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Employment Cliff in Manufacturing Leads to Job Cuts in Other Sectors
Warning from FKI
Employment Cliff in Manufacturing Leads to Job Cuts in Other Sectors
  • By Jung Min-hee
  • June 8, 2018, 14:31
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The FKI warns that the deepening crisis of Korea's manufacturing sector could cause job cuts in other sectors. 

A major economic organization has warned that the declining competitiveness of Korea's manufacturing industry could lead to job cuts in other industries.

The Federation of Korean Industries (FKI) held a seminar at the FKI Hall in Yeouido, Seoul on June 7 to discuss the ongoing crises of Korea's key industries and their negative impacts on the job market.

It noted that decent jobs were disappearing due to a crisis in the domestic manufacturing industry. Especially, due to the characteristics of the manufacturing industry, an employment cliff in this sector could spread to other industries like dominoes. It said job cuts in manufacturing expanded to other related businesses.

"Although the manufacturing industry creates about a half of jobs compared with the service industry, the former’s effects on other industries are much larger than the latter," said Joo Won, head of the Economic Research Department at the Hyundai Research Institute in his presentation.

In fact, as of 2014, the manufacturing industry’s employment inducement coefficient was 7.4 persons per one billion won, with 4.3 of the 7.4 persons being in other industries. The indirect induction rate reached 137%. On the other hand, that of the service industry is 16.2 persons per one billion won which is twice as high as that of the manufacturing industry. However, 15.1 of them were in the service industry while only 1.1 in other industries.

The FKI also pointed out that the slumping manufacturing industry has been pushing workers to a low value added service industry. Many workers who lost high-quality manufacturing jobs find employment in the low-wage service industry. In actuality, immediately after the global economic crisis in 2008, employment in the manufacturing industry nosedived, while employment in the low value added service industry shot up.

The FKI warned that repeating this process could make the Korean economic structure a low-value-added one centered on labor-intensive industries. As expected profit is lowered, incentives for capital inflows are reduced, giving rise to the growth of only industries dependent on simple labor.