Economic Migration and Income Disparity: The Role of South Korea's Employment Permission System
- Hanna Yim
- Nov 13, 2024
- 6 min read
Updated: Nov 14, 2024
Migrant workers who migrate into a foreign country to earn higher income than they do in their home country can be fallen into the category of economic migrants according to the World Bank's Migration Match and Motive Matrix. They move in order to increase their income, ultimately improving the quality of life for their families, rather than just providing financial support.
According to UNDESA, the global population of international migrants in 2019 was estimated at 272 million, with 245 million of them being of working age (15 years and older). Of this total, 169 million were classified as migrant workers (Figure 1). In the latest international migrant estimates (dated as at mid-2020), almost 281 million people, up by 9 million (3.3%) from 2019, lived in a country other than their country of birth. As the estimates of migrant workers are managed by the International Organization for Migration, the corresponding updated data has not yet been released beyond the 2019 figures. More recent trends and patterns can be explored once the migrant worker stock data is updated in the near future.
Figure 1: Global Estimates of the Stock of International Migrants and Migrant Workers (2019)
Source: IOM (2021)
While current data on international migrant stocks is not available, a closer look at the 2019 figures shows that, of the estimated 169 million international migrant workers, 67.4% (113.9 million) were located in high-income countries. Another 33 million (19.5%) were in upper-middle-income countries, meaning 86.9% of international migrant workers were concentrated in high-income and upper-middle-income countries. The remaining migrants were in lower-middle-income (9.5%) and low-income countries (3.6%). This supports the idea that more job opportunities and higher living standards are significant factors attracting migrants to high-income countries, aligning with the profile of economic migrants in the Matrix, as highlighted earlier.
Figure 2. Distribution of Migrant Workers' Destination Countries by Income Group
Source: IOM (2021)
Given that South Korea is classified as a high-income country by the World Bank, it serves as an ideal case study for examining the income gap between migrant workers' home countries and South Korea. The Korean government’s policy regarding foreign migrant workers has facilitated two decades of well-regulated foreign employment, which has recently been intensively expanded. This policy ensures the stability of employment and income levels for migrant workers.
Figure 3. From Labor Demand to Employment: The EPS Process in South Korea
Source: HRD Korea
The EPS in South Korea guarantees the employment status and income level of migrant workers throughout their migration journey. The system is driven by the host country’s demand for labor. As noted earlier, South Korea faces a rapidly declining population and an aging society, resulting in a labor shortage in key industries. In response, the government collects labor demand data from the private sector, allowing companies to request foreign workers if they cannot find enough local labor within a specified period.
After these requests are submitted, the Ministry of Employment and Labor determines an annual foreign worker quota, which is then distributed to 16 partner countries under the EPS. These countries select workers based on the agreed quota, requiring candidates to have at least intermediate Korean language skills and, in some cases, specific low-level skills (e.g., welding or heavy equipment operation).
Once selected, the workers' profiles are sent to Korean employers for review. If selected, candidates receive an employment offer and sign a contract through the two governments’ ministries and implementing agencies. The signed contract allows the worker to apply for a visa at the Korean embassy in their home country. Upon arrival in South Korea, workers are officially employed and paid according to the contract, with their employment regulated by Korean labor law, ensuring no discrimination in salary, work environment, or welfare benefits. For example, the minimum wage applies equally to migrant workers, and they are enrolled in social insurance programs. Migrant workers also have the right to change employers if necessary and are protected against unfair termination, with the government assisting them in finding new jobs and providing financial support during unemployment periods.
Given such guaranteed conditions, migrant workers are obligated to report their income yearly for taxation. In this process, their income information is formally collected. According to data released by the National Tax Service (NTS) in 2023, the average annual income of foreign workers who filed their taxes in 2022 was approximately 33.4 million KRW. The number of foreign workers who filed their year-end tax settlements increased to 544,000, up by about 39,000 compared to the previous year (505,000). The reported tax amount totaled 15.85 trillion KRW, showing an upward trend compared to the previous year (15.12 trillion KRW) and recovering to levels just below those seen before the COVID-19 pandemic (Figure 4). According to data released by the government in early 2024, among foreign workers who filed their taxes, the largest group was Chinese workers (187,000, 34.5%), followed by workers from Vietnam (44,000, 8.2%), Nepal (34,000, 6.2%), Indonesia (28,000, 5.1%), and the U.S. (26,000, 4.9%).
