Labor market impact of COVID‐19 on migrants in South Korea: Evidence from local outbreaks

• Published date: 01 September 2022
• Author: Seonho Shin
• Date: 01 September 2022
• DOI: http://doi.org/10.1111/asej.12280

ORIGINAL ARTICLE

Labor market impact of COVID-19 on migrants in South

Korea: Evidence from local outbreaks

Seonho Shin

Korea Labor Institute, Sejong, South Korea

Correspondence

Seonho Shin, Korea Labor Institute, Sejong National Research Complex, Economics Building C, Office

544, Sejong, 30147, South Korea.

Email: sshin@kli.re.kr

Funding information

Korea Labor Institute

Abstract

Despite the growing importance of migrants and their role in the South Korean

economy, how much and in which ways COVID-19, as an adverse labor market shock,

has affected them has received too little attention, with no single study published to date

yet. Motivated by such a paucity, this paper investigates the impact of the COVID-19

pandemic crisis on employment for migrants in South Korea, with special emphasis on

quantifying the magnitude of its causal effect. In doing so, this study exploits the unique

fact that only one specific region in South Korea had a substantial number of COVID-19

infections in the early stage of the pandemic so that estimations can be made using a

difference-in-differences (DD) model. The DD estimates suggest that COVID-19 lowered

migrants’overall employment probability by 2.5 to 3.2 percent points. However, strong

heterogeneity between the genders is apparent: the pandemic severely hurts female

migrants’employment, with male migrants weathering it relatively unscathed. Further-

more, female migrants seem considerably harder hit than female host populations. Het-

erogeneity analyses reveal that (i) a duration of stay exceeding 5 years and (ii) fluency in

Korean (as a local language) protect migrants from being heavily affected by the

COVID-driven employment shock.

KEYWORDS

COVID-19, difference-in-differences, labor market, migrants, South Korea

JEL CLASSIFICATION

E24, J15, J21

DOI: 10.1111/asej.12280

© 2022 East Asian Economic Association and John Wiley & Sons Australia, Ltd.

Received: 6 July 2021; Revised: 19 January 2022; Accepted: 29 April 2022

Asian Economic Journal. 2022;36:229–260. wileyonlinelibrary.com/journal/asej 229

1|INTRODUCTION

By mid-February 2020, South Korea, a densely populated nation, faced the highest

count of new COVID-19 infections globally after China, where the virus was first

reported. Despite a resolute response by the South Korean Government, including

a comprehensive border quarantine system and a 270 trillion KRW (approximately

228 billion USD) immediate fiscal stimulus, the pandemic has taken a huge toll on

its economy and labor market. The outbreak forced the government to close the

nation’s borders and scared consumers inside and away from stores. Businesses shut

down, overseas sales dried up and inbound travelers stopped coming. As of May

2020, exports from the South Korean economy, which is heavily reliant on interna-

tional trade, fell by nearly half year-on-year as its important trade partners, such as

China and the United States, were hard hit by the pandemic.

Many empirical studies on COVID-induced employment losses, such as

Cortes and Forsythe (2020) and Couch et al. (2020), reveal the unequal labor

market impacts for various socio-demographic groups. Migrants are among the

most vulnerable of all workers, as they have limited means to respond. Compared

to their host populations, they face several disadvantages in the labor markets of

their destinations from the outset, including a lack of proficiency in the local lan-

guage, cultural differences, career interruptions, undervalued previous work expe-

rience and unappreciated educational qualifications (Shin, 2021). They are also

more likely to have non-standard or informal contracts, shorter job tenure and

lower seniority on the job: moreover, they usually work in less-skilled occupations

