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Despite its connotation and despite the fact it is often perceived as a measure to abolish excessive state intervention, labour market deregulation has neither led to less state involvement in labour market affairs nor even less regulation. Instead, governments today appear to be much more active and to intervene and change labour market regulation more frequently than in the past. Compared to other developed countries that have implemented labour market reforms (and there are few that haven't) Germany and Japan stand out in that both opted for "asymmetrical deregulation" (Miura 2001), that is, near comprehensive deregulation of non‐regular employment combined with small changes to regular employment (Seishain koyou and Normalarbeitsverhältnis). Enacted in relatively stable economic circumstances and meant to enhance labour flexibility and to increase employment
(the "sunny side" that has at least been partially successful) this deregulation today is associated with rising social costs due to accelerated adjustment processes, insufficient benefit schemes and worsening employment prospects (the "dark side"). The global financial crisis can also be seen as the first major crisis of the newly deregulated labour markets and as the first serious test of the state's extended role as regulator and provider of welfare for those not covered by industrial relations. Although it is way too early to draw conclusions from current events, it is nevertheless worthwhile to look at the policy options available in terms of 'political feasibility' and institutional consistency with national state models (something where we find considerable differences between the two countries). The paper addresses this by putting current developments into the context of changes in labour market regulation and labour policy in the last 15 years.

Today the global economic crisis critically hit all the national economies over the world. The unemployment rates have sky-rocketed in the most of the countries. In a sense, the global economic crisis is testing the effectiveness of the each country's social protection system especially for the vulnerable in the economy. Korea is not an exception to this crisis. The major growth engines in the Korean economy have lied in export-oriented manufacturing sectors. The Korea's economic growth rate is expected to be minus in this year. Many workers are now being unemployed and especially the irregular workers are becoming the first targets for the laid-off. However, the social protection system in Korea does not function well especially for the irregular workers, although Korea officially has a universal insurance system that protects the major risks of all the people. In other words, the vulnerabilities of the irregular workers are doubled from the recent global economic crisis.

This paper attempts to answer the part of the fundamental research question of why the irregular workers have persistently increased and been so vulnerable from the comprehensive social insurance system in Korea. It is not easy for the government to help the irregular workers with various policy instruments such as the regulations of labor market as well as social protection system. Although most countries are suffering this problem, the Korean case is more intense and has structural origins.

             This paper tries to find more structural and institutional reasons for the vulnerabilities of the irregular workers in Korea: the institutional incompatibilities between production and welfare systems. Korea has today an extremely polarized dualist labor market due to the changing industrial structure and a particular production system, which can be characterized as a neo-Fordist production system based on a few monopolized and export-oriented large-business groups with a multi-layered hierarchical subcontract system. A large size of irregular workers becomes a buffer zone for the employment flexibility and low wages in order to maintain the economic competitiveness for the export sectors over the global market. At the same time, Korea has historically constructed a social insurance-based social protection system, which might be called 'a developmental welfare system' in which the government financial role has been minimized and the only workers in stable jobs who can contribute to the insurance programs can be protected.

             In this paper the interactions among the production system, labor relations, and the social protection system in Korea will be analyzed in order to answer the puzzle of the vulnerability of the irregular workers and the limitations of the social insurance-based social protection system from the global economic crisis. This paper is expected to have a significant implication for the export-oriented manufacturing economies in the East Asian context.