The effects of Korean wage hikes on Korean trade structure with the US and Japan

In the past, the relatively cheap, high quality, and cooperative Korean labor force was the key contributor to the success of the export based growth strategy. With political liberalization, Korean labor started demanding higher wages. This paper investigates the effects of the wage hike on Korea's trade with Japan and the US. The empirical results show that there is a substantial decrease in exports to Japan and a mild reduction in exports to the US with a minimal decrease in imports, and thus causing further trading imbalance against Korea. Heavy losers from the Korean labor disputes are electronic equipment, textile-fabrics, iron and steel, miscellaneous manufacturing, and non-metallic minerals. These are also the key export industries of Korea. -Authors