Employer Responses to Legislation Protecting Non-Regular Workers: Evidence from South Korea

Many countries have taken steps to address employment insecurity by enacting employment protection legislation (EPL) for non-regular workers. Although the aggregate impacts of EPL reforms have been examined in the literature, less attention has been paid to the heterogeneous ways that different types of employers respond to these reforms. In this paper, we seek to shed additional light on the impact of non-regular workforce protections by investigating the response of establishments to legal changes in Korea in 2007. We employ a difference-in-difference framework to explore which establishment characteristics predict that employers will convert non-regular workers to regular status. Results indicate that, in the short term, the Korean labor reforms led to increased conversions of fixed-term workers to permanent status. Establishments that have shifted risk onto workers via the use of performance pay are more likely to extend permanent status to non-regular workers. However, establishments that provide favorable employment conditions were less likely to convert. Unions play a double-edged role. Unions in large establishments with a wide range of occupational categories are associated with relatively greater conversion of outsiders to regular status, while unions in smaller, more resource-constrained establishments with a narrower occupational focus are associated with more exclusionary behavior.