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Firing Cost Especially High in South Korea
Due to Severance Pay
Firing Cost Especially High in South Korea
  • By Michael Herh
  • April 10, 2019, 08:44
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South Korea’s firing cost is high due to severance pay.

The Korea Economic Research Institute (KERI) announced based on a report from the World Bank that South Korea is second only to Turkey in the OECD in terms of firing cost. Experts point out South Korea needs to cope more actively with changes in employment environment with global companies such as GM and Volkswagen planning to reduce their employment for future investment resources.

The World Bank said in the report that dismissal of one employee entails a cost equivalent to a 27.4-week wage in South Korea. The figure is 29.8 in Turkey, 21.6 in Germany, 13 in France, 9.3 in Britain, 4.5 in Italy, 4.3 in Japan, and zero in the United States.

South Korea’s firing cost exceeded the OECD average, 14.2-week, by a large margin and KERI explained that this is because of severance pay. The World Bank’s firing cost data is divided into pre-dismissal notice cost and severance pay. South Korea ranked 22nd among the 36 members of the OECD when it comes to the former but ranked first in the latter, together with Turkey, Chile and Israel, as a country paying a 23.1-week wage in severance pay.

As for dismissal of an employee who worked for one year, South Korea’s severance pay is equivalent to a 4.3-week wage whereas it is 2.2-week in Germany. The gap jumps to 21.6 weeks when a person who worked for 10 years is dismissed.

At present, South Korea has four dismissal-related regulations, one more than the OECD average. “Dismissal is more difficult in South Korea than in the other countries in view of individual companies’ collective agreements,” KERI explained, adding, “More than 20 percent of the top 30 South Korean companies in terms of sales currently have additional rules, such as labor union members’ prior consent to redundancy and voluntary retirement, in their collective agreements.”