[Column] Labor, pension and education reforms together

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[Column] Labor, pension and education reforms together

Published: 05 Mar. 2023, 20:16

Park Young-bum

The author is an honorary professor of economics at Hansung University.

The labor market is recovering from the Covid-19 shock. The number of employed increased by 820,000 in 2022 — the largest addition in 22 years. But the data cannot be all that promising. The increase owed largely to the base effect from the three-year downturn from the pandemic. The government anticipates job additions at less than 100,000 this year.

The quality of labor is worsening, too. More than a half of newly-created jobs last year went to people aged 60 years or older. In 2022, manufacturing — the core of our economy — hired fewer workers than in 2018. The share of workers employed for less than 35 hours per week is also rising.

More than two million chose to not work though they are economically active. The expanded employment rate counting them has reached 10.6 percent. For younger Koreans, the ratio is higher at 20 percent. Though there are many highly-educated youths in the labor market, the manufacturing, shipbuilding and rural sectors suffer a serious shortage of manpower. The government plans to allow in 110,000 migrant workers — the most since the government issued the first migrant work visa in 2004.

A nearly 30 percent jump in the minimum wage in 2018 and 2019 under the pro-labor Moon Jae-in administration worsened the situation. Though Moon vowed to create jobs, job additions from 2017 to 2019 — which is before the Covid-19 outbreak — was 400,000 fewer than the average through 2014 to 2016 under his predecessor Park Geun-hye. Except the category of over 60s, the number of jobs fell in all age groups.

The unfair wage system for the so-called “irregular workers” at mostly small and mid-sized companies has not improved either. (They receive just about 40 percent of what their regular counterparts earn even though they do the same work). As of August 2021, they totaled 8.16 million, adding 3.54 million from 4.62 million in 2003, when Statistics Korea started to compile that data. The ratio of the disadvantaged group of workers among all wage earners rose from 33 percent to 38 percent during the same period. Irregular positions mostly went to women, the young, and senior citizens who are classified as being in “the vulnerable class” in labor market.

The so-called “Non-regular Workers Protection Act” has been in force since 2007, but it helped formalize the dual system in the labor market. Some among the contract-based workers were able to convert to the permanent payroll or the newly-created “contractors with no time limit.” But most others had to find new jobs after two years of employment on contract.

Under the Moon Jae-in administration, irregular workers rather increased despite its No.1 promise to eliminate irregular jobs starting with the public sector. Their numbers at 6.58 million in August 2017 stretched to 7.48 million two years later. The rigidity under the union-biased government ended up encouraging employers to fill their job openings with irregular workers.

It was a heyday for labor unions. After the number of unionized members exceeded 2 million for the first time in 2017, it hit 2.93 million in 2021. Unionization rate rose by 3.9 percentage points to 14.2 percent by the end of 2021. Currently, labor unions are mostly centered around large worksites and the public sector, while they were practically non-existent in companies employing fewer than 100. While the unionization rate in public organizations reached 70 percent, the ratio is only 11.2 percent in the private sector.

Korea shows bigger economic losses from strikes than other countries. According to the Korea Enterprises Federation (KEF), the loss days per 1,000 wage earners averaged 39.2 days per year over the last 10 years from strikes, 8.7 times larger than in Germany and 200 times bigger than in Japan. National competitiveness rating institutes like the IMD rank Korea’s labor competitiveness and labor-management cooperation levels at the bottom.

The society distrusts unions more than large companies. According to a 2021 survey by the Korea Institute of Public Administration, more people (52.2 percent) distrusted labor unions than large companies (43.3 percent). In the same survey in 2013, the distrust ratio was 66.4 percent for large companies and 58 percent for unions. Social trust has reversed for large companies and unions.

Public opinion on strikes by labor unions also turned sour. According to the National Barometer Survey in November 2022, a whopping 58 percent called for a restraint in their strikes, while 34 percent did not see any problem with them. The findings were similar in a Hankook Research poll in 2022. While support for strikes to demand wage hikes was merely 23 percent, approval for strikes for the conversion of irregular workers to the regular status was just 31 percent.

Since the foreign exchange crisis in the late 1990s, Korea’s labor market and demographic structure have fundamentally changed, as seen in the country’s weakening capacity to produce new jobs, the deepening income disparities and the rapid aging of population. But the labor market is laden with multiple contradictions and complexities due to the lukewarm and makeshift actions from the government and legislature. For instance, it took 13 years for the two key provisions in the revisions to the Labor Act in 1997 — allowing the establishment of multiple unions in a worksite and the ban on giving a salary to employees devoted to union affairs — to take effect.

Korea has had six presidents since the 1997 financial crisis. All of them promised to create sufficient jobs to make people happy. But none delivered on the promise, as it involves the conundrum of “labor reform,” a tough job for heads of state with a five-year single term.

The Yoon Suk Yeol administration prioritizes labor reform over pension and education reforms. But the likelihood of the government successfully delivering the reforms necessary for the labor market seems slim.
First of all, the labor reform must revise related laws. But the pro-union Democratic Party (DP), which commands a supermajority in the legislature, would hardly agree. The Yoon administration only emphasizes the need for the reform but does not present the vision or roadmap on the reform.

Introduction of flexible work hours and revamping our wage system are two key tasks for the conservative government. But its plan for flextime is merely complementary to the hurriedly shortened workweek to 52 hours under the previous administration. The Yoon government’s proposal to employ the performance-based pay system also is not that different from what the previous government sought without any progress. Only when the decades-long overprotection of full-time jobs in large companies is eased, irregular workers can have greater access to regular jobs. But that has not been included in the government’s labor reform agenda.

The structural problems in the labor, pension and education sectors are certainly interrelated, but the reforms are not pushed in an integral way. The wage system reform in the labor sector and the retirement extension in pension reform are interconnected, but they are being addressed separately. The polarization in the labor market will surely worsen if retirement age is extended as part of the pension reform without overhauling the seniority-based pay system. Basically, youth unemployment stems from the fact that too many young people enter universities. But labor and education reforms also are being tackled separately.

Our past experiences and current conditions show it is almost impossible for labor, management and government to come to an agreement through tripartite dialogue. As the trilateral dialogue can get more difficult under the conservative administration, it could be better for the government to the initiative and act aggressively.

If so, the chiefs of public enterprises must be capable of taking up the challenging role. Not to mention a half of the heads in public enterprises, who had been seated during the past liberal administration, those who were named under the Yoon administration have raised serious questions on their expertise and capacity. Only when those with proven expertise and capabilities are seated at public corporations can they help pave the way for substantial changes in the labor sector.

Translation by the Korea JoongAng Daily staff.