Figure 4. Reported Annual Income and Estimated Average Income per Foreign Worker
(2017-2022)
Source: National Tax Service (NTS, 2022)
According to the 2023 Survey on Immigrant's Living Conditions and Labour Force, conducted by the Ministry of Justice and Statistics Korea, 94% of foreign workers employed under the EPS system earn a monthly income of at least 2 million KRW, highlighting the financial benefits of this regulated employment structure (Figure 5).
Figure 5. Income Distribution of Foreign Residents in Korea by Visa Type (2023)
Source: Statistics Korea (KOSTAT, 2023)
Foreign workers from countries such as Nepal, Vietnam, Indonesia, and China often migrate to South Korea under the Employment Permit System (EPS) in search of higher income opportunities compared to what is available in their home countries. In 2022, the average annual income of foreign workers who filed taxes in South Korea was approximately 33.4 million KRW, with 94% earning a monthly income of at least 2 million KRW. In contrast, the Gross National Income (GNI) per capita in 2022 for these countries was as follows: Nepal's GNI was $1,340, Vietnam's GNI stood at $4,020, Indonesia's GNI was $4,580 , and China's GNI reached $12,890 (Figure 6).
Figure 6. Comparison of Annual GNI per Capita and Average Income of Foreign Workers
in South Korea (2022)
These figures highlight the significant income disparity between the workers' home countries and South Korea, making migration through the EPS a financially advantageous choice for many. The opportunity to earn a higher income in South Korea is particularly compelling for workers from countries with lower average incomes. For example, foreign workers from Nepal, Vietnam, Indonesia, and China can earn several times more in South Korea than in their home countries. The average annual income for EPS workers in Korea is 33.4 million KRW, which is significantly higher than the approximately 1.7 million KRW earned annually in Nepal, the 5.2 million KRW in Vietnam, and the 5.9 million KRW in Indonesia. Even workers from China, where the average income is around 17.7 million KRW, can still earn more than double their home country’s income by working in Korea. This substantial income gap underscores the financial attractiveness of migrating to South Korea, making the EPS system a valuable opportunity for workers seeking better economic prospects.
The financial advantages of migrating under South Korea's EPS system are clear, as workers are able to earn significantly more than they would in their home countries. This disparity in income is a driving force behind migration and, by extension, remittances. With a stable and regulated work environment, migrant workers can earn more and send a portion of their income back home to support their families, thereby improving the financial well-being of their households.
The role of remittances in the financial well-being of migrant workers’ families is profound, as these transfers can contribute to better access to education, healthcare, housing, and other essentials. As migrant workers continue to earn higher wages in South Korea compared to their home countries, the remittance flow is likely to remain a vital component of their families' financial stability. South Korea’s EPS system, which ensures fair wages and legal protections for migrant workers, strengthens the economic stability of these workers and contributes to their ability to make meaningful financial contributions to their families, driving both short- and long-term improvements in the well-being of migrant worker households.
In light of these insights, policies that promote fair wages, legal protections, and stable employment conditions for migrant workers can enhance the positive impact of remittances, further bolstering the financial well-being of migrant families.
While the opportunity to earn significantly higher wages in South Korea is a significant incentive for migrant workers, it is essential to acknowledge that these workers still face financial vulnerabilities despite the financial advantages offered by the Employment Permit System (EPS). Migrants often encounter various limitations—such as limited access to financial services, lack of financial literacy, and challenges in remittance processes—that prevent them from fully realizing their potential. These constraints can affect their ability to build long-term financial well-being, despite earning higher incomes compared to their home countries.
Furthermore, while remittances sent back to their home countries are crucial in supporting the families of migrant workers, the barriers they face in managing their earnings and accessing formal financial systems can impact the effectiveness of remittances in promoting financial security and long-term prosperity for both the workers and their families.
Further posts can be explored to delve deeper into these financial vulnerabilities and the role that remittances can play in overcoming these challenges to improve the overall financial well-being of migrant workers.
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