South Korea’s 52-hour workweek system is set to be applied to small businesses hiring between five and 49 workers starting July 1, adding to the growing difficulties they face.
The country’s Labor Standards Act was revised in February 2018 to cut the maximum weekly working hours from 68 to 52.
The reduced workweek came into force for companies with 300 or more employees in July 2019. At the outset of 2020, it was applied to small and medium-sized enterprises with 50 to 299 workers.
Violators of the revised workweek rules are subject to up to two years in prison or a fine of up to 20 million won ($18,000).
Large companies have managed to adapt to the new scheme. But smaller businesses could find it hard or simply impossible to implement the reduced workweek. A recent survey by the Korea Enterprises Federation showed more than a quarter of local firms with fewer than 50 employees were unprepared for the shortened workweek rules.
The application of the revised regulations will exacerbate conditions of smaller manufacturers in particular, which have already been struggling to cope with rising labor costs stemming from steep minimum wage hikes and a manpower shortage.
The coronavirus pandemic has made it harder for them to fill vacant positions with expatriate workers. According to data from the Justice Ministry, the number of people here on visas for low-skilled employment decreased from 536,000 in April 2018 to around 380,000 this year.
Increased labor costs are combined with other negative factors to cause many small businesses to suffer from growing operating losses.
Spikes in the prices of raw materials and freight charges are exacerbating the profitability of small manufacturing firms saddled with increasing debts. Figures from the Bank of Korea showed outstanding bank loans to small and midsized firms reached 836.3 trillion won in April, up 11.2 percent from a year earlier. Possible interest rate hikes to curb mounting inflationary pressure would further increase their debt-servicing burdens.
The implementation of the reduced workweek also hinders startup ventures from doing intensive research and development work needed to put them on the path to growth.
Naturally, concerns are rising that the rigid imposition of the 52-hour workweek without considering specific workplace conditions would risk undermining the industrial foundations of the country.
The government needs to defer the punishment of smaller businesses with five to 49 employees for violating the revised workweek rules and give them more time to prepare for the new scheme. There are 802,000 such small firms around the country, and many of their owners might be forced to choose between risking legal punishment to run their factories or shops and closing them down.
It is necessary to expand the flexible application of the rules, which currently allow employers to adjust the maximum weekly working hours to 52 on average within a period of up to six months by having employees work longer during busy times and later go on deferred leave. The local business community has called for operating the flexible workweek system on a yearly basis. It would be more efficient to let labor and management decide on extended work based on the specific conditions of each workplace.
President Moon Jae-in has vowed to turn the COVID-19 pandemic crisis into an opportunity to enhance the country’s economic vitality, putting forward what he has described as a Korean version of the New Deal, which will focus on a future-oriented preemptive investment to establish digital infrastructure and create more jobs. Easing the rigid workweek system is essential to carrying forward this initiative. Held back by the inflexible system, local innovative businesses could hardly be expected to realize their potential and move ahead of competitors from other major advanced economies.
A more flexible workweek system is also needed to bring home Korean manufacturing firms operating factories abroad. Most companies cite the shortened workweek and other excessive labor regulations as main factors that make them hesitant to return home. They are particularly concerned that such restrictions might make it difficult to meet delivery deadlines for orders from foreign customers.
