Labor Market Reform
The Korean government is considering labor market restructuring measures including a three-phase employment period division for the application of annual pay, performance and job-based pay, and wage peak systems.
The new pay system is characterized by the application of annual pay for up to 10 years of employment, performance and job-based pay for the next 10 years, and a wage peak from the 21st year. The purpose of this measure is to increase the flexibility of the labor market and accelerate job sharing.
The policy is likely to be implemented first for state-run enterprises and big businesses. “Those with vested rights, which account for 7 percent of the labor unions in Korea, should make a concession,” the Ministry of Strategy and Finance remarked recently. Still, the ministry said that nothing has been fixed about the introduction of the new system, only adding that it is seeking measures for greater job flexibility in major corporations.
The government is planning to not tamper with layoffs caused by urgent business needs, while extending the contract period for temporary workers from two to three years on certain conditions. Specifically, the contract extension is applied only to those in favor of it in certain age groups. The number of contract renewals is expected to be limited, and measures are prepared for workers unfairly dismissed before the termination of the contract to be able to get their pay for the remaining period.
At the same time, the government will invest 32 billion won (US$28.5 million) next year to get more companies to adopt the wage peak system with the implementation of the extension of the retirement age to 60 scheduled for 2016. The annual subsidy for each company adopting a wage peak will be increased from 8.4 million won (US$7,515) to 10.8 million won (US$9,633) per employee.