"Korea Needs Labor-Management Cooperation, Low Employment Burden, and Flexibility to Achieve 70% Employment Rate"

[Asia Economy Reporter Jeong Hyunjin] It has been argued that for South Korea to achieve an employment rate of 70%, similar to the United States, Japan, Germany, and the United Kingdom, cooperative and balanced labor-management relations, low employment burdens, and labor market flexibility must be supported.

On the 8th, the Korea Economic Research Institute under the Federation of Korean Industries analyzed the employment environment characteristics of the "50 million population and employment rate above 70% countries (5070 countries)" such as the United States, Japan, Germany, and the United Kingdom. Considering the impact of COVID-19 last year, the 2019 employment rates were 71.3% for the United States, 76.2% for the United Kingdom, 76.7% for Germany, and 77.7% for Japan, while South Korea was below 70% at 66.8%.

The Korea Economic Research Institute first evaluated that unlike the United States, Japan, Germany, and the United Kingdom, South Korea has adversarial and backward labor-management relations, causing companies to bear considerable losses. According to the World Economic Forum (WEF) labor-management cooperation rankings, the four countries ranked between 5th and 33rd out of 141 surveyed countries, placing them in the top tier, whereas South Korea ranked 130th, remaining in the bottom tier. Examining the number of workdays lost due to strikes per 1,000 wage workers from 2009 to 2019, South Korea averaged 38.7 days annually, which is 193.5 times that of Japan, 5.8 times Germany, 5.4 times the United States, and 2.2 times the United Kingdom.

(Data=Korea Economic Research Institute)

The Korea Economic Research Institute pointed out, "One reason for South Korea's adversarial labor-management relations is the legal system biased toward labor unions," adding, "Unlike the four countries, South Korea prohibits replacement labor during strikes, which is a countermeasure for employers, while allowing partial and concurrent workplace occupations by unions, resulting in laws that favor the labor side."

The institute also viewed that South Korea has higher employment burdens compared to the United States, Japan, Germany, and the United Kingdom. From 2010 to 2020, the average annual increase rate of hourly wages in manufacturing was 3.4% in South Korea, about twice the average of the four countries (1.6%). The minimum wage level and its growth rate were also the highest in South Korea compared to the four countries. According to the Korea Economic Research Institute's survey, as of 2019, South Korea's minimum wage as a percentage of the median wage was 62.6%, up to 31.0 percentage points higher than the four countries (31.6% to 55.1%). Over the past five years, South Korea's average annual increase rate of hourly minimum wage was 9.0%, the highest among them.

In terms of labor flexibility, South Korea was found to be more rigid compared to the United States, Japan, Germany, and the United Kingdom. According to the WEF labor market flexibility rankings, South Korea ranked 97th out of 141 countries, whereas the United States ranked 3rd, Japan 11th, the United Kingdom 14th, and Germany 18th, placing the 5070 countries in the top tier.

(Data from Korea Economic Research Institute)

The Korea Economic Research Institute reported that most of the four countries freely allow dispatch work for most tasks and, except for Germany, have no restrictions on the duration of dispatch work. Additionally, there are no limits on the duration of fixed-term employment, and in Japan, although there is a 36-month limit per contract, contract renewals are possible. South Korea, however, only permits dispatch work for 32 tasks such as security and cleaning, and both dispatch and fixed-term employment durations are limited to a maximum of two years, which the institute pointed out as rigid.

Regarding regular employee dismissal, the Korea Economic Research Institute claimed that South Korea has stricter regulations compared to these countries. According to the Organisation for Economic Co-operation and Development (OECD), South Korea ranked 20th out of 37 OECD countries in terms of flexibility of regular employee dismissal regulations, lower than the four countries (ranked 1st to 16th). When dismissing one employee, the average legal costs including severance pay in the four countries amount to 8.8 weeks' wages, whereas in South Korea, it costs about three times more, at 27.4 weeks' wages.

Choo Kwang-ho, head of the Economic Policy Office at the Korea Economic Research Institute, said, "To improve the domestic employment rate, it is necessary to improve related laws and systems, such as supplementing employer countermeasures to establish balanced labor-management relations according to global standards and easing employment and dismissal regulations."

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