Introduction & History
The Korean Economic Association was launched in Pusan on November, 30, 1952.
KOREAN JOURNAL OF ECONOMIC STUDIES
Year 2024 / Vol 72 / No 2
This study evaluates the economic impacts of climate change on the Korean economy, encompassing both climate-related damages and the costs of carbon abatement. Employing a probabilistic approach, the analysis incorporates uncertainty across three significant factors identified in the literature: long-term population and GDP forecasts, climate damage functions, and the social discount rate. The findings show that the overall impact of climate change on the Korean economy amounts to 503 trillion Korean Won (KRW) when implementing optimal economic and climate policies. Furthermore, the ambitious carbon reduction targets set by the Korean government, such as the 2030 Nationally Determined Contributions (NDC) and the 2050 Net Zero goals, significantly escalate economic costs by three to five times (to 1,539 and 2,517 trillion KRW, respectively), primarily due to substantial short-term carbon abatement expenses. However, the extensive uncertainty surrounding these estimates suggests that one cannot definitively label the rapid carbon reduction targets as inefficient. This highlights the necessity of fostering discussions on optimal climate policies that are in harmony with economic growth amidst significant uncertainty. The study also underscores the crucial role of supporting research on climate change to reduce this uncertainty. The analysis employs the RICE model, a widely recognized climate-economy integrated assessment model based on optimal growth theory.
Year 2024 / Vol 72 / No 2
The employment encouragement system targeting vulnerable groups, represented by the mandatory employment initiative for these groups, is part of the labor market redistribution policy that supports the employment of vulnerable groups in the labor market to aid in their self-reliance. However, deadweight loss occurs when vulnerable workers are employed at wages higher than their productivity. In other words, the introduction of the employment encouragement system for vulnerable groups leads to a conflict between inefficiency and redistribution. In markets where both profit and social enterprises coexist, the introduction of a mandatory employment system for vulnerable groups typically results in a reduction in social welfare compared to situations without such a system. On the other hand, applying a floor-and-trade method, which allows trading rights for the employment of vulnerable workers among enterprises, can reduce deadweight loss of social welfare compared to a system with only mandatory employment for vulnerable groups. This study suggests that the introduction of a social performance trading system can lead to appropriate levels of efficiency and redistribution outcomes for individual enterprises through market-driven transactions.
The Effects of Population Aging on Tax-Benefit Structure
Year 2024 / Vol 72 / No 2
This paper examines the effect of population ageing on Korean tax-benefit structure. This paper estimates a simple net tax function using National Survey of Tax and Benefit (NaSTaB), controlling for changes in the household head’s age structure. We find that the progressivity of the net tax function more than doubled between 2007 and 2019, while about 30% of the change accounted for by population ageing. The effect of population ageing on the progressivity is mainly through government transfers. We also find that population ageing explains about 40% of the rise in the estimated income redistribution effect of Korean tax-benefit structure.
KOREAN ECONOMIC REVIEW
Effects of Initial Labor Market Conditions on Job Polarization: Evidence from South Korea
Year 2024 / Vol 40 / No 2
This paper investigates the extent to which initial conditions in the labor market influence the progress of job polarization in Korea. In particular, we compare the following two competing hypotheses: a specialization hypothesis and an inter-industry wage differentials hypothesis. Our findings indicate that job polarization is pronounced in industries that have historically relied on routine tasks and have experienced a significant increase in ICT capital intensity between 2000 and 2019. By contrast, initial inter-industry wage differentials are not associated with job polarization in Korea during the same period.
Spatial Panel Analysis of Ambient Air Pollution in Korea
Year 2024 / Vol 40 / No 2
This study investigates the underlying drivers behind air quality pollution in Korea by using spatial panel analysis. Specifically, we consider the local and transboundary effects of economic, climatic, and geographical factors leading to the heightened presence of fine particulate matter (PM2.5). Furthermore, our study expands its scope beyond national boundaries to include an evaluation of external sources that contribute to elevated pollution levels within Korea. Consequently, this research adopts a multilevel approach to assess the within and outer factors of air pollution in Korea. Our analysis is based on a spatial panel dataset spanning all districts of Korea by incorporating satellite-based air pollution, meteorological, and geographic information for 2010–2016. Empirical results indicate that air pollution degrades the air quality in other cities and the overall national ambient pollution as well. Moreover, empirical results from the general nesting spatial (GNS) specification of spatial interaction suggest that the impacts of economic and climatic factors on air pollution are substantial. In addition, our analysis incorporates cross-country spatial effects of air pollution, which reveals a significant transboundary spillover effect. Furthermore, a deeper analysis of spatial heterogeneity underscores intriguing disparities in the impact estimates. Changes in domestic and foreign factors in the northwest region are linked to a more pronounced diffusion of pollution to multiple cities in contrast to the impacts originating from the southeast.
