"South Korea's Wage Increase Rate Steeper Compared to Major Countries... Improving Labor Productivity"

KIAF Online Seminar on "International Comparison and Implications of Wages, Working Hours, and Labor Productivity"

[Image source=Yonhap News]

[Asia Economy Reporter Yu Je-hoon] It has been found that the average hourly wage of Korean companies is rising sharply compared to major countries. This is a consequence of the rapid reduction in working hours. The business community advises that since this trend could weaken the national industrial competitiveness, measures such as adjusting the pace, accelerating entry into new industries to improve labor productivity, regulatory reform, and tax support are necessary.

According to the "International Comparison of Wages, Working Hours, and Labor Productivity and Its Implications" presented by the Korea Industrial Alliance Forum (KIAF) through an online seminar on the 17th, Korea's average hourly wage in 2019 (based on the 2017 purchasing power parity index) was $23.6. This is lower than major countries such as the United States ($28.7), Germany ($39.7), and France ($26.3), but exceeds Japan ($17.6) and the United Kingdom ($22.2).

Average Hourly Wage Growth Rate Surpasses Major Countries

In terms of average hourly wage growth rate, Korea outperformed the five major competing countries (United States, Japan, Germany, United Kingdom, France) in key industries. In fact, compared to 2015, Korea's average hourly wage growth rate was 20.1%, surpassing the United States (12.5%), Japan (-1.5%), Germany (17.9%), United Kingdom (16.6%), and France (11.7%).

The main cause of the sharp increase in average hourly wages is the reduction in average working hours. Looking at the change rate of working hours during the same period, Korea's decrease rate was -10.6%, significantly ahead of the five major countries (0.2% to 6.2%). Even when looking at the monthly average wage growth rate, Korea showed 12.1%, which was not much different from other countries (12.3% to 16.7%) except Japan (-3.7%).

By industry, Korea's manufacturing sector saw an average hourly wage growth rate of 33.7%, surpassing manufacturing powerhouses such as Germany (26.3%) and Japan (2.8%). KIAF explained that this is also a result of the high decrease rate in average working hours.

Park Seo-woo, a researcher at KIAF, stated, "As a trade-off for the improvement in workers' quality of life due to the decrease in average working hours and the increase in average wages, some product price competitiveness has inevitably weakened," adding, "The sharp decline in the trade balance ratio relative to domestic GDP from 2017 to 2019 likely played an important role in this price competitiveness weakening."

Urgent Need for Regulatory Reform and Labor Flexibility

The problem is that the labor productivity growth rate has not kept pace with such a rapid wage increase. According to the KIAF survey, Korea's value-added labor productivity last year increased by only 9.8% compared to 2015, falling far short of the average hourly wage growth rate (25.6%) during the same period.

Of course, this is not a problem unique to Korea. From 2012 to 2019, Korea's labor productivity growth rate was 12.7%, surpassing other countries that ranged from 0.6% to 7.0%. Researcher Park said, "However, the gap between Korea's wage growth rate and productivity growth rate (14.8%) was the second highest after Germany (22.0%), which could lead to a weakening of international competitiveness, so adjusting the pace of wage increases is necessary."

In the subsequent discussion, opinions were raised that regulatory reform and securing labor flexibility are necessary to strengthen labor productivity. Senior Research Fellow Cho Cheol of the Korea Institute for Industrial Economics and Trade said, "Our industrial production sites, facing a transition due to environmental changes such as the 4th Industrial Revolution and carbon neutrality, require rapid transformation," adding, "Along with reduced working hours and wage increases, flexibility in the utilization of working hours, wage setting, and labor allocation should be expanded beyond the current level."

Shin Se-don, honorary professor at Sookmyung Women's University, also emphasized, "The solution is either to slow down the wage increase or to raise labor productivity, but since it is difficult to slow wage increases in large companies with strong union bargaining power, the answer lies in improving labor productivity," adding, "The state and companies must build the latest facilities and equipment, and advanced technology education based on workers' cooperation and the spirit of cooperation among labor, management, and government are absolutely necessary."

There was also a call for fundamentally focusing on fostering high value-added new industries. Jung Man-ki, chairman of KIAF, said, "To achieve the seemingly contradictory goals of improving labor productivity and expanding employment, it is important to continuously enter high value-added new industries," adding, "Bold regulatory innovation such as introducing autonomous or negative regulations on new industries and easing regulations in the metropolitan area should be implemented, and government support efforts such as tax reductions for research and development (R&D) and facility investment, as well as training of advanced technology personnel, should be strengthened."

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