Pro-labor policies risk hurting productivity

Concerns are growing that President Moon-Jae-in’s push for reducing work hours along with a steep increase in the minimum wage may further aggravate Korea’s labor productivity, which remains near the bottom among major economies.

In a meeting with his aides last week, Moon said that, without job sharing through reduced work hours, it would be impossible to significantly raise the country’s employment rate and improve the quality of people’s lives.

He cited a report from the Organization for Economic Cooperation and Development that showed the average Korean worker worked 2,069 hours in 2016, far above the 35 OECD member states’ average of 1,764 hours.

It is Moon’s hope that a reduction in work hours coupled with minimum wage increases would result in creating more jobs, bolstering income for employees and enhancing compatibility between work and family life.

Few Koreans seem to disagree with his view that long workweeks and overwork can no longer be accepted as natural in the country.

But many experts note his labor-friendly policies might bring more difficulties to workers as well as their employers unless it was pursued at an appropriate pace and accompanied by substantial efforts to improve labor productivity.

Low-wage workers and small and mid-sized enterprises would be left particularly vulnerable to the possible negative impact of the hasty and imbalanced policy drive.

A recent study by the Korea Productivity Center showed the country ranked 28th among 35 OECD members in labor productivity in 2015.

A Korean worker produced added value worth $31.8 per hour on average, far lower than the OECD average of $46.7. The corresponding figures went up to $61.5 for the Netherlands, $62.9 for the US, $63.4 for Denmark and $78.7 for Norway.

The productivity gap between large firms and SMEs was wider in Korea than any other major economies.

The KPC study found SMEs’ productivity remained at 29.7 percent of large companies’ in Korea in 2013, the lowest among 24 OECD members surveyed.

“Contrary to the government’s wish, there could be a loss of jobs if wage hikes outpace productivity improvement with labor rules being changed too fast to be endured by companies,” said Yu Gyu-chang, a professor of business administration at Hanyang University.

Moon, who took office in May, has barely mentioned how to improve Korea’s low labor productivity, while emphasizing the need to reduce work hours.

He asked his aides last week to step up efforts toward the early parliamentary passage of a proposed revision to the labor law, which seeks to limit the maximum workweek, currently set at 68 hours per week, to 52 hours per week.

Conservative opposition lawmakers call for reducing work hours in a more cautious and gradual way that could lessen burdens on employers.

During the meeting with his aides, Moon suggested changing the administrative interpretation of a provision on workweek in the labor act to put reduced work hours in practice should the revision bill fail to pass through parliament.

The reduction in work hours will follow an earlier decision by a commission comprising representatives from the government and labor and management circles to increase the minimum wage by 16.4 percent from this year to 7,530 won in 2018.

During his election campaign, Moon pledged to raise the wage floor to 10,000 won over the next three years.

Small and mid-sized firms and self-employed businesses hiring part-time workers have been reducing payrolls to cut labor costs ahead of the planned minimum wage increase.

Their worries have not been eased by recent suggestions by government officials that the pace of minimum wage hikes could be slowed.

Corporate concerns over rising employment costs have been amplified by court rulings to widen the scope of ordinary wages.

The combination of reduced work hours and increased wages is set to particularly weigh on SMEs in the manufacturing sector, which are suffering from labor shortages as well as low labor productivity.

Large firms are also expected to refrain from increasing employment, as the labor market has become more rigid due to a decision by the Moon administration in September to repeal measures taken by the previous government last year to make layoffs and changes to working conditions easier.

In the 2016 ranking of labor market flexibility, announced by the Swiss bank UBS, Korea placed 83rd on a list of 139 countries surveyed.

Experts note reduced work hours could help create more jobs when accompanied by measures to make the labor market more flexible and cut wage costs shouldered by companies.

“Otherwise, a reduction in work hours would further strain labor-management relations with employees demanding wage hikes to make up for their reduced income,” said an official at the Korean Employers Federation, asking not to be named.

Experts say the Moon administration needs to take a more comprehensive and concrete approach to ensure reduced workweeks will result in enhancing the employment rate and the quality of life.

During a meeting with Moon in Seoul last week, OECD Secretary-General Jose Angel Gurria advised Korea to step up efforts to improve labor productivity and upgrade training programs to place workers losing jobs in the course of the “fourth industrial revolution” in new areas.

By Kim Kyung-ho 
(khkim@heraldcorp.com)