The Korean economy’s job creation capacity continues to weaken, aggravating the sad phenomenon of jobless growth.
According to the Bank of Korea, the job creation effect of exports ― Korea’s primary engine of growth ― fell more than 30 percent between 2005 and 2011.
The employment inducement coefficient of exports stood at 7.3 in 2011, which means that a 1 billion won increase in overseas demand for Korean goods added 7.3 jobs to the economy two years ago. The figure was 10.8 in 2005.
It is not just exports that have weakened in terms of job creation effect. Two other drivers of economic growth ― the manufacturing industry and corporate investment ― also posted a similar downward trend.
Manufacturing’s job creation coefficient fell from 12.2 in 2005 to 8.7 in 2011, while that of investment dropped from 15.3 to 12 during the same period.
In particular, the figures for the two leading manufacturing sectors, electronics and transportation equipment, were much lower than the average with 6.1 and 6.8, respectively.
These flagship sectors are likely to perform even worse in the future, as production will increasingly shift overseas and automation of production lines will accelerate.
The service sector remained the most efficient job creator with a coefficient of 15.8 in 2011, almost double that of manufacturing. It was trailed by domestic consumption, which posted 15.3.
The data showed which areas the government should focus on to maximize job creation. It needs to tear down entry barriers in such high-end service industries as medicine and education to channel fresh capital into them and unleash their job-creating potential.
To boost domestic consumption, the government should first repair the finances of middle-income households. Many households have difficulty paying back mortgages and high-cost secondary loans they obtained to purchase homes.
The government needs to help them roll their mortgages and high-cost lending from second-tier banks into lower-cost, longer-duration mortgages.
The best way to stimulate corporate investment is deregulation. As President Park Geun-hye recently noted, 2 trillion won worth of fresh investment is put on hold due to lawmakers’ failure to pass a bill on easing regulations on foreign investment.
Although manufacturing is no longer an efficient job-creating machine, the government still needs to expand manufacturing jobs, while at the same time ensuring that existing ones are retained.
In this regard, the striking workers of Hyundai and Kia auto plants should realize the harm their reckless behavior is causing. They are not only scaring away potential foreign investors but are forcing the two automakers to speed up plant relocation abroad.
