The Impact of Production Factors and Global Integration on the Wage Gap in the Korean Manufacturing Industry

This study investigates the factors influencing wage inequality, measured by the Quantile Ratio (QR), in Korea’s manufacturing sector across 40 industries from 1999 to 2022. As a key driver of economic growth, the manufacturing sector has faced challenges such as wage disparities between large enterprises and SMEs, as well as between skilled and unskilled workers. The study examines the effects of capital intensity, trade openness, foreign direct investment (FDI), and labor productivity on wage inequality, considering their interactions and nonlinear changes over time. Using the System GMM methodology to address multicollinearity and endogeneity, this research incorporates interaction terms and time variables in a dynamic panel data analysis. All variables are standardized for better comparability. The findings reveal that FDI initially widened wage gaps by benefiting skilled workers in advanced industries, but over time, its positive impacts extended to SMEs and semi-skilled workers. Capital intensity and labor productivity initially reduced wage inequality but later concentrated benefits on skilled labor due to automation and technological advancements. Trade openness consistently amplified inequality by favoring skilled workers in export-driven industries.