Urban growth and the labor market in Korea

Abstract

Urban concentration of population is one of the major concerns of Korea. People believe that its speed is too fast and the population concentrates too much in a few large cities. However, most of their concerns about population concentration are based on general impressions without positive and quantitative knowledge of the benefits and costs of city growth. The objective of this paper is to analyze quantitatively the effects of city growth on economic efficiency in order to clarify the nature and the causes of the urbanization in Korea using city-based cross-sectional data of 1986 and 1976. The model is a labor market equilibrium model consisted of a labor productivity function and a labor supply function, where parametric external effects of agglomeration are considered as the factors affecting not only the productivity of the cities but also the quality of life of the residents. The estimation results show that in Korea city size has a favorable effect not only on production but also on consumption of workers, which implies that urbanization in Korea takes the pattern of accelerating city growth. This situation contrasts with the pattern of developed countries where in general city growth has favorable effects on production but it has negative effects on consumption. However, the results also indicate that the favorable effects of city growth on workers' welfare in Korea are now diminishing rapidly and that the disamenities caused by city growth will dominate the amenities in near future as income and technology develop. We also found out that urban attributes such as industry-mix, labor force characteristics, the cost-of-living index, and natural environment also affect the productivity, labor supply, and the wage rate of cities. It means that we should take into account the effects of such urban attributes in the analysis of city size, growth, and structure.