Shipbuilding Industry Contractors Agree to Minimize Wage Gap... "First Puzzle of Labor Reform Completed"

Signing of 'Double Structure Improvement and Win-Win Agreement in Shipbuilding'
Five Major Shipbuilders Including Hyundai Heavy Industries Reach Subcontractor-Contractor Compromise
Increase in Subcontractor Wages to Close Contractor-Subcontractor Gap

Employees are entering through the west gate of Daewoo Shipbuilding & Marine Engineering Okpo Shipyard in Aju-dong, Geoje-si, Gyeongnam. [Image source=Yonhap News]

Five major domestic shipbuilding companies, including Hyundai Heavy Industries and Samsung Heavy Industries, have agreed to minimize the wage gap between primary contractors and subcontractors to resolve the dual structure of the labor market. They will reform the wage system to be skill-centered so that workers are paid according to the amount of work done regardless of whether they are primary or subcontracted workers, and will use an escrow payment system to prevent wage arrears for subcontracted workers.

The Ministry of Employment and Labor announced on the 27th that it held a signing ceremony for the "Mutual Growth Agreement for Improving the Dual Structure of the Shipbuilding Labor Market" at the Hyundai Heavy Industries Guest House in Ulsan.

This agreement is part of the "Measures to Eliminate Gaps and Improve the Structure in the Shipbuilding Industry," which emerged following last year's strike by the subcontracted labor union at Daewoo Shipbuilding & Marine Engineering. Representatives from Hyundai Heavy Industries, Samsung Heavy Industries, Daewoo Shipbuilding & Marine Engineering, Hyundai Mipo Dockyard, and Hyundai Samho Heavy Industries, along with Minister Lee Jeong-sik of the Ministry of Employment and Labor, attended the signing ceremony.

According to the agreement, primary contractors will first pay appropriate progress payments (money given according to the amount of work completed), and subcontractors will increase wage raise rates to minimize the compensation gap between primary and subcontracted workers.

Additionally, both primary and subcontractors agreed to strive to reform the wage system to be skill-centered so that fair compensation is paid according to the work performed. Accordingly, the wage system reform will be first applied to specific processes such as welding, and the government will provide support measures in parallel to enhance effectiveness. By differentiating wages based on skills and proficiency, the plan is to attract skilled workers and young people who had been avoiding the shipbuilding industry.

Currently, subcontracted shipbuilding workers work about 90 days more per year than primary contractors’ workers but earn only 50-70% of their wages. Since 2016, the shipbuilding industry has suffered a severe recession; during that time, primary contractors froze wages but implemented voluntary retirements, while subcontractors’ wages declined, widening the wage gap between primary and subcontracted workers.

Last summer, subcontracted workers at Daewoo Shipbuilding & Marine Engineering, including Yoo Choi-an, staged a strike by locking themselves inside narrow steel structures for this very reason. Although overseas orders for shipbuilding have recently increased and signs of recovery are appearing, poor treatment has led subcontracted workers to leave, causing a serious labor shortage. In response, the government announced measures last year and has been encouraging compromise between primary and subcontractors.

Minister of Employment and Labor Lee Jeong-sik visited the strike site at Daewoo Shipbuilding & Marine Engineering Okpo Shipyard in Aju-dong, Geoje-si, Gyeongnam, on the afternoon of July 19 last year. He is seen meeting with Yoo Choi-an, vice chairman of the Metal Workers' Union Geoje-Tongyeong-Goseong Shipbuilding Subcontracting Branch, who is protesting inside a 1m by 1m by 1m steel structure on the floor of the shipyard's independent cargo hold.
[Image source=Yonhap News]

Going forward, primary and subcontractors will actively utilize the escrow payment system to prevent wage arrears for subcontracted workers. This system involves the primary contractor depositing the construction payment owed to the subcontractor with a third party, and when the subcontractor prepares and notifies the payroll statement, the salary is immediately transferred from the escrow account to the subcontracted workers’ accounts. This measure aims to prevent wage arrears experienced by about 3 out of 10 subcontracted workers.

In addition, primary and subcontractors agreed to minimize the use of re-subcontracting (volume teams) for regular work and to gradually convert re-subcontracting to project partners, among others. Furthermore, on the condition that subcontractors faithfully pay insurance premiums, primary contractors will seek support measures to ensure subcontractors’ insurance payments are made properly, and the government will implement measures such as exemption from late fees and deferral of delinquency penalties.

In July last year, police were moving around the site where the subcontractor union was staging a sit-in at Daewoo Shipbuilding & Marine Engineering Okpo Shipyard in Ajoo-dong, Geoje-si, Gyeongnam.
[Image source=Yonhap News]

Minister Lee said on the day, "The government is focusing all its efforts on completing labor reforms so that the labor market can firmly protect the vulnerable based on laws and principles and secure future competitiveness," emphasizing, "Today, the first piece of that puzzle has been completed."

He continued, "This presents the first model for improving the dual structure through mutual growth and solidarity, not confrontation and struggle," and said, "Starting with the shipbuilding industry, we will expand the mutual growth and solidarity model through dialogue and compromise between primary and subcontractors to other industries."

The government plans to prepare and announce a "Comprehensive Plan to Eliminate the Dual Structure," covering labor, fair trade, and industry, by April.

Lee Sang-gyun, CEO of Hyundai Heavy Industries, said, "We will actively implement the mutual growth agreement," and expressed gratitude for the government's proactive efforts to resolve the shipbuilding labor shortage, including expanding domestic hiring.

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