Recent demographic and technological changes have deepened labor market imbalances – disparity between labor supply and demand - across industries, regions, and skill levels. Although international migration is often proposed as an alternative to mitigate these imbalances, assessing the economic and social impacts of immigrant inflows remains challenging. This report examines whether the influx of foreign labor can help ease Korea’s labor shortages by (1) reviewing the immigration policies of Korea and other major countries (Chs. 2-3) , (2) conducting empirical analyses on the effect of labor mobility (Chs. 4-6), and (3) proposing policy options for Korea (Ch. 7).

Chapter 2 defines labor imbalance as a mismatch between labor demand and supply in specific periods or sectors, driven not only by short-term wage rigidity but also by structural change such as demographic decline and industrial transition. Previous studies project widening labor shortages over the next decade in Korea, particularly in health and social care, ICT, logistics, food services, and agriculture. Korea’s immigration policy is gradually shifting from a short-term rotational model toward longer-term residence, yet restrictions on low-skilled labor, weak competitiveness in attracting skilled workers, and public concerns about social integration remain major obstacles.

Chapter 3 compares labor mobility trends in the EU, the US, Japan, Vietnam and India. EU’s Free movement enables labor exchange that eases shortages in manufacturing and construction. The EU uses instruments such as the Single Permit Directive, Seasonal Workers Directive, and Blue Card to attract various types of labor. The US experienced persistent shortages in low-wage sectors, leading to the establishment of short-term labor visas such as H-1B, H-2A, and H-2B, with undocumented immigrants filling remaining gaps.

Recent political pressures have reduced both unauthorized and legal entries, raising costs and disrupting production in immigrant-dependent industries. Facing rapid aging, Japan has strengthened both low-skilled and high-skilled labor channels. Japan recently introduced a new “Skilled Labor” system in 2024 and expanded highly skilled visas such as J-SKIP and J-FIND. Vietnam, which sends a large number of workers to Korea, maintains a state-led labor export system, characterized by stricter regulation and cost controls to reduce illegal migration. India also shows strong incentives for overseas migration, as low-skilled workers mainly migrate to the Middle East while high-skilled professionals move to advanced economies. The Indian government is expanding bilateral mobility agreements and diaspora engagement.

Chapter 4, then, analyzes the impact of increasing immigrant shares within the EU on labor market efficiency using indicators such as labor market tightness, vacancy rates, unemployment, and labor market slack. The EU has a unique background of significantly increased immigration inflows during its expansion process. 2SLS analyses report that higher immigrant share reduces labor market tightness by decreasing vacancies and increasing labor. Notably, short-term effects showed a significant increase in employment for low-skilled immigrants, while the influx of highly skilled immigrants drives employment expansion in the service sector in the long term.

Chapter 5 analyzes the effects of expanding Korea’s Employment Permit System. The results show that regions with increased foreign labor experienced a reduction in labor shortages with a lag of about one year. However, no improvement in labor productivity was observed from the influx of foreign workers, potentially because of the lack of skills among new foreign workers and the delayed exit of low-productivity businesses from the market. It suggests that it is necessary to improve the employment permit system by allowing longer-term stay rather than simply increasing new foreign labor.

Chapter 6 represents the original contribution of this report by analyzing the link between trade and migration. This chapter examines the effects of the trade-migration linkage by analyzing the operational effects of Mode 4 (movement of natural persons) in service trade agreements. According to this chapter’s empirical analysis, while simple Mobility provisions alone show no clear trade-enhancing effect, combining them with illegal migration control provisions yields an expansionary effect on service trade. Specifically, concessions for intra-corporate transferees and trainees show positive impacts, whereas those for CSS or business visitors sometimes show negative effects. This indicates that Mode 4 concessions become less effective when not linked to visa systems or when conditions are overly restrictive. Subsequently, an investigation of Mode 4 concession best practices revealed a growing trend toward opening that increasingly includes CSS and IP.

Based on these findings, Chapter 7 proposes three policy directions: (1) streamline foreign labor inflow and strengthen employment management by improving data, simplifying residency and workplace rules, accelerating matching processes, and enhancing oversight; (2) link immigration and trade by setting targets for professional inflows and aligning Mode 4 concessions with Korea’s visa system, including for care workers; and (3) deepen cooperation with sending countries to support skill development and coordinate labor supply. Although the report provides a comprehensive review and broad policy direction, further research is needed on immigration governance, strategies for attracting high-skilled talent, effect of changing global trends in migration, management of illegal stays, and a full cost–benefit analysis of immigration.