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Flexible labor market creates quality jobs

Wolfsburg, Germany, is a city in Lower Saxony known for its Bundesliga football team. It is also a symbol of labor market reform. It is home of Wolfsburg AG, a staffing company that supplies workers to many companies, including Volkswagen. The city of Wolfsburg established the company in 1999 and partnered with a German metal workers’ union. Now, Wolfsburg AG sends more than 10,000 temporary workers to various businesses every year. Actively using temporary workers has made Wolfsburg a region with the lowest unemployment rate and one of the most active economies in Germany.

It is quite different from Korea, where dispatched workers are synonym for irregular employment. In Germany, unions and the local government actively use these temporary workers. The structural reform of the labor market known as the Hartz plan have given Germans more diversified jobs, more opportunities and better quality of life through relaxing strict protection for regular employees and concession of the labor unions.

Korea can learn from Germany’s example as we address labor market reform and reconsider excessive protections for regular employment. Unions argue that removing protection on regular employees would make their employment unstable as voluntary retirement is possible. However, no country that has implemented labor market reform experienced such a problem. Instead, the reform made the economy more active, resulting in more regular employment and significant improvement in the wage level and treatment for irregular workers.

In the United States, the rate of changes of part-time workers is an indicator for the market condition and unemployment forecast. When the number of part-timers decrease, it is a sign of economic recovery. In Korea, during the Lehman crisis in 2009, irregular jobs increased significantly. But in 2010, the economy grew by 6.5 percent, and the number of irregular jobs decreased. Regular and irregular employment in the labor market are not artificially set up but are outcomes of economic situations.

Now, we need to deviate from the distorted understanding of the labor market to artificially change the outcome and seek a more fundamental solution. As we can confirm in the experiences of developed nations with 70 percent employment rate, vitalization of the labor market is the priority task. It is the best policy to establish a good cycle of economic vitality and labor market, and increase in quality jobs will follow as a natural outcome.

by Kim Young-vae, Acting chairman of the Korea Employers’ Federation