State and Economic Segmentation: Analysis of Effects of Export- Promotion Strategy on Wage Differentials in Koreas Manufacturing Industries

Abstract

The purpose of this paper is to analyze the effects of economic differentiation on worker earnings in Korea, We argue that the export-promotion policies of the state have substantially reduced segmentation of labor markets. The export promotion strategy functions to counteract industry and size effects on worker earnings and flattens wage differentials between the core and the periphery economic sectors. This result reflects the state's objective of removing the impact of institutional non-market forces on the process of earnings determination and preserving the market-pricing mechanism in labor markets. This does not mean that all forms of segmentation have been eliminated. The export promotion policy has led to a new structural inequality based on the division of the economy into a sector oriented toward production for export and a sector oriented toward production for domestic

consumption. This is an inevitable outcome of an export-promotion policy designed to maximize labor productivity.