Balancing Social and Economic Development in Korea: Flexible Labor Market Reforms and Productive Welfare

Korea experienced a long period of economic prosperity from the 1960s until the outbreak of the Asian financial crisis in 1997. The Korean government launched a series of economic structural reforms to liberalize and deregulate the economy. In fact, the reforms were initiated in the early 1990s when the Korean government developed its globalization policy. Flexible labor market reform was one of the major initiatives to keep the Korean economy competitive in the global market. Such reforms were accelerated by the financial crisis and supplemented by improved social services as a form of “productive welfare.” This paper describes the rationale for flexible labor market reform in Korea from the early 1990s, with special focus on the post-financial crisis period and the impacts on employment. The reforms in social services in response to the crisis are presented and achievements of programs under the banner of productive welfare are evaluated. While the reforms alleviated the problems, it is yet to be proved that they address the opposing demands of economic and social development.