A government plan aimed at preventing large corporations from poaching skilled workers from small and medium-sized enterprises has sparked controversy.
In a bid to stem the brain drain plaguing SMEs, the Ministry of Employment and Labor is set to unveil a guideline on compensation that big businesses will be required to pay SMEs for recruiting their core employees.
The scheme is intended to address the free rider problem of large companies hiring away workers for whom SMEs have invested in training. The ministry’s idea is that big corporations should either compensate SMEs for training costs or assume the burden of training new SME employees.
The plan sounds reasonable. But the Korea Federation of Small and Medium Business opposed it on the grounds that it would simply justify large companies’ predatory hiring practices.
Rep. Lee Hyun-jae of the ruling Saenuri Party joined the federation in slamming the ministry. He said the ministry should have come up with strong penalties for luring away SME manpower rather than a scheme that would support such a practice.
The plan comes amid growing complaints among SMEs about outflows of their best employees. Early this year, the Korea Association of Machinery Industry urged the government to step up oversight of big firms’ recruitment practices.
According to the Korea Small Business Institute, the migration of competent manpower from SMEs to large corporations began to increase after the government removed in 2006 the entry barriers to a group of business areas that had been preserved for SMEs.
Large corporations zeroed in on top-notch workers at SMEs who could ease them into these businesses. They lured the targeted employees with attractive pay packages and better working environments.
As a result, turnover of skilled workers at SMEs rose sharply. According to a KSBI report, the rate jumped from 2.1 percent in 2008 to 5.11 percent in 2010.
SMEs suffer crippling damage when they lose their best workers. They are often forced to suspend their R&D programs, which disrupts their efforts to develop new products. This will lead to a reduction in order receipts and ultimately bring their businesses to a halt.
Even if they manage to stay afloat, they will be less inclined to invest in workplace training as they have become more concerned about poaching. This will worsen their shortages of competent workers.
To address this problem, the commission on shared growth for large and small companies set up in July a panel to mediate disputes between companies on worker recruitment. Yet the panel has been largely ineffective.
The ministry’s solution basically calls on large companies to foster manpower themselves instead of trying to free ride on the efforts of SMEs. When they do have to recruit SME employees, they are required to pay compensation to cover the time and effort invested in training them.
The ministry will soon unveil schedules that specify the amounts of compensation for workers with different levels of expertise and specialties.
How this scheme will play out remains to be seen. But as the KFSMB argues, the measure cannot be a fundamental solution to the manpower outflow problem facing many domestic SMEs.
Even if large corporations, as hoped, refrain from luring workers from SMEs, some highly skilled employees may still decide to quit their jobs to earn more money and work in a healthier environment. There is no way to restrict workers’ freedom to choose employment.
Workers, whether skilled or not, shun SMEs primarily because of the ever widening salary gap between SMEs and conglomerates. Therefore, any attempt to address the brain drain of SMEs will have to include measures to narrow the salary gap. The government needs to provide tax benefits and other incentives to skilled workers and R&D personnel at SMEs.
At the same time, the government needs to weed out nonviable SMEs to create room for the growth of competitive companies. Financial support to zombie SMEs should be withdrawn and be funneled to start-ups and promising SMEs.
The government has been shying away from restructuring the SME sector. But without removing hopeless companies, it is difficult to boost the competitiveness of healthy SMEs.
