Job Reallocation Patterns of Korean Firms before and after the COVID-19 Outbreak

Purpose: This paper aims to explore how job reallocation changes in response to the Covid-19 pandemic. More specifically, the paper calculates 5 job flows (job creation, destruction, reallocation, net employment growth and excess reallocation) and how they increase or decrease after the Covid-19 outbreak and examine whether the within-group reallocation is reinforced after the pandemic. Furthermore, the research estimates the key factors (variables) that bring a change in 5 job flows and what affects the most important job flow, namely excess job reallocation. Research design, data, and methodology: The research collects data necessary for empirical analysis from KISVALUE, the firm-level data source provided by NICE, a credit rating agency in Korea. And the paper adopts a standard methodology to generate 5 job flows, which was developed by Davis and Haltiwanger(1992). Also, i t also employs to Differences-in-Differences method to address what brings a change in 5 job flows after the outbreak of the pandemic. Results: The paper finds out evidence that there were a slight increase in job reallocation shortly after the pandemic unfolded and however job reallocation was alleviated in 2021 and 2022., which is inconsistent with previous studyies on financial crises (including 1997 financial crisis in Korea). Job reallocation between heterogeneous groups were intensified in the post-pandemic period. Furthermore, key performance indexes such as wage-to-sales ratio, leverage, average borrowing rate, ratio of financial expenditures to sales (or total costs) and net profit explain a increase or an decrease in 5 job flows. Notably, excess reallocation depends on leverage and financial expenditures, meaning that a change in the two variables have heterogeneous effects across industrial sectors. Implications: All in all, the main results indicate 3 important implications on job reallocation in the post Covid-19 period. First, Covid-19 is an economic shock that has a temporary effect on the magnitude of job reallocation. Second, although mild, it is a reallocative shock that brings reallocation of jobs across sectors or other groups of firms with different properties. Third, financial reasons such as leverage and financial expenditures are sources that results in job reallocation between 2-digit industrial sectors.