Conference Proceedings

Abstract

This paper examines the effects of regional policy variables on local employment growth using the panel data from 1998 to 2013 in Korea. The employment equation is derived from Constant Elasticity Substitution (CES) production function. Employment growth is specified as a function of wage rate, output, local public expenditure, and local R and D expenditure. The research and development expenditure is the proxy variable of technological innovation. The demand for labor takes into account dynamics since the cost of adjustments in the demand for labor will be induced in the long-run. A Dynamic Panel Regression Model is employed considering the effect of lagged employment using regional panel data. The results show that public expenditure has positive effects on local employment growth and that the effect of public expenditure in manufacturing sector is more elastic than that of service sector. A one percent increase in public expenditure increases industrial employment in manufacturing sector by 0.14 percent and industrial employment in service sector by 0.04 percent. Total gross value added per capita (labor productivity) has a positive effect on employment growth in manufacturing sector and a negative effect on the same in service sector. The total fixed capital formation has positive effects on total industrial employment and industrial employment in service sector. The effects on wage rate on employment growth in all industry sectors are negative.