Distributional Effects of Temporary Contract on Wages in Korea: Unconditional Quantile Regression Approach

In the last 15 years after the dismal financial crisis, Korea has experienced fundamental change in employment composition structure. In particular, the share of temporary employment has continually increased. In this paper, we analyze the effects of temporary contract on wages. First, we investigate the effects of temporary contract on the whole wage distribution using recent unconditional quantile regression. Second, we attempt to decompose wage differentials between permanent and temporary workers at different percentiles into composition effect and wage structure effects. Regarding the first investigation, we found that an increase in the share of temporary workers has a heterogeneous and the negative effects on wages and the effects are stronger for the low wage earners. For the second examination, it is found that there is a glass ceiling phenomenon in the Korean labor market and this is mainly driven by increasing wage structure effects across quantiles.