Korean Auto Industry
There is a crisis in the Korean automobile industry. Hyundai and Kia's labor unions, criticized as labor aristocrats, are scheduled to stage a strike starting from August 20. To add insult to injury, it is certain that the amended Labor Standards Act, which focuses on a reduction in working hours, will be passed when the National Assembly opens a regular session in September. Against this backdrop, there is growing concern that the competitive advantages in the industry will weaken further.
According to sources in political circles on August 19, secretaries of the Environment and Labor Committee of the National Assembly from the ruling and opposition parties agreed to pass the Labor Standards Amendments in the National Assembly in September. The amendments were created in an attempt to improve the quality of life for workers and to create new jobs by reducing weekly maximum working hours from 68 to 52 hours. But the Korea Employers Federation (KEF) and the auto industry are greatly worried about the production environment after the implementation of the law.
According to the Korea Automobile Manufacturers Association (KAMA) and KEF, it is estimated that annual auto production will be reduced by 500,000 units in the event that maximum working hours per week is shortened. It means an output loss of 10.8%, given that 4,657,000 vehicles were produced in 2011. In terms of money, this amounts to more than 10 trillion won (US$8.95 billion) in losses. Therefore, KAMA and KEF fear that it will disrupt both domestic and international sales.
Shorter working hours would deal a serious blow to the automobile industry because the business inevitably involves long working hours. An industry source said, "The average work hours are 52 per week. And yet, when there are a lot of orders, people often work for over 60 hours. So, the amendments will be bound to have a negative effect on the auto sector."
Another source pointed out, "The real victim is not global companies such as Hyundai and Kia Motors but their small to medium-sized subcontractors, which manufacture auto parts," adding, "A lot of small businesses are already struggling with labor shortages. How will they be able to hire people and meet production orders while observing the statutory weekly hours limit at the same time? It makes no sense."
According to a report on working restrictions during the holidays and relevant policy issues for auto parts makers by Lee Jong-wook, professor of economics at Seoul Women's University, it is estimated that the productivity of auto parts manufactures will be reduced by approximately 10% as a result of the measure.
Professor Lee remarked, "The sudden introduction of limits to work on a holidays will lead to a vicious circle of a reduction in production, reduced wages, and ultimately a high job turnover rate. Accordingly, auto parts makers will be in danger of going bankrupt."
There is a general consensus that although political circles stepped in to tackle the issue of working long hours, they did not present ways to cope with the resultant effects.
Many analysts argue that overtime rates and wage rates for public holidays should be lowered, before shortening working hours by law. In fact, the Korean Labor Standards Act stipulates that when working overtime, works should receive 150% of ordinary wages, which is twice the rate of Japan, Germany and Italy. The International Labor Organization (ILO) also only recommends 125% of normal pay.
A KEF official noted, "Since the hourly rate of overtime pay is too high compared to advanced countries, workers prefer working overtime, which is one of the reasons for the common practice of working long hours. Lowering overtime rates is more pressing than implementing a law that forcibly decreases working hours."
A lot of experts think that adjustment in overtime rates is essential, since companies will face increasing pressure for additional payment if an agreement is reached to include bonuses and benefits with ordinary wages in the future.