How Much Do Prices Respond to Demand and Supply Shocks?
Year 2024 / Vol 40 / No 2
This paper presents a theoretical examination of price responses to movements in demand and supply where firms face either unwanted inventories or stockouts in each period. The response mechanism consists of two complementary motives that arise when operating under uncertain business environments. To an increase in demand, a firm has a motive to lower its price reflecting lower effective marginal costs but also has another motive to raise its price to rebalance expected marginal revenues associated with two distinct demand states, unwanted inventories and stockouts. These two motives cancel out each other at optimum, resulting in a limited response of prices to demand shocks. To a cost-push shock, the firm has a motive to raise its price reflecting higher effective marginal costs for a given output level and is further prompted to raise prices reflecting a higher expected value of unit inventory. The two motives push prices up in the same direction, resulting in a large response of prices to supply shocks.
KOREAN ECONOMIC FORUM
An Analysis of the Interrelationships between House Price, Jeonse Price, and Household Debt
Year 2024 / Vol 17 / No 2
This study dynamically examined the interrelationship between housing prices, jeonse prices, and household debt using the TVP-VARX model. According to the results of the empirical analysis, an increase in mortgage interest rates leads to a decrease in mortgage loans, a decrease in housing prices and jeonse prices. Increased mortgage loans cause rising housing prices and falling jeonse prices. The rise in housing prices leads to an increase in mortgage loans and an increase in jeonse prices, while the rise in jeonse prices also results in an increase in mortgage loans and an increase in housing prices. Looking at the combined shock, the response of mortgage loans, housing prices, and jeonse prices varies depending on the combined conditions. In the case of mortgage loans, interest rates for mortgage loans, jeonse prices for housing prices, and housing prices for jeonse prices are important factors that determine the direction of the response. Depending on the situation in the housing market, housing market prices may not rise even if mortgage loans increase. Recent changes in market interest rates have not been reflected in mortgage rates, which are acting as upward pressure on mortgage loans, housing prices, and jeonse prices.
Assessment of Fiscal Sustainability Using Generational Accounts
Year 2024 / Vol 17 / No 2
We suggest the generational accounts (GAs) as alternative fiscal sustainability indices to the government debt. The GAs assess the lifetime net tax burden across generations. They enable the evaluation of the fiscal sustainability and the generational equity taking explicit consideration of the future fiscal balance, unlike the government debt. The estimated GAs for Korea show: that the current fiscal policies are not financially sustainable; that about 13.3% of the future GDP must be appropriated to make up for the fiscal deficit of the future; and that the additional net tax burden of the future generations will increase by up to 20% of their lifetime income. The magnitude of the current government debt is smaller than the OECD average. But the government debt does not provide adequate information on the fiscal sustainability and the generational equity. The GAs can be alternative indices to the government debt.
Age-Period-Cohort Effects in Income and Consumption Inequality
Year 2024 / Vol 17 / No 2
This study used the APC model to estimate the age effect, period effect, and cohort effect shown in the Gini coefficients of before-tax income, after-tax income, and consumption. The main results are as follows. First, inequality in before-tax income has steadily increased since the 1990s, but inequality in after-tax income has increased only moderately, and inequality in consumption has not worsened until recently. Second, the difference between before-tax income and after-tax income inequality indicates the effects of income redistribution, which contributed to reducing inequality in after-tax income by greatly weakening the age effects. Third, the reason why inequality in consumption was so stable is because the age effects were very weak and the cohort effects offset it. The cohort effects observed in consumption inequality means that the consumption inequality of subsequent generations was smaller than that of the preceding generations. In a sense, Korea is becoming more equal when it comes to consumption. Fourth, another reason why inequality in consumptions was very stable was the two-earners’ income effect. The number of dual-income households has been steadily increasing, and their consumptions did not become significantly unequal even as they became older. Furthermore, they were less affected by recession, and not significantly more unequal than for the predecessors. In other words, two-earners’ households have been effectively provided insurance against income risks. In Korean society where has changed rapidly due to high economic growth in a short period of time, age effects, period effects, and cohort effects account for a large part of trends in income and consumption inequality.