Weak manufacturing increases employment woes

Korea is lagging behind in global competition to enhance the productivity and employment of manufacturing industries, experts here say.

Asia’s fourth-largest economy saw its manufacturing sector’s proportion of gross domestic product shrink from 31.36 percent in 2011 to 29.33 percent in 2016, according to data from the World Bank. The corresponding figure for member states of the Organization for Economic Cooperation and Development rose by 1.1 percentage points on average over the cited period.

Korean manufacturing firms are being further driven into a corner by anti-business steps taken by President Moon Jae-in’s government since it was launched in May last year.

The Moon administration has raised corporate tax rates, while implementing a set of labor-friendly measures that have put additional burdens on companies. Its pledges to promote innovation-driven growth have yet to be substantiated by concrete actions such as drastic deregulation. 

Recent data from the IHS Markit, a global market information provider, showed Korea sidelined from the ongoing global boom in the manufacturing sector.

Its manufacturing purchasing managers’ index remained at 48.9 last month, the second lowest among 20 major economies surveyed.

A reading above 50 suggests the manufacturing sector is expanding and a number below it points to contraction.

The corresponding figures were 56.9 for Germany, 56.4 for the US, 51.8 for Japan and 51.1 for China. Turkey was the only other country that saw the index fall below the benchmark level -- to 46.4.

Kim Joo-hoon, an economist at the state-run Korea Development Institute, noted that manufacturing industries have been left out of government support in Korea because of the wrong perception that helping bolster them brings benefits only to large companies.

“The more serious problem is that the government seems to regard the current crisis being faced by the local manufacturing sector as temporary,” he said.

The Moon administration has put forward no comprehensive plans for reviving the country’s manufacturing industries, remaining reluctant to lift regulatory restrictions across the board. A limited scope of labor reforms made under the previous government has been rolled back.

By contrast, other economic powers have been competing to improve operating conditions to help their manufacturing firms go ahead of foreign rivals.

The Moon administration’s anti-business stance has held back local manufacturers from increasing investment, pushing them to move not only factories but also research centers abroad.

This will result in widening the gap in research and development investment between Korea and other major economies. According to OECD data, Korea’s R&D investment in the manufacturing sector remained at $51 billion in 2015, compared with $278 billion for China, $236 billion for the US, $116 billion for Japan and $67 billion for Germany.

The weakening of Korea’s manufacturing industries is reflected in its outbound shipment of manufactured goods.

Its export of 13 major products increased 7 percent from a year earlier to $191.1 billion in the first five months of this year, according to figures from the Ministry of Trade, Industry and Energy. Excluding semiconductors, however, the outbound shipment of the 12 other items recorded a 1.9 percent on-year decrease over the cited period, compared with a more than 8 percent rise the year before.

Korean chipmakers’ dominant presence in global markets is being threatened by China’s massive investment in the semiconductor industry.

Kim Kwang-doo, the deputy head of a presidential economic advisory council, recently warned that Korea’s manufacturing industries would be pushed over the cliff when Beijing has carried out its ambitious “Made in China 2025” program.

He criticized economic policymakers for neglecting to help boost the competitiveness of the country’s manufacturers.

The weakening of the manufacturing sector is also accompanied by a reduction in employment.

The number of workers hired by manufacturing firms in Korea declined from 4.48 million in 2016 to 4.42 million last year. Over the cited period, the US, Japan and Germany saw their manufacturing workforces expand from 12.35 million, 9.96 million and 7.9 million to 12.55 million, 10.06 million and 8.01 million, respectively.

Economic aides to Moon have called for efforts to boost employment in the services sector and at small companies, saying the limit has been reached in creating more jobs at large manufacturing firms.

But experts note creating more manufacturing jobs is still needed to ease the country’s worsening unemployment, particularly among young people. The youth jobless rate was 11.6 percent in March, the highest for the month in two years.

“A 10 percent reduction in the cost caused by regulations in the manufacturing sector would result in a 4.8 percent increase in GDP, cutting the unemployment rate by 0.14 percentage points,” said Jung Jae-won, an analyst at the Korea Economic Research Institute, a private think tank.

In a seminar hosted by the Federation of Korean Industries last week, concerns were raised that the weakening of manufacturing industries would lead to reducing employment in other sectors.

A paper presented to it estimated that the departure of 10,000 workers from the manufacturing sector could cause up to 13,700 jobs to disappear in areas tied to manufacturing activity.

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