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Economy

South Korea's labor reforms come up against social convention

Job seekers check listings at a government-sponsored job fair in Seongnam, a Seoul suburb.

SEOUL -- Yoo Sang-hyuk, a 36-year-old chef, left his native South Korea earlier this year for Australia, fed up with marathon working hours and meager wages.

In Seoul, he worked at least 60 hours per week but was paid for only 52, the legal limit. In Sydney, he gets paid for every hour he puts in. The relocation has quadrupled his income for the same hours he worked in Korea. "I can't believe I didn't move sooner," Yoo said.

He is not alone in believing Korea's labor laws are broken. Employers are unhappy that strict laws tie their hands in laying off workers. Employees complain they work some of the longest hours in the developed world.

Companies do not want to hire permanent salaried workers because they are hard to dismiss. Workers hired on fixed-term contracts are paid a fraction of the wages full-salaried colleagues get even if they were doing the same job.

President Park Geun-hye said deregulating the labor market would eliminate these inefficiencies. Economists, too, said deregulation would help the country reduce its dependence on exports that rely heavily on the increasingly troubled Chinese economy.

Park's reforms would make it easier to sack permanent workers, which would reduce the risk for employers in making new hires. She also wants to shorten regular work hours to increase overtime pay and promote the hiring of part-time staff.

Economists said Seoul's move toward greater labor market flexibility was inevitable, following global trends. They expect Park to continue to push for reforms despite the defeat of her conservative Saenuri Party in parliamentary elections in April.

Saenuri lost its parliamentary leadership and its labor market reforms are being opposed by the main opposition Minjoo Party and labor unions. Fitch Ratings said after the election that the shift in parliamentary power "will likely make passage of any potentially contentious legislation, including that pertaining to labor market and service sector reforms, more difficult."

But the conservatives might be able to still gather enough votes to pass the new laws if the proposal is backed by the centrist People's Party, which holds the balance of power in the National Assembly and has said it is willing to negotiate on the issue.

"I don't see this as a left-wing [or] right-wing argument. It's a collective realization that a change is required," said Peter S. Kim, managing director at Mirae Asset Daewoo, a securities company in Seoul.

Critics said reforms would only result in the creation of more "irregular" jobs that Koreans shun because they are based on fixed short-term contracts that do not lead to promotion and retirement benefits. 

Koreans prefer long-term jobs, which offer solid legal protection. Work and life are closely linked in Korea and an emotional attachment to one's career is considered a virtue. Rather than reward ability, companies determine salaries, status and job titles based on the length of time employees have spent in jobs.

Crisis-led changes

In the aftermath of the 1997-98 Asian financial crisis that struck Korea hard, the government began to allow troubled companies to hire "irregular" workers, who were employed on a contract of up to two years and could be easily laid off. These irregular workers now make up a third of the workforce because they are cheaper to hire and get fewer benefits.

This dual labor structure has created an inefficient and unfair market. Labor productivity in South Korea is among the lowest in the Organization for Economic Co-operation and Development. Wage inequality is the second-highest in the OECD after the U.S.

Job applicants and company representatives discuss opportunities at a city-sponsored job fair in a Seoul suburb in June.

An average South Korean worker in 2014 put in 2,124 hours, or 354 hours more than the OECD average. The World Economic Forum in its most recent Global Competitiveness Report ranked South Korea 121st out of 140 countries surveyed in terms of labor market flexibility.

Analysts said people seeking a job in a post-reform market would need better welfare benefits, including higher unemployment compensation and opportunities to retrain.

Yang Jae-jin, a professor of public administration at Yonsei University in Seoul, said unemployment benefits, which were currently capped at around $40 a day, could not sustain the average Korean family of four if the father, normally the breadwinner, were to attend retraining courses that could stretch for months.

"Mention that [amount] to an engineer at one of South Korea's major shipbuilders [which are facing bankruptcy] and see what they say. An average employee there gets paid [roughly] 100 million won ($85,196) per year," said Yang.

The situation is worse for irregular workers. Labor ministry data reveal that about half do not receive unemployment benefits and the ministry has no plans to increase unemployment entitlements.

Oh Ho-young, a researcher at the state-funded Korea Research Institute of Vocational Education and Training, said the labor market reforms would create more jobs, but most would still be short-term contracts. He said the government should reorganize retraining programs, which were too focused on keeping workers in the same industry rather than encouraging them to switch to other sectors.

Jung Dae-young, an economist and former Bank of Korea official, said the proposed reforms missed the bigger picture. The export-driven manufacturers that lifted the country out of poverty are slowing down, meaning these once-formidable growth engines were unlikely to create many jobs, especially for young people.

He added that additional reforms targeting the most coveted jobs, which are in the medical and legal sectors, were needed to increase the number of "stable jobs that people actually want."

Numerous polls surveying highschool students have shown an overwhelming preference for lifetime posts at government agencies and state-owned enterprises as well as high-skilled occupations like professors, doctors and lawyers over careers at leading conglomerates.

Jung noted that the government would have to reduce legal protection for bureaucratic jobs and the professions to avoid exacerbating competition for these coveted positions. For example, doctors have successfully lobbied for a role in supervising chiropractors and tattooists on safety grounds.

Office workers claimed they enjoy less job protection than manufacturing workers, who were mostly backed by unions. Office workers claimed that it was not an uncommon practice for companies to physically isolate the ones they want to sack and not give them anything worthwhile to do to push them to quit "voluntarily."

Younger employees said that senior staff had unfair influence over their performance reviews and layoff decisions and fear such practices would continue in the post-reform period.

Chef Yoo said the traditional idea that one should stay in a particular job was what partly prompted his move to Australia. In Seoul, he was rejected by restaurant owners many times for being "too old" after he decided to switch to cooking from his previous job in the fashion industry.

Such social beliefs could make it difficult, but not impossible, to introduce labor market reforms. "It's a matter of speed, not direction," said S. Nathan Park, a Washington-based lawyer specializing in South Korea's trade issues.

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