Domestic Companies Increase Sales but Do Not Expand Employment... "Impact of Intensified Competition and Facility Investment"

High-Cost Increases Significantly Weaken Employment Creation Power of High-Productivity Firms

[Asia Economy Reporter Seo So-jeong] A survey has found that domestic companies tend not to increase employment even when sales rise. As the relationship between growth and employment weakens, concerns about growth without employment are growing.

According to the report "The Relationship Between Growth and Employment: An Analysis Using Corporate Data" released by the Bank of Korea on the 14th, the employment elasticity was investigated based on the 2014?2019 Corporate Activity Survey data (excluding companies with fewer than 50 employees). The employment elasticity was recorded at 0.27 percentage points (p) for 2017?2019, which is 0.04 percentage points lower than the 0.31 percentage points recorded for 2014?2016.

Employment elasticity refers to the change in employment growth rate in response to a 1 percentage point change in sales growth rate. From 2014 to 2016, the employment elasticity was 0.31 percentage points, meaning that if the sales growth rate increased by 1 percentage point, the employment growth rate increased by 0.31 percentage points. However, from 2017 to 2019, a 1 percentage point increase in sales growth rate resulted in only a 0.27 percentage point increase in employment growth rate.

In particular, the recent decline in employment elasticity is mainly attributed to a significant drop in employment creation capacity among manufacturing companies with 300 or more employees and service companies with fewer than 300 employees that experienced sales growth.

Song Sang-yoon, head of the Employment Analysis Team at the Bank of Korea’s Research Department, explained, "For service companies with fewer than 300 employees, factors such as intensified competition leading to weakened pricing power, and for manufacturing companies with 300 or more employees, increased investment in machinery and equipment appear to have constrained employment growth."

Additionally, it is estimated that the employment creation capacity of high-productivity companies among those with sales growth, fewer than 300 employees, and in the service sector has recently weakened significantly. This is interpreted as a combined effect of cost pressures due to rising cost of goods sold ratios and efforts to expand operating profits through workforce reductions.

Song said, "To strengthen employment creation capacity in small-scale service companies (with 50 to fewer than 300 employees), it is necessary to create a startup-friendly environment by building infrastructure for the growth of new enterprises. While promoting research and development (R&D) for differentiated service provision, policy support is required to ensure that employment-friendly corporate innovation activities are reinforced."

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