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Economy

South Korea pledges help for small firms as population slide looms

Many SMEs say they cannot attract workers as talent goes to chaebols

A jobseeker checks out positions at a job fair in Seoul last year.   © Reuters

SEOUL -- Smaller companies have long been the underdog in South Korea, unable to prevent talent heading to the massive conglomerates that dominate the economy. Now, a looming population decline is set to add to their woes.

In a plan announced on Wednesday to mitigate this demographic challenge, the Finance Ministry pledged to support these small and medium-sized enterprises that account for 88 percent of employment and 38 percent of exports.

The ministry is seeking to help SMEs transition into new more promising industries, providing funds for companies to improve facilities and giving emergency financial assistance to those in danger of going under. While the plan is short on specifics, it includes measures to attract more immigrants and keep people working past the normal retirement age of 60.

The Kyunghyang newspaper said that it was "the first time the government has recognized the reality of population decline and come out with comprehensive measures to adapt." The paper argued that it was a shift away from the government focusing on attempts to encourage more childbirths.

Despite government efforts to encourage families to have more children, in late August the national statistics body said that last year's birthrate was 0.98, a record low -- far short of the average of 2.1 children borne per woman needed to keep a population stable. The most common explanations for one of the lowest birthrates in the world are high housing and education costs amid a dearth of stable, well-paid jobs.

Even with South Korea experiencing relatively high unemployment in recent years, many SMEs have said they are unable to fill vacancies. Two-thirds say they don't have enough workers, according to the results of a survey released Wednesday by JobKorea. The online recruiting service polled 526 companies with fewer than 300 employees, finding that manufacturers, at 35 percent, are the most likely to report labor shortages.

The responding companies said they were unable to recruit talent because of job seekers' high expectations, the comparatively low salaries paid by SMEs and their locations -- often outside of major urban centers. Unable to keep the most talented people from joining the conglomerates, most SMEs carve out niches as suppliers of a narrow range of items to particular chaebol.

With South Korean SMEs unable to compete with the country's big business groups, known as chaebol, most SMEs carve out niches as suppliers to those groups.

It is uncertain whether government subsidies can lead struggling SMEs to a sustainably profitable future.

"Many Korean SMEs are competing on price while producing low-end products. They're being squeezed by lower-cost competitors in emerging countries, like China," Park Sang-in, Executive Director of the Research Center for Market and Government at Seoul National University, told the Nikkei Asian Review. "For them, this kind of government support is a temporary life saver, not a fundamental solution."

Jobseekers say they stay away from SMEs due to the customarily long working hours, and a general slowness to embrace changes taking place in South Korean workplaces. Last year, the administration of President Moon Jae-in set a limit of 52 hours of work per week, in an effort to spur hiring and allow workers a better work-life balance.

The 52-hour limit takes effect next week for companies with fewer than 300 employees, which were given a one-year grace period before having to comply with the cap. The Ministry of Employment released findings of a survey of SMEs on Thursday that found only 60 percent of SMEs say their operations won't be disrupted by the limit.

Therefore, attracting labor from overseas could be a solution to shortages, but South Korea is a country with strict immigration laws and limited history of integrating outsiders. But in a sign of some opening, the plan stipulates a loosening of certain measures to ease the paths of foreigners who have spent successful stints working in the country, and to create a new class of visa meant to attract foreigners with exceptional skills and qualifications.

Currently, many South Korean SMEs employ low-wage workers from overseas, mostly less developed countries in Asia. The government limits the number of visas granted to such workers, and limits their ability to legally remain in the country or move between jobs.

It is also unclear if counselling or subsidies from the government can address the problem of SMEs being squeezed by cheaper producers in China.

Park argues that the government's plan fails to provide a credible way forward for the country's economy as a whole, which is currently stuck in low growth.

"It's unfortunate for Koreans that their government focuses on providing financial support for SMEs instead of making investments toward developing more innovative, technology-intensive products," he said.

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