Effects of Introducing Five-Day Work Week in Korean Labor Market: A Semiparametric Vector Error Correction Approach

This paper uses the semiparametric error correction model (Li andWooldridge, 2002) and investigates the dynamics of wage, employment and labor efficiency after introducing five-day work week to the Korean labor market. Efficient working hour function is obtained by nonparametric method (polynomial approximation) and the dynamics are investigated using impulse response analysis. Average derivative estimator is used to derive the impulse response function of the semiparametric error correction model. The results show that reducing working hours would not create new employment and thus it, as a labor policy, could not be a solution for unemployment. On the other hand, cutting working hours boosts labor efficiency so sharply that the efficient labor input increases. It is also shown that the Korean labor market is flexible enough to adjust the shock within a year. August 2003