in comparison to measurably similar host populations (OECD, 2020). As such,

Dustmann et al. (2010) find that migrants experience significantly larger unem-

ployment responses to economic shocks relative to natives within the same skill

group, even before the COVID-19 outbreak. Thus, it is a logical inference that

migrant workers are facing manifold setbacks amid the pandemic and are highly

vulnerable to the initial economic shock induced by COVID-19. Based on the

Current Population Survey Basic Monthly Files, Borjas and Cassidy (2020)find

empirical evidence that the employment decline in the United States stemming

from COVID-19 is particularly severe for migrants. They argue that such pro-

nounced vulnerability should be attributed to the fact that migrants are less likely

to work in jobs that can be performed remotely; as a result, they suffer outsized

employment consequences as the lockdown measures permit those with skills

more conducive to remote work to continue working from home. Fasani and

Mazza (2020) also note that many migrant workers hold occupations not amena-

ble to telework. To make matters worse, studies suggest that discrimination

(against marginalized populations) tends to increase considerably in times of a

slack labor market (OE CD, 2020).

Despite abundant evidence suggesting that hardships multiply for migrants,

their dire situation and the impact of the COVID-19 pandemic crisis on their

employment in local labor markets has received far too little attention up until

230 SHIN

now. This is especially true in the case of South Korea, where no study, to the

best of the author’s knowledge, has covered this topic. According to the OECD

(2019), the share of migrants among the nation’s economically active population

has increased sharply over the past decade, and their labor market contribution

is further emphasized by the fact that they are primarily employed by small and

mid-size enterprises (SMEs), for which the labor shortage has been a chronic,

pivotal problem.

1

In South Korea, approximately one in 10 employers with

more than five employees rely on filling at least some vacancies with foreign

workers (OECD, 2019). Furthermore, migrants comprise approximately 9 per-

cent of the ‘root industry’workforce in the nation (OECD, 2019).

2

Considering

the growing importance of migrants and their roles in South Korean society, as

well as the aforementioned research gap, this paper explores the impact of the

COVID-19 pandemic crisis on employment for migrants in South Korea, with

special emphasis on quantifying the magnitude of the impact.

3

Understanding

how much and in which way the pandemic-induced employment shock has

affected them is a critical element of any informed strategy for coping with the

pandemic and devising proper recovery plans.

In addition to the fact that this study, to the best of the author’s knowl-

edge, is the first empirical investigation of the COVID-19 pandemic’s labor

market impact on migrants in South Korea, the current paper contributes to

the existing literature by also estimating the causal effect of the initial

COVID-19 shock. To this end, we exploit the unique fact that only one specific

region in South Korea—Daegu-Gyeongbuk—had a significant number of

COVID-19 infections in the early stage of the pandemic and use a difference-

in-differences (DD) approach in this study. Such an ideal setup for causal esti-

mations is uniquely feasible in the South Korean case, also in part because the

relevant data were collected nationwide immediately following the ‘local’out-

breaks in Daegu-Gyeongbuk. Exogenous regional variations (i.e., COVID-

affected vs unaffected) remained distinct when the data were collected in May

2020. Moreover, unlike most other countries, the government did not mandate

nationwide lockdown measures in South Korea.

4

In this respect, the regions

unaffected by COVID-19 (at the time of data collection) were free from both

the pandemic per se and any strict containment measures, except for a

1

The inflow of foreign workers to the nation has been contributing to domestic economic growth by increasing

labor input in industries that are less favored by domestic workers and by easing the trend towards workforce

aging in the Korean labor market (Jeon, 2018). According to the IOM Migration Research and Training Centre

(2011), the total domestic production generated by migrant workers, as of 2008, represents 1.08 percent of the

GDP of South Korea.

2

‘Root industries’are SMEs in basic manufacturing industries, defined as using one of six process technologies

(i.e., casting, die, welding, surface treatment, plastic processing and heat treatment), under the Root Industry Law

of 2012 (OECD, 2019).

3

As of May 2020, there are approximately 1.33 million foreigners staying in South Korea for more than 90 days.

4

As mentioned in Aum et al. (2021), South Korea did not implement a lockdown in its battle against COVID-19,

instead relying on testing and contact tracing.

ASIAN ECONOMIC JOURNAL 231