"Large Corporations, Long-Established Companies, and R&D Talent Development"… Hankyung Research Institute Proposes Policies to Resolve Youth Employment Issues

[Asia Economy Reporter Su-yeon Woo] The Korea Economic Research Institute (KERI) has presented practical proposals to solve youth employment issues, including fostering talent in large corporations and R&D, lowering inheritance tax rates for the sustainability of long-established companies, and improving labor regulations.

On the 18th, KERI proposed five major policy directions and ten policy tasks to address youth employment problems. Currently, the youth unemployment rate in South Korea stands at 9.0% as of last year, which is 2.3 times higher than the overall average unemployment rate of 4.0%. The perceived youth unemployment rate reaches 25.1%, meaning one in four young people feel unemployed.

KERI diagnosed that increased regulations and cost burdens have reduced companies' capacity to create jobs, and the unexpected COVID-19 pandemic has further worsened the employment situation for youth. To resolve this, they argue that quality jobs should be created primarily by private companies.

Trends in Domestic and Overseas Jobs of 7 Major Domestic Companies (Samsung Electronics, Hyundai Motor, LG Electronics, SK Hynix, Kia, Hyundai Mobis, Samsung C&T) (Unit: Persons) / Source: Korea Economic Research Institute

First, KERI emphasized the need to eliminate various regulations that hinder the growth of domestic large corporations and create quality jobs centered on these large companies. Over the past five years, major domestic large corporations have reduced overseas jobs while steadily increasing domestic employment.

Examining the employment trends of seven South Korean companies (Samsung Electronics, Hyundai Motor Company, LG Electronics, SK Hynix, Kia, Hyundai Mobis, Samsung C&T) listed in the Fortune Global 500, domestic employment increased by 8.5% from 276,948 in 2015 to 300,491 in 2020, whereas overseas employment decreased by 16.8% from 363,722 to 302,554 during the same period. Notably, even last year, when the COVID-19 pandemic caused difficulties, domestic jobs increased by 2.0% compared to the previous year, showing a significant domestic employment creation effect by global large corporations.

KERI pointed out that the number of large corporations in South Korea is significantly lower compared to major advanced countries and stressed the need to resolve the system that increases various additional regulations targeting large corporations, such as the Fair Trade Act, Financial Holding Companies Act, and Commercial Act. They argue that establishing three major regulatory principles, including the introduction of a principle-permission system, should be prioritized as a top national agenda.

Secondly, anticipating increased demand for development personnel in the era of the Fourth Industrial Revolution, KERI suggested support for creating high-skilled jobs. The main reason for the decrease in overseas jobs and increase in domestic jobs is interpreted as the industrial structure shifting from labor-intensive industries to technology-intensive industries, resulting in a decline in overseas-based manufacturing jobs and an increase in domestic-based research and development positions.

In line with this trend, KERI emphasized the necessity of nurturing talent in new growth industries and called for a comprehensive review of key regulations such as the restriction on university admission quotas under the Capital Region Readjustment Planning Act. They also argued that tax credit rates for medium and large companies should be expanded to the level of small and medium enterprises, at least for new growth, core technologies, and national strategic technologies, which involve high uncertainty and large-scale investments.

Thirdly, KERI advocated for establishing an institutional environment that allows the emergence of many long-established companies, similar to Germany and Japan. The biggest difficulty in domestic business succession is cited as the "concern over enormous tax burdens." To alleviate this, they proposed lowering the current maximum inheritance tax rate of 50% to 25% and extending the installment payment period from the current 5 years to 10 years.

Improving labor regulations and establishing autonomous labor-management working environments were also mentioned as urgent tasks to increase companies' capacity for new hires. For example, they suggested refraining from extending the retirement age until the youth employment rate reaches the OECD average level (50.8% in 2020; South Korea was 42.2%, ranking 31st among 38 OECD countries). If retirement age extension is agreed upon socially, it should be accompanied by the introduction of wage peak systems and wage structure reforms. Additionally, they recommended improving outdated, uniform labor laws, such as the 52-hour workweek regulation, by allowing annual adjustments tailored to workers and companies, thereby establishing flexible labor laws suitable for the Fourth Industrial Revolution era.

Lastly, KERI emphasized the need to create an environment where young people can plan a stable retirement solely based on "earned income." To this end, they proposed excluding the minimum tax application from the employment increase tax credit until at least minimal youth unemployment is resolved, providing prompt policy support to youth. Furthermore, to reduce the burdens young people must bear due to low birth rates and aging, they suggested forming a "100-Year Sustainable Pension Reform Special Committee" to publicize the necessity of pension reform and urgently establish a pension system that young people can also benefit from.

Choo Kwang-ho, Director of Economic Policy at KERI, stated, "Due to severe employment difficulties, many young people are giving up job searching or postponing employment to obtain better jobs," and emphasized, "To solve youth unemployment, it is important to increase the number of large corporations that can provide stable working environments and foster long-established companies capable of sustainable growth and employment."

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