Estimation of the impact of the statutory labor hours cut in Korea

In this paper we estimate the impact of the statutory labor hours cut in Korea on actual hours worked, monthly real wage income and hourly wage by the regression discontinuity design (RDD) method. The statutory labor hours cut policy was implemented between 2004 and 2010 based on the number of corporation’s employees. The estimation results show that the statutory labor hours cut made those workers receiving the treatment better off in 2004 and 2005 by causing actual hours worked to decrease and real wage income to increase significantly, while it made those workers receiving the treatment worse off in 2007 by causing the opposite effect. Those results imply that the effect of the policy implementation on a worker’s welfare depends on the size of the worker’s corporation. The policy intervention is more likely to affect workers at large firms favorably than those at small firms. In particular, workers at corporations having at least 300 employees are the main beneficiaries of the statutory labor hours cut policy in Korea.