The growing number of discouraged workers\-those who leave the labor market despite their willingness to work\-is a new employment problem facing the Korean economy. The existing literature has attributed this problem to the internal aspects of the labor market, including the power of labor unions, technological development, and a weakening work ethic. However, such approaches cannot explain how this problem has emerged historically. This study emphasizes two alternative factors. One is financial rationalization that has burdened industries with the pressure of cost reductions since the late 1990s and, thus, reduced their labor demand. The other is the hierarchical structure within Korea's industries that has accommodated the new financial rule in a way that excludes workers from the labor market. The chaebol's strategies for cost reductions, particularly squeezing small- and medium-sized enterprises (SMEs) and freezing further employment, have exacerbated the SMEs' problem of finding employment among young and female workers. The labor supply has shrunk, as families have protected these workers by withdrawing them from the labor market. This analysis implies that the global norm of financial rationalization becomes socially risky in Korea, not in and by itself, but because it is combined with Korea's local institutions.
- Cost-saving pressure
- Discouraged workers
- Financial rationalization
- Hierarchical industrial networks
- South Korea