Migrant Laborer's Optimization Mechanism Under Employment Permit System(EPS): Introducing and Analyzing 'Skill-Relevance-Self Selection' Model

Abstract: Migrant laborers subject to ROK's Employment Permit System(EPS) must strike a balance between host country's high wage and 'Depreciation of skill-relevance entailed by immigration', whilst taking account of the 'migration costs'. This study modelizes the optimization mechanism of migrant workers and the firms hiring them -- then induces the solution of the very model, namely, 'Subgame Perfect Nash Equilibrium(SPNE)', by utilizing game theory's 'backward induction' method. Analyzing the dynamics between variables at SPNE state, the attained stylized facts are what as follows; [1]Host nation's skill-relevance and wage differential have positive correlation. [2]Emigrating nation's skill-relevance and wage differential have negative correlation. Both stylized facts -- [1,2] -- are operationalized into 'Host nation skill-relevance hypothesis(H1)' and 'Emigrating nation skill-relevance hypothesis(H2)', respectively; of which are thoroughly tested by OLS linear regression analysis. In all sex/gender parameters(Total/Men/Women), test results support both hypotheses with statistical significance, thereby inductively substantiating the constructed model. This paper contributes to existing labor immigration literature in three following aspects: (1)Stimulate the economic approach to migrant labor analysis, and by such means, break away from the overflow of sociology, anthropology, political science, and jurisprudence in prior studies; (2)Shed a light on the EPS's microeconomic interaction process, of which was left undisclosed as a 'black box'; (3)Seek a complementary synthesis of two grand strands of research methodology -- that is, deductive modeling and inductive statistics.