Effect of Irregular Worker Protection Law on Welfare Benefits Payment

Abstract

Since the 1997 Asian financial crisis, the polarization of wages and welfare benefits by the type of employment contract in the Korean labor market has intensified. The Korean government enacted the Irregular Worker Protection Law (hereafter denoted as IWPL), which focuses on non-discrimination in 2007. From the characteristics of personnel management in Korea, a hypothetical mechanism can be proposed that companies ensure long-term and stable employment in the internal labor market by suppressing the expenditure of welfare benefits, a type of quasi-fixed labor cost, in response to IWPL. To test this hypothesis, we construct the treatment group with similar characteristics to the comparison group through propensity score matching (hereafter denoted as PSM). Then, the difference in difference (hereafter denoted as DID) is performed on two matched groups. As a result of the analysis, IWPL is confirmed to have a negative effect on welfare benefits payment, and this reduction effect gradually increases with the passage of time. Finding shows the possibility that companies have minimized the negative employment effect of IWPL and protected the internal labor market by adopting personnel management that reduces quasi-fixed labor costs such as welfare benefits.