Hankyung Research Institute: "To Solve Youth Unemployment, Labor Flexibility Like Germany Is Needed"

Source: Korea Economic Research Institute

[Asia Economy Reporter Changhwan Lee] There has been a claim that it is necessary to adopt Germany's labor market flexibilization policies as a measure to improve South Korea's serious youth unemployment problem.

The Korea Economic Research Institute announced on the 21st that an analysis of labor market flexibility and youth unemployment rates in South Korea and Germany from 2003, when Germany's Hartz reforms took place, to 2019 showed that Germany's labor market flexibility ranking rose 42 places from 80th out of 123 countries in 2003 to 38th out of 162 countries in 2019, while South Korea's ranking sharply dropped 81 places from 63rd in 2003 to 144th in 2019.

During the same period, the labor market flexibility score (maximum 10 points) increased by 4.6 points in Germany from 2.9 to 7.5, whereas South Korea's score rose by only 1.0 point from 3.8 to 4.8.

The Hartz reforms refer to various reform measures undertaken by Germany's Schr?der government in 2003 to overcome the crisis of low growth and high unemployment by flexibilizing the labor market.

At that time, the Schr?der government abolished the upper limit on dispatch periods (2 years), expanded workplaces exempt from the Employment Protection Act (from workplaces with 5 or fewer employees to those with 10 or fewer), and reduced social insurance premiums for small jobs (monthly wages of 800 euros or less). Even after the Merkel government took office in 2006, the labor reform trend continued with measures such as lowering employment insurance rates and further expanding workplaces exempt from the Employment Protection Act (from 10 or fewer employees to 20 or fewer).

In contrast, the Korea Economic Research Institute emphasized that South Korea introduced many policies that strengthened labor market rigidity, such as tightening regulations on dispatch and fixed-term employment and strengthening union rights.

Comparing youth unemployment rates, Germany's youth unemployment rate decreased by 5.3 percentage points from 10.2% to 4.9% between 2003 and 2019, thanks to labor market flexibilization, while South Korea's youth unemployment rate worsened by 0.9 percentage points from 8.0% to 8.9% during the same period.

Germany's labor market flexibility ranking was lower than South Korea's in 2003, at 80th out of 123 countries compared to South Korea's 63rd, but by 2019 it rose to 38th out of 162 countries, significantly surpassing South Korea's 144th place.

The Korea Economic Research Institute analyzed that this was the result of Germany steadily implementing efforts to enhance labor market flexibility by easing regulations on dispatch and fixed-term employment, relaxing dismissal regulations, and reducing labor cost burdens, while South Korea's labor market became more rigid.

Choo Kwang-ho, Director of Economic Policy at the Korea Economic Research Institute, stated, “In the past, Germany's labor market was more rigid than South Korea's, but by successfully carrying out labor reforms, youth employment greatly improved. It is time for us to flexibilize the labor market and create a new turning point for youth unemployment, which is heading toward the worst situation ever.”

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