• KDI Journal of Economic Policy
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• v.34 no.2
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• pp.95-137
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• 2012

Inflow of foreign workers and immigrants increase the supply of unskilled labor in the economy. In measuring their impacts, an impact evaluation method produces unreliable estimates because a control group independent from their impacts is hardly found within the economy. This study adopts an aggregate factor proportions approach and measures the impacts by estimating the effects of skills proportion changes in labor supply on relative wages. The estimation uses two and three skills groups categorized by education levels. The study reveals that foreign workers and immigrants contribute to economic growth by a small margin while they significantly widen the wage gap between native skilled and unskilled workers. The result is based upon the fact that the existing foreign workers and immigrants are predominantly the least skilled groups. The estimates can be applied in predicting the impacts of labor inflow from North Korea which always remains as a possibility in Korea.