If COVID-19 Extends 6 More Months, 30% of Large Companies Say "Workforce Reduction Inevitable"

Survey on Restructuring Status of Top 500 Companies Amid COVID-19 Crisis <Hankyung Research Institute>
"Surviving with Liquidity Securing and Tight Management but Cannot Guarantee Workforce Reduction in 6 Months"
"Average 1.2 Months Leave of Absence or Shutdown, Monthly Wages Cut by 8%"

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[Asia Economy Reporter Kim Hyewon] A survey has revealed that major domestic conglomerates are overcoming the unprecedented management crisis caused by the COVID-19 pandemic through securing liquidity and reducing costs. While they are currently trying to avoid workforce reductions as much as possible, if the COVID-19 situation extends for another six months, about three out of ten companies believe restructuring will be inevitable.

On the 17th, the Korea Economic Research Institute commissioned Research & Research, a polling agency, to survey the top 500 domestic companies by sales on the "Status of Corporate Restructuring Due to the COVID-19 Crisis." The results showed that the main measures to overcome the management crisis caused by COVID-19 were "securing liquidity such as financial funding" (22.5%), "temporary closure or leave of absence" (19.4%), and "salary cuts" (17.5%). Only 8.8% of companies chose "workforce reduction." However, if the management difficulties caused by COVID-19 continue for six months, the proportion of companies that believe workforce reduction is necessary surged to 32.5%.

As measures to prevent an employment crisis, large companies demanded "significant relaxation of eligibility criteria for employment retention subsidies" (37.5%) and "freezing the minimum wage" (10.2%). Although they are implementing temporary closures or leaves of absence, 80.6% of large companies do not receive employment retention subsidies due to not meeting eligibility requirements.

Choo Kwang-ho, Director of Economic Policy at the Korea Economic Research Institute, stated, "Despite severe management difficulties, large companies are trying to avoid workforce reductions as much as possible," and emphasized, "For large companies maintaining employment through temporary closures and leaves of absence during the crisis, the eligibility criteria for employment retention subsidies should be relaxed to ensure smooth payment, thereby supporting private sector efforts to maintain employment."

◆ Six out of ten large companies are pursuing "liquidity securing and cost reduction" = Domestic large companies are mainly pursuing "liquidity securing and cost reduction" (59.4%) as a response to the management crisis caused by COVID-19, while "workforce reduction" (8.8%) remains relatively low. Specifically, the measures were ranked as follows: "securing cash liquidity such as financial funding" (22.5%), "paid or unpaid temporary closure or leave of absence" (19.4%), "salary cuts including bonuses and welfare expenses" (17.5%), "workforce reduction such as voluntary retirement, early retirement, layoffs, and recommended resignations" (8.8%), and "business restructuring such as divestiture of non-core businesses and mergers & acquisitions (M&A)" (4.4%). Companies responding "no separate countermeasures" accounted for 17.5%.

◆ Average temporary closure/leave period 1.2 months... average monthly salary cut -7.9% = Among companies implementing or discussing temporary closure or leave in response to COVID-19, the average period was 1.2 months. By duration, the breakdown was "within 2 weeks (48.4%)," "1-2 months" (19.4%), "2 weeks to 1 month" (12.9%), "2-3 months" (12.9%), and "over 4 months" (6.5%).

The average monthly salary cut among companies that decided to reduce salaries was -7.9% based on employees. The distribution of cut rates was "0 to -10%" (78.6%), "-10 to -20%" (17.9%), and "-30 to -40%" (3.6%).

◆ 32.5% of large companies say workforce restructuring is inevitable if COVID-19 lasts 6 months = If the management deterioration due to COVID-19 continues for more than six months, 32.5% of large companies said it would be difficult to survive without workforce restructuring. This is 3.7 times the current proportion of large companies conducting or planning workforce reductions (8.8%). Regarding the limit period for maintaining employment under the current situation, the responses were "0-2 months" (6.7%), "2-4 months" (16.7%), "4-6 months" (9.2%), and "over 6 months" (67.5%).

Although temporary closure or leave is being implemented to overcome management difficulties, 80.6% of large companies do not receive employment retention subsidies. The main reason for not receiving the subsidies was "failure to meet eligibility criteria" (72.0%). Specifically, "not meeting the required closure or leave period" (52.0%) and "non-recognition of unavoidable employment adjustments due to COVID-19-related sales decline" (20.0%) were cited. Other reasons included "complexity of application procedures and document preparation" (8.0%) and "possibility of subsidy repayment due to new hires or layoffs" (4.0%).

◆ Employment retention subsidy eligibility relaxation + minimum wage freeze needed = As policy support to prevent an employment crisis, large companies most frequently cited "significant relaxation of employment retention subsidy eligibility criteria" (37.5%). This was followed by "freezing the minimum wage" (19.2%), "introduction of payment loan system" (14.9%), "additional designation of special employment support industries" (13.9%), and "introduction of employee salary guarantee system" (11.5%). The Korea Economic Research Institute noted, "Although the eligibility criteria for employment retention subsidies were relaxed in January, large companies still find it difficult to meet the requirements."

This survey was conducted from the 13th to the 24th of last month targeting the top 500 companies by sales with 300 or more employees, with 120 companies responding.

This content was produced with the assistance of AI translation services.