Korea to expand peak wage system

The government mapped out a comprehensive plan to reform the labor market on Wednesday, including expanding the controversial “peak wage” system to the private sector to tackle youth unemployment.

Amid union objections, Ministry of Employment and Labor announced the first set of measures to overhaul what it called the “rigid” labor market to make it more flexible but stable enough to create “good” jobs for young people and curb employment uncertainty among irregular workers.

“As the soaring youth unemployment rate and growing wage gap pose a threat to the resilience of the Korean economy, we have all agreed that labor market reform is necessary,” Minister of Employment and Labor Lee Ki-kwon said at the ministerial meeting.

The government has pushed for labor market reforms as part of President Park Geun-hye administrations’ campaign, which she called “a survival strategy,” not a “choice.”

The devised reform plans include expansion of the controversial peak wage system into the private sector, the adoption of ability-based salary systems and incentives to encourage large companies to improve working conditions for their subcontractors, which are often small and medium-sized enterprises.

The focal point has been the peak wage system, under which companies pay senior employees reduced salaries after the workers reach a certain age, generally between 55 and 60, in return for extending their retirement age by a few years.

With the official retirement age set to rise by two years to 60 next year, the government has claimed that the revamp in the overall wage system is key to generating jobs for the young people here.

Labor unions, however, saw the plan as a scheme that only benefits employers by reducing their costs.

The government has already decided to implement the peak wage system for 316 state-run organizations starting next year, with its plans to set specific goals by August.

Under the government’s new plan, the authorities will offer subsidies and consulting to some 30 private companies and 550 factories in six key industries including shipping, finance, medicine, and automobiles when they adopt the peak wage system and abolish seniority-based salary systems.

On top of that, the government will encourage conglomerates to boost “coexistence” with their sub-contractors by providing them with tax benefits and subsidies when they try to improve working conditions for their suppliers.

In Korea, many of conglomerates have been accused of exploiting their suppliers by forcing them to slash production costs and bring forward delivery dates, which often leads to poor working conditions at the supplier firms.

While the jobless rate among people between 15 and 29 stood at 9.3 percent as of May, the small and medium-sized companies have been suffering from a lack of staff mainly due to their worsening working conditions.

The government’s plan also includes a measure to change irregular workers’ status into permanent positions, starting from the public sector.

The Korea Employer’s Federation welcomed the government’s decision, but expressed concerns over some rules that might result in stiffening the labor market.

“We are glad that the government is taking the lead in adopting the peak wage system and expanding the ability-based salary system,” the employers’ organization said in a press release shortly after the government’s announcement.

“But guidelines allowing companies to change employment regulations without unions’ approval need to be more specific,” it said.

The government’s reform plan, however, sparked a protest from the nation’s two largest labor organizations ― the Federation of Korean Trade Unions and the Korean Confederation of Trade Unions.

“It is nonsense (to say) that we have agreed to the government’s plan for labor market overhaul,” the Korean Confederation of Trade Unions said in a press release.

“The government is labeling the peak wage system as a key to enhancing a harmony between employees and employers, but it will only end up reducing our salaries,” accusing the government of exploiting inter-generational rivalry.

The KCTU also pointed out the government’s approach to improving conditions for sub-contractors is wrong in the first place.

“If the government wants to improve conditions for suppliers, it should include a scheme that grants workers at sub-contractors a right to negotiate with their contractors,” the KCTU said.

“The government’s plan is no more than a framework to deprive workers of basic rights and help conglomerates at the cost of laborers.”

On Wednesday afternoon, the labor union held a rally to protest against the government’s plan at Gwanghwamun Square, with some 1,000 unionized workers in attendance. It declared all-out war against the authorities to stop it from going ahead with the reform plan.

Another trade union, the FKTU, also denounced the government for “excessively interfering in the matters that should be discussed between employers and employees.”

“Without considering the reality in which workers are forced to retire in their early 50s, the government is pushing to revamp the wage system, which can lead to discrimination by age and forcible early retirement,” the FKTU said in a press release.

“The government’s suggestion to ‘improve’ the labor market will only widen the gap between irregular and regular workers, contractors and sub-contractors,” it added.

The FKTU also vowed an all-out strike in July and August in opposition to the government’s plan. The trade union opened a ballot on Monday to gauge the support of its members.

The government said that it would announce more detailed measures for reform around August and September after discussing sticking points such as the minimum wage and working hours with laborers, management and lawmakers.

Earlier in April, the trilateral negotiations to negotiate employment conditions among laborers, employers and lawmakers collapsed, indicating that the government faces a challenge in gaining labor circles’ support.

By Ock Hyun-ju (laeticia.ock@heraldcorp.com)