BONUSES, UNIONS, AND LABOR PRODUCTIVITY IN SOUTH-KOREA

Using a set of time-series (1972-1989) and cross-sectional data on eig ht two-digit Korean manufacturing industries, we examine the variabili ty of South Korea's employee bonus system and the effect of the employ ee bonus on productivity A test of the variability of the bonus showed that the bonus rate (ratio of the bonus to the wage) was positively i nfluenced by industrial output, so the bonus is not merely a disguised wage. An augmented Cobb-Douglas production function estimation shows that the bonus has a positive and significant productivity effect. Cap ital-intensive and labor-intensive industries did not have significant ly different productivity effects due to the bonus. Lastly, Korean uni ons reduced labor productivity and negatively affected the productivit y effect of the bonus. Also, compared with the previous period, the pr oductivity effect of the bonus has become negative since the 1987 Grea t Labor Offensive.