More foreign workers means fewer labor shortages in manufacturing, study finds

An influx of foreign workers meaningfully reduces labor shortages at manufacturing firms, with the effect most pronounced at workplaces employing between 10 and 29 people, a new study has found. However, the researchers cautioned that the analysis alone cannot determine whether foreign workers are substituting for domestic workers or serving as a complement that raises overall productivity.

The Korea Economic Association released the findings Sunday. The paper, titled "The Impact of Foreign Worker Inflows on Labor Shortages in the Manufacturing Sector," was co-authored by Yang Jun-seok, a senior research fellow at the Daejeon Research Institute, and Jang Yun-seop, a senior research fellow at the Korea Institute for Small and Medium Enterprises and Startups, and published in the academic journal Korea Economic Forum.

The researchers used raw data from the Ministry of Employment and Labor's 2021–2024 Occupational Business Labor Force Survey to measure workforce shortfalls by establishment, and drew on employment administrative statistics from the Korea Employment Information Service to tally foreign worker numbers. To account for the possibility that economic conditions and firms' labor demand influence the scale of foreign hiring, the team estimated the effect of increases in foreign workers on labor shortages. Additional analysis incorporating regional trends was also conducted.

The analysis found that for every 1,000 additional foreign workers, the number of unfilled positions at manufacturing firms fell by an estimated 934. Broken down by workplace size, the reduction was largest — 385 — at establishments with 10 to 29 employees. Workplaces with fewer than 10 employees saw a drop of 251, those with 30 to 99 employees saw a reduction of 138, and those with 100 to 299 employees saw a decline of 123. The effect was smallest at establishments with 300 or more employees, where the shortfall fell by just 36.

The researchers attributed the stronger effect at smaller workplaces to the difficulty such firms face in recruiting domestic workers, often due to low wages and poor working conditions. The findings suggest that policies bringing in foreign workers are contributing, at least in part, to reducing unfilled positions at small and midsize manufacturers.

When broken down by nationality, a 1,000-person increase in foreign workers was estimated to reduce the shortfall of domestic workers by 673 and the shortfall of foreign workers by 261. The researchers said, however, that these results alone are insufficient to determine whether domestic and foreign workers are in a substitution or complementary relationship.

"If the main reason domestic workers avoid certain jobs is an aversion to the work itself, the degree of substitution between foreign and domestic workers may not be large," the researchers said. "If the inflow of foreign workers leads to greater specialization or productivity gains among domestic workers, it could also contribute to improved employment and wages for them."