The ‘grand’ compromise

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The ‘grand’ compromise

There is one key piece of data from the Organization for Economic Cooperation and Development that Koreans prefer to ignore. It’s the Better Life Index, an international comparison of the well-being of citizens. The Better Life Index can paint a more thorough picture of lives than standard macroeconomic data like gross domestic product per capita. Korea ranked near the bottom in the 2015 edition released last year. Like it or not, the gauging of various aspects of our society bares undeniable weak spots in the Korean experience. Last year, only two out of 10 people said they had confidence in their government. The private sector was suffering through a serious credibility crisis. The survey was done soon after the tragic sinking of the Sewol ferry in April 2014.

In this year’s poll, the OECD expected reforms in the labor sector and a performance-based salary system could improve standards at work and in homes. In the work-life balance category, Korea ranked 33rd out of 36 member countries. Flexibility in the labor market and employment criteria based on performance instead of years of service cited by the OECD were keystones of the labor reform agenda. The labor reforms, however, became derailed after a tripartite committee comprised of the government, companies and labor unions broke off talks two months ago without delivering the grand compromise they had promised.

Some might think Korean workers aren’t aware of the imperative need for reforms in the labor sector. But the unions agree the current labor structure primarily works for employees on permanent payrolls in large companies and the salary system needs to change.

The so-called social pact to combat the foreign exchange crisis in 1998 that forced Korea to seek an international bailout included a provision to revise the wages system. In an agreement in 2004 to help create jobs, the labor sector agreed to raise functional flexibility in the labor market and improve the wage system. The incumbent government in May 2013 also signed a pact with unions and employers’ to jointly work toward the goal of achieving an overall employment rate of 70 percent.

The deal covered more than 60 areas. In design, it was fit to serve as a labor cornerstone for Korea as the Wassenaar Agreement and the Hartz Concept did for the Netherlands and Germany. The set of recommendations included proposals to introduce a peak wage system, simplification of wage structure, a wage system oriented to work and performance, an increase in part-time jobs, and a cut in working hours. The Federation of Korean Trade Unions, the largest umbrella union group that negotiated on behalf of the labor sector, toured industrial sites to explain the details of the pact. We have had a total of nine sets of such labor reform agreements from 1998 to last year - one almost every 18 months.

Every time such deal is reached, much hoopla is raised about a so-called grand compromise. But why have we never had any follow-up actions? There is a fixed pattern in the tripartite talks. Whenever there are alarming signs in the economy or a new president comes into office, tripartite labor talks become a routine. The government arranges the talks and designs the agenda, and labor and management representatives reluctantly sit through them.

The government is usually eager at the beginning. It does everything to please the labor sector. While signing the 2013 pact, the government persuaded employers to pay salaries to trade union workers who had retired from their workplaces. It ignored the regulation that requires unions to pay members from their own reserves even though it had been established after numerous strikes and economic losses. The government bent rules in order to conclude an agreement that would have social impact. Once the bargain is done, everyone goes their separate ways. The agreement is forgotten because it merely served the purpose of providing some good publicity.

The catch is that the receiving end becomes bolder and greedier. Both labor and employers turn recalcitrant and an agreement becomes harder to reach. One can become more protective if there is more at risk. Each party becomes more unwilling to yield. If the government turns indifferent and irresponsible, the cleft is exposed, taking a toll on the economy and hiring. Jobs get scarcer for young people and income disparities worsen. Employers fear the burden will be dumped on them through a series of new regulations. So who’s at fault - the labor sector that walked out of the talks or the government which has put up a very flimsy show?

A crevice appears when there is pressure on the core of the earth’s crust and movement on one side is faster than on the other. The market and technological environment are evolving fast. Systems, laws and policies are pushed to the periphery. They are moved to the center briefly for the purposes of show. The woes and fragility of the job market are worsening and livelihoods are getting tougher. Will we ever get out of the grand-deal trap?

JoongAng Ilbo, May 25, Page 20

*The author is an editorial writer of the JoongAng Ilbo.

by Kim Ki-chan

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