Pandemic Border Controls Exposed Migrant Labor’s Critical Role in Korean Industry

A study by Yonsei University and UC Davis researchers finds that when migrant workers disappeared from South Korea’s factories during COVID-19, many firms struggled, some shut down, and domestic workers did not benefit as expected. Instead of replacing migrants, firms reassigned Korean workers to lower-skill tasks, often resulting in lower wages.

A study by researchers from Yonsei University and the University of California, Davis, published through the National Bureau of Economic Research and supported by the Korea Development Institute and the World Bank, examines what happened when South Korea suddenly lost a large share of its migrant workforce during the COVID-19 pandemic. By analyzing detailed surveys of manufacturing firms before and after the pandemic, the researchers explored how businesses and domestic workers responded when the inflow of foreign labor abruptly stopped.

South Korea, like many advanced economies, is facing rapid population aging and a shrinking supply of young workers. As younger generations become smaller and more educated, fewer people are willing to take physically demanding, low-paid jobs in factories. For years, migrant workers have quietly filled these roles, helping small manufacturing firms maintain production.

The Role of Guest Workers in Industry

To address labor shortages, South Korea introduced the Employment Permit System in 2004. The program allows companies to recruit temporary workers from several Asian countries to fill low-skilled jobs. These workers are especially common in small and medium-sized manufacturing firms, where they perform routine tasks such as operating machines, assembling products, and handling repetitive production work.

Within these factories, migrant workers often handle basic manual tasks, while Korean workers carry out more technical, supervisory, or administrative roles. This division of labor helps factories operate efficiently. Migrant workers keep production lines moving, allowing Korean employees to focus on tasks that require more experience or training.

Many of these firms already struggled to hire domestic workers even before the pandemic. Employers frequently reported that there were simply not enough applicants willing to take these physically demanding jobs.

When the Pandemic Closed the Borders

The COVID-19 pandemic created an unexpected test of how important migrant workers were to the economy. When South Korea imposed strict border controls in 2020, the arrival of new guest workers nearly stopped. At the same time, some migrant workers returned home as their contracts ended.

Within a short period, the number of foreign workers in the manufacturing sector dropped sharply. For many firms that depended on this labor supply, the impact was immediate. Production lines lost workers who performed essential tasks, and companies had to figure out how to keep operations running.

The researchers used firm-level survey data to compare companies that relied heavily on migrant workers with those that used fewer of them. This allowed them to see how the labor shortage affected business performance.

Factory Closures and Production Problems

The results show that companies that depended more on migrant workers were significantly more likely to shut down during the pandemic. Losing a key part of their workforce made it difficult for some factories to maintain production. Without enough workers to perform routine tasks, orders were delayed and operations slowed.

The impact was especially severe for smaller and lower-wage firms. These businesses often rely heavily on manual labor and operate with limited financial resources. When labor shortages disrupted production, some simply could not survive.

Even firms that remained open experienced serious difficulties. Many reported falling revenues and production delays after losing migrant workers. Despite these challenges, companies did not respond by rapidly hiring Korean workers to replace them.

Why Replacing Migrant Workers Was Difficult

The study found little evidence that firms increased domestic hiring in response to the labor shortage. One reason is that these jobs were already difficult to fill with local workers before the pandemic. Many employers continued to struggle to attract Korean applicants for physically demanding factory work.

Instead of recruiting new workers, companies mostly kept their existing Korean employees and reassigned tasks inside the firm. Workers who previously handled more specialized jobs sometimes had to take on simpler production tasks that had been done by migrant workers.

This shift had an unexpected effect. Wages for Korean workers actually declined in firms that experienced the largest loss of migrant labor. As employees moved into lower-skill roles, their pay fell as well. Rather than benefiting from reduced labor competition, many domestic workers experienced occupational downgrading.

Automation also did not provide a quick solution. The study found little evidence that companies immediately invested in machines or new technologies to replace missing workers.

Lessons for Immigration Policy

Overall, the research shows that migrant workers play an important and often underestimated role in manufacturing production. Their presence allows factories to divide tasks efficiently, supporting both productivity and employment.

When this workforce suddenly disappeared during the pandemic, some firms closed, others struggled to maintain production, and domestic workers did not necessarily benefit. In many cases, they experienced lower wages and less specialized work.

As populations continue to age in many countries, labor shortages in physically demanding jobs are likely to grow. The experience of South Korea suggests that limiting access to migrant workers can create unexpected economic costs for businesses and employees alike.