Labor Market Rigidity at Home and Multinational Corporations' Flexible Task Reallocation Abroad

An unprecedented regime change following the 2017 presidential impeachment led to a dramatic shift to more rigid labor market policies in the Republic of Korea, represented by consecutive double-digit hikes in the minimum wage in the next two years. Using a firm-level data set with detailed information about foreign affiliates for 2013~19, this paper assesses the employment consequences of stricter labor market regulations. The empirical evidence uncovers a relatively unexplored mechanism through which domestic labor market rigidity can potentially reduce domestic employment as multinational firms with flexible internal networks reallocate tasks across borders