The recent abolition of two labor reform guidelines put forth by the previous government is expected to produce no little effect on both labor and employers. One guideline was to allow fair dismissal of underperforming employees and the other to make it easier for employers to revise the rules of employment to their advantage.
With the scrapping of the guidelines, the prospect of labor market flexibility has been taken off the table.
The Park Geun-hye administration drew up the guidelines after finding the labor market too rigid to adapt to a rapidly changing global business environment. Under the current Labor Standards Act, dismissals are very difficult. The act stipulates few grounds for firing an employee except for disciplinary action or massive layoffs. The difficulty of dismissals has enable major labor unions to cement their vested rights.
The Moon Jae-in administration has pushed pro-labor policies since his inauguration. It seeks to convert all outsourced workers to regular employees of outsourcing companies, nullified performance-based competitive pay systems in the public sector, increased minimum wage sharply and is pushing to reduce legal working hours. All of these measures work toward making the labor market more rigid and increasing labor costs.
To make matters worse, a court ruled recently to expand the scope of the base wage, incurring back wages.
In an increasingly difficult management environment, companies have begun to curtail new hiring, with some considering overseas relocation.
With the guidelines scrapped when they face pressure to employ outsourced workers and a drastic hike in minimum wage, employers have been left with little to do about employees once they are hired. Companies are now on guard when it comes to hiring new employees.
Furthermore, businesses are beset by unanticipated losses.
Reportedly, losses due to China’s economic retaliation for the deployment of an advanced US anti-missile system are expected to surge to 22.4 trillion won ($19.6 billion). Bills for back wages which may be imposed on 115 companies currently involved in base wage lawsuits are projected to reach 38.55 trillion won.
Despite the difficult situation facing businesses, the government tends to treat them more as a target of reform than of support.
Recently, the Labor Ministry instructed Paris Baguette, one of the largest Korean bakery chains, to hire all its outsourced bakers who work at franchises across the country.
These labor policies go counter to those of developed economies to make labor movement flexible and efficient to stay ahead in the dawning age of the “fourth industrial revolution,” which is expected to see the loss of many unskilled jobs.
Policies of the Moon administration that are supportive of companies are hard to find. It won’t listen to their demands for the relaxation of regulations. This contrasts against China, whose companies are on the heels of Korean competitors, backed by government support.
Without government policies to prop up corporate competitiveness, the economic situation may fall behind expectations.
Labor reform is one of the pressing jobs for the Korean economy. Not only domestic economic circles, but international organizations also point to the outdated and rigid Korean labor sector as its Achilles heel.
Blocking labor flexibility will benefit existing laborers of large companies. As a result, the population of young job seekers will increase and low-wage working conditions in subcontractors to large companies will worsen.
South Korea’s April jobless rate of youth aged 15 to 24 rose by 2.5 percentage points from last December, marking by far the largest increase among the Organization of Economic Cooperation and Development members.
This is largely due to a failure to make the labor market flexible and resolve the bipolarization of working conditions under the strong influence of labor unions of large companies.
The abolition of the two guidelines was a retrogressive step to run against labor reform. The stronger voice of labor unions under the Moon administration will narrow the room in which it will be able to maneuver to create jobs.
Labor policies lacking measures to raise labor productivity will not be sustained in the rapid current of industrial change.