Building up an Institutional Framework for the Virtuous Circle of Employment and Welfare

For the last few years, Korea has been stuck in a low growth and low employment mode with economic downturn continuing and job opportunities shrinking, which raises a great concern over the vitality of its national economy. The labor market flexibilization following the financial crisis of 1997 has worsened the employment security, and immature welfare systems with weak bases of social insurance and services failed to provide a satisfying social safety net to the population. Under these circumstances, much attention is being given to the role of welfare states in providing universal social services that enable their citizens to manage new social risks.' This research argues that a virtuous circle between employment and welfare can be established not by implementing policy instruments per se, but by building up institutional arrangements that guarantee the complementarities between labor market institutions and social policy. It then performs an empirical comparison of how the transformations in the employment-welfare systems of 16 OECD countries have developed over the last two decades. Results show that social democratic countries that combine universal welfare systems with coordinated market economy performed best in terms of employment and welfare outcomes, followed by the continental European countries, with liberal welfare states lagging behind in terms of decent work and welfare state generosity. ..