"South Korean Labor Market More Rigid Than US, UK, and Japan... Higher Cost Burden and Strict Employment"

[Asia Economy Reporter Dongwoo Lee] A survey has revealed that South Korea's labor market is more rigid than the so-called G5 countries (United States, United Kingdom, Germany, France, Japan) in terms of employment, dismissal, and working hours. Labor market rigidity limits the autonomy of companies in managing their workforce and negatively impacts job creation, highlighting the urgent need for institutional reforms to enhance flexibility.

The Korea Economic Research Institute (KERI) announced on the 19th that, compared to the G5 countries, South Korea has stricter regulations on employment and dismissal as well as working hours, and bears a heavier labor cost burden.

Regarding employment regulations, the G5 countries generally allow dispatch work freely across most industries, including manufacturing. Except for Germany and France, there are no limits on the duration of dispatch work. The United States, United Kingdom, and Germany have no restrictions on the use of fixed-term contracts, France allows contract renewals up to 18 months, and Japan up to 36 months.

In contrast, South Korea permits dispatch work only in 32 industries such as security and cleaning, excluding manufacturing, and limits both dispatch and fixed-term contract durations to a maximum of two years. On the dismissal side, while the G5 countries spend an average of 9.6 weeks' wages per dismissed employee in severance and related costs, South Korea pays nearly three times that amount, approximately 27.4 weeks' wages.

The unit period for flexible working hours in South Korea is also short at three months, and special extended working hours require both employee consent and approval from the Minister of Employment and Labor, making timely utilization by companies difficult. In contrast, among the G5, the United States and Germany have a flexible working period of six months, Japan one year, France three years, and the United Kingdom has no limit. For special extended working hours, the G5 countries require either employee consent or administrative approval, and some countries have no procedural requirements.

KERI also analyzed that labor costs relative to labor productivity are increasing more in South Korea than in the G5, weakening manufacturing cost competitiveness. Comparing the growth rate of labor costs relative to labor productivity per person in manufacturing from 2010 to 2018, South Korea saw an annual increase of 2.5%, whereas the G5 countries experienced an annual decrease of 1.5%.

Unlike South Korea's single minimum wage system, the United States applies differentiated minimum wages by region, the United Kingdom by age, and Japan by region and industry. Germany and France, like South Korea, apply a single minimum wage but have more exceptions or higher reduction rates.

KERI cited the Fraser Institute's '2020 Economic Freedom' report, explaining that South Korea ranked last (37th) among 37 OECD countries in labor market regulation.

Choo Kwang-ho, Director of Economic Policy at KERI, stated, "Labor market rigidity limits companies' autonomy in workforce management and imposes excessive fiscal burdens, negatively affecting jobs. It is urgent to ease regulations, enhance flexibility, and rationalize excessive labor costs through institutional reforms."

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