South Korea’s 30 conglomerates (business groups) have seen their labor costs rise every year regardless of their poor financial performances, according to a recent survey. Therefore, market experts say the wage systems based on productivity and performance should be established for business survival and employment stability.
According to a report “Analysis of Wages Costs and Financial Performance of 30 Business Group’s Listed Affiliates” released by the Korea Economic Research Institute (KERI) on August 24, per capita sales and per capita operating profit of 164 listed companies belonging to the nation’s top 30 business groups fell at an annual average rate of 1.8 percent and 3 percent, respectively between 2011 and 2016. In contrast, their per capita labor cost increased at an annual average rate of 4 percent over the same period.
Per capita sales and per capita operating profit of the companies recorded at 1.05 billion won (US$929,956) and 73.51 million won (US$65,168), respectively, in 2011 but the figures decreased to 958.84 million won (US$849,858) and 63.12 million won (US$55,957) in 2016. Their per capita labor cost rose every year from 75.22 million won (US$66,684) to 91.69 million won (US$81,285) during the six-year period. The KERI said, “The top business groups have suffered setbacks in sales and profitability due to slackening global trade and 2 to 3 percent of low growth rates of Asia's fourth-largest economy after 2011. However, their labor costs have risen regardless of their poor performances because it is difficult to roll back wages once they are raised.”
The rate of increase in total sales of listed companies from the top 30 business groups had slowed after recording at 5.1 percent in 2012 and showed a minus growth between 2014 and 2016. In short, the conglomerates’ growth dramatically had shrunken. The rate of increase in total operating profit rebounded in 2016 after plunging between 2013 and 2014. However, its size stood at 51.5 trillion won (US$45.66 billion), falling short of the level in 2011.
About 23.2 percent, or 38 out of 164 listed companies, posted an operating loss more than twice between 2011 and 2016. For the structure of profit and cost to sales, their ratio of labor costs to sales climbed to 9.6 percent in 2016 from 7.2 percent in 2011 due to the increase in employment and wages. The ratio of operating profit to sales dropped from 7 percent in 2011 to 5.5 percent in 2014 but rebounded to 6.6 percent in 2016.
The KERI said their operating profit to sales significantly improved in 2016 despite continuous wage increases on the back of their cost-cutting efforts sparked by a wave of corporate restructuring. The number of employees, which is a lagging business indicator, increased 6.5 percent compared to 2013 but the figure dropped 0 to 1 percent in 2014 and 2015 and 1.7 percent in 2016 due to the worsening business growth and profitability and prolonged economic slump.