff to hire non-professional foreign workers after obtaining government permits. During the period examined in the study, EPS workers came from 16 designated Asian countries. The paper said 78% of EPS workers were employed in manufacturing in 2019.
Recruitment difficulties predated the pandemic. In the researchers’ survey, 53% of firms reported problems hiring the targeted number of new Korean workers. Among those companies, 90% identified plant and machine operators and assemblers as the most difficult positions to fill.
