How the reduction of Temporary Foreign Workers led to a rise in vacancy rates in South Korea

This paper investigates the impact of a reduction in low-skilled Temporary Foreign Workers (TFWs) on job vacancies in South Korea's manufacturing sectors. The study harnesses a quasi-experimental event —the commencement of a COVID-19 quarantine policy in January 2020— as the foundation to pinpoint the causal link between the dwindling numbers of TFWs and the subsequent increase in job vacancies. This stringent quarantine measure acted as the `shift' component in my shift-share instrument, while the pre-pandemic distribution of TFWs across various manufacturing sectors functioned as the `share' component. Utilizing Difference-in-Difference regressions with continuous intensities, the research underscores that sectors with a heavy dependence on TFWs witnessed a significant spike in vacancies a year following the COVID-19 outbreak, and this surge lasted for two years. Consequently, firms grappled with the challenge of securing full-time staff, given that most of these foreign workers (E9 visa holders) had been primarily engaged in full-time roles. This highlights that domestic workers are not readily available to fill vacant positions, especially as full-time workers. The paper also incorporates Structural Vector Autoregression and Local Projection methodologies to substantiate these observations