Korean Labor Market Failure Urgently Needs Labor Reform

According to evaluations by the World Economic Forum (WEF) and the International Institute for Management Development (IMD) in Switzerland, Korea’s national competitiveness has ranked high in macroeconomic stability, economic performances, and basic economic conditions and infrastructure such as ICT, but the Korean labor market has been pointed out as a big factor that lowers Korea’s ranking every year. In particular, Korea was one of the lowest-ranked countries in labor relations, labor-management cooperation, and workers’ rights among labor market indicators. The evaluation results are considered a leading global indicator of countries’ national competitiveness. This explains that the low competitiveness of Korea’s labor sector is playing a role in undermining Korea's overall national competitiveness.

When the current administration took office one year ago, President Yoon Suk-yeol emphasized labor, education, and pensions as his three major reforms. The current administration recognizes that these reforms must be carried out for the sake of future generations, even if it causes a drop in its current public approval rates. Among the three reforms, labor reform is the one that has faced the strongest resistance from stakeholders.

The administration first pushed for the establishment of the rule of law in labor-management relations and started discussions on modernizing labor regulations such as reforming the nation’s dispatched and substitute worker system. It is faced with strong opposition from the labor community. Moreover, Korea’s trade union and labor relations laws are notorious. Many experts say that they directly deny the right to the freedom of labor and the freedom of contract and that the playing field is tilted unilaterally in favor of workers and labor unions.

Since taking office, President Yoon has been working to boost labor flexibility by reforming Korea’s working hour system to secure transparency by strengthening the management of the labor union system and to eradicate illegal acts in the field such as violence at construction sites. During the presidential race, President Yoon repeatedly expressed his intention to establish the rule of law in labor and management relations to root out illegal employment succession and to destroy the dual structure of the Korean labor market by enhancing labor flexibility in compliance with global standards.

This is based on the idea that crises in the Korean economy have been caused by a mismatch between productivity and wages due to inflexibility in employment. The dual structure of the Korean labor market, which is divided into relatively well-paid regular employees with strong job security and relatively poorly paid non-regular or contract-based employees with weak job security, stems from inflexibility in employment, which consequently created aristocratic labor unions that are sticking to their vested rights. So, the start of labor reform should start from removing their vested rights, experts say.

In a recent survey conducted by the Korea Enterprises Federation (KEF) on labor reform policies in the first year of the Yoon administration, 80.3 percent of respondents said that labor reform holds the key to sharpening Korea’s national competitiveness.

However, labor reform is not easy to promote through social compromise due to a serious conflict of interest between labor and management. It also requires breaking existing interest cartels and vested rights. Furthermore, it is not easy for the government to enact necessary laws in the current National Assembly where the biggest opposition party is now a majority. This situation is raising concerns about the government’s loss of labor reform momentum.

Structural reforms such as a labor reform require social consensus and compromise, and this requires a big debate among those with opposing interests and different values. However, Korea has seen more conflicts than effective and productive discussions.

Germany had pushed for a labor reform through a social compromise, but failed due to labor opposition, and then achieved the labor reform through the government-led Hartz Committee. In the same vein, Korea should prevent a national crisis by taking the government-led initiative in fixing unreasonable labor relations laws, systems, and practices and improving regulations to secure national competitiveness and revving up the Korean economy. Therefore, if the Yoon administration wants to overcome the existing high barriers and succeed in the labor reform, first of all, the ruling party must win the general elections to be held next year.