Domestic Manufacturing Production Capacity Declines for 2 Consecutive Years... Concerns Over Worsening Employment Environment

[Asia Economy Reporter Ki-min Lee] Concerns have been raised that the domestic manufacturing production capacity has recently deteriorated significantly, potentially worsening the employment environment.

The Korea Economic Research Institute (KERI) announced on the 24th that an analysis of the domestic manufacturing production capacity index from 1990 to last year showed a decline for two consecutive years since 2017. The manufacturing production capacity index refers to the maximum output that can be produced assuming normal operating conditions such as facilities, workforce, and labor hours.

When comparing the average annual growth rate of the manufacturing production capacity index in five-year intervals, the average annual growth rate from 2016 to last year was 0.7%, the lowest ever recorded. The average annual growth rate from 1991 to 2015 was 4.7%.

KERI expressed particular concern that the growth rate of the production capacity index is slowing in industries with relatively high employment contributions, which could negatively impact the employment environment.

According to KERI, among the top 10 manufacturing industries by production value in 2018, five industries, including electronic components and chemicals, showed an increase of more than 1% in production capacity compared to 2015. Two industries, rubber & plastics and metal processing, experienced a decline of more than 1% in production capacity. Three industries, including automobiles and trailers, and other machinery and equipment, maintained production capacity at the 2015 level. The five industries with increased production capacity accounted for 55.1% of the production value among the 10 industries, while the three stagnant industries and two declining industries accounted for 34.1% and 10.8%, respectively.

On the other hand, when looking at employment shares, industries with stagnant or declining production capacity accounted for more than half. The employment share of industries with increased production capacity was 39.7%, stagnant industries 35.2%, and declining industries 25.1%, indicating that stagnant and declining industries make up more than half of domestic employment.

There are also concerns that the employment environment could worsen due to job offshoring in these industries. An analysis of the Korea Eximbank’s 2018 fiscal year data on local subsidiaries by industry showed that among the top 10 manufacturing industries, metal processed products?which had the largest decline in production capacity index at 8.5%?saw a 47.5% increase in overseas employees from 2015 to 2018, reaching 14,898 employees. This figure is similar to the increase in domestic employment during the same period (14,957 employees).

Choo Kwang-ho, Director of Economic Policy at KERI, stated, “Due to the restructuring of the global value chain (GVC) caused by the COVID-19 pandemic, countries worldwide are competitively promoting reshoring policies (the return of overseas enterprises to their home country). South Korea must secure a comparative advantage in the manufacturing business environment compared to competing countries by enhancing labor market flexibility, improving corporate regulations, and providing various investment incentives. This will enable not only the return of domestic companies but also the active attraction of foreign investment, leading to the creation of quality jobs.”

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