It boils down to communication

The government and ruling party accelerated steps toward labor reform. It’s better late than never. The economy has been stuck in low gear, growing at a 2 percent pace. Sluggish investment and hiring has made jobs scarcer for young people. The government and politicians have pledged to address some solutions to the so-called cliff in youth employment - an impending time when the number of applicants will be way larger than the number of jobs, and the chances of finding work will basically go over a cliff. Reform of the labor market is imperative to create more job opportunities for the young.

When the pipeline for new jobs is in a bottleneck during a structural slowdown, the only way to create jobs is to restructure the current labor force through flexibility in dismissals and rationalization of the wage model, including an adoption of a peak wage arrangement. If broader reforms are possible, such as a chipping away of the power of permanent workers, companies at home and abroad could be motivated to invest anew in Korea and the economy could find some new life. At the end of the day, there could be more work for both older and young people.

The reforms led by the government and ruling party should focus on generating new jobs through economic growth and not stop at makeshift measures. The goal is to bolster the atrophying growth potential of the Korean economy.

So what is essential for the reform drive?

First of all, it should be the government that spearheads the reform agenda. Seoul can benchmark Germany’s experience. Germany, once ridiculed as the “sick man of Europe,” turned itself around to become a solid growth engine for the continent thanks to the Hartz campaign, a series of labor restructuring from 2003 led by Chancellor Gerhard Schroder. I had the opportunity to ask Schroder how he dared to push ahead with such ambitious labor reforms even with a federal election coming up in 2005 when his Social Democratic Party (SDP) relied on votes from labor unions.

He recalled that the German economy at the time had been doing poorly with a high jobless rate. Without radical change, the SDP was bound to lose the upcoming election anyway. He pushed ahead with the controversial labor reforms despite strong opposition from within his own party and union groups in hopes of gaining the support of Germans at large. The SDP lost the 2005 election, however, by a margin of one percentage point. Schroder joked that his party would have won if the election took place a week later.

But the Schroder administration’s labor agenda was successful. Even in a country like Germany, with a long tradition of democracy and compromise and concessions, labor reform could not have come about if the government had not stepped up to play the role of mediator to iron out conflicts of interest and differences between the workers and the companies.

Our labor reform will face even bigger challenges than Germany’s considering our politics and the strength of our unions. Therefore the government must muster a resolute will and political courage to see through the labor reforms. The administration must assist the reform campaign by persuading the opposition and public of the need for such structural changes to the Korean economy. It could be pointless trying to revive the tripartite body of representatives from the government, employers and unions that has already broken down or to launch a new mediating body. Even when the political sector succeeds in forming a consultative body, the reforms could be in a half-hearted, patchwork way to please everyone without really changing the fundamentals.

Where should government-led reforms start? The starting point should be communication with the public. The president and cabinet ministers, as well as working-level officials, will all have to be mobilized. They should meet and communicate endlessly with the public through various channels - interviews, press conferences, article contributions and seminars. It cannot persuade legislators and unions without first securing public support.

In a globalized world where companies can take their business anywhere, we cannot keep domestic and foreign companies here to generate jobs unless labor market conditions are dramatically improved. The government should make its pitch by citing various examples from home and abroad. It must try to make workers understand that their incomes, too, can’t get any better unless the economy generates meaningful growth and jobs.

Translation by the Korea JoongAng Daily staff.

JoongAng Ilbo, Aug. 3, Page 28

The author, a former finance minister, is an adviser to the JoongAng Ilbo.

by Sakong Il