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Korean SMEs Reduce Foreign Workers Due to Financial Burden
Reduction of Foreign Workers
Korean SMEs Reduce Foreign Workers Due to Financial Burden
  • By Jung Suk-yee
  • February 26, 2019, 10:08
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South Korea’s small and medium-sized firms are reducing the number of foreign workers because of a minimum wage increase.
South Korea’s small and medium-sized firms are reducing the number of foreign workers because of a minimum wage increase.

South Korea’s small and medium-sized firms are reducing the number of foreign workers due to a spike in labor costs from a minimum wage increase and slowed business.

The Korea Federation of SMEs (KBIZ) released the findings on Feb. 25 after conducting a survey of 1,178 small and medium-sized manufacturers that did not apply for the assignment of foreign workers in the first quarter this year on the trend of foreign workforce (E-9) employment.

The survey was conducted on Feb. 12 to 13 in order to understand the employment trend of SMEs and the reasons of shortfall in application for the assignment of foreign workers in the first quarter. The KBIZ said that it received applications for the assignment of foreign workers from SMEs last month and SMES applied for 9,842 out of 9,996 workers, falling short of 154 workers.

For the survey, 65.2 percent of the SMEs that did not apply for the assignment of foreign workers said they would reduce the size of employment due to changes in business environment. More specifically, 34 percent of them said they needed more workers but they could not afford new hires because of the high labor expenses, while 31.2 percent of them said they did not need more workers due to the sluggish business and economic slowdown. SMEs reduced the employment as their production activity itself slowed.

In particular, the smaller the size was, the more companies responded that they could not afford new hires because of higher labor costs and economic slowdown. Smaller firms were seriously affected by the burden of labor costs and economic downturn.

Regarding the employment plan for this year for both Korean and foreign workers, only 36.5 percent said they would add workers. It showed that SMEs had poor conditions for annual production and employment. Nearly half, or 49.5 percent, of the respondents preferred to keep payroll at the current level while 14 percent planned to cut workforce.

Meanwhile, an overseas employee took home 2,315,000 won (US$2,067) per month on average, down by 239,000 (US$213) from 2,554,000 won (US$2,280), including allowance, last year. The KBIZ attributed the reduced payment to cut in extra work, as Korean employers are feeling a heavier financial burden from increased labor costs and economic slowdown this year. A CEO of a respondent said, “We downsized the workforce and completely halted extra and overtime work because of a heavy burden from higher labor costs.”