[Editorial] Labor market flexibility

President Yoon Suk-yeol said Tuesday the government will finalize its position on labor reform recommendations and push ahead with measures to protect the vulnerable in the labor market.

Yoon referred to recommendations that the Future Labor Research Council, a state-led expert group, presented Monday -- a set of reform proposals aimed at overhauling a South Korean labor market saddled with rigid practices that has long undermined productivity growth.

At the heart of the reform proposals are substantial changes to the controversial 52-hour workweek, the seniority-based pay system and the retirement age currently set at 60 in most workplaces. Flexibility is the underlying principle that is expected to shore up reform measures.

What the country’s labor market painfully lacks to stay competitive is flexibility. A case in point is the much-disputed 52-hour workweek, whose original purpose was to prevent companies from subjecting employees to endless overtime work.

Embarrassingly, the 52-hour workweek brought side effects that led to complaints from both employers and employees. As the system was set up rigidly based on a weekly cap on working hours, workers find it frustrating since they cannot work as long as they want for extra pay, while employers struggle to handle new orders that require temporarily extended working hours beyond the weekly yardstick.

It’s a lose-lose equation, even though it does work as a key protective measure for workers against unilateral, repeated demands for overtime work.

One of the key reform measures suggested by the expert group is to change the weekly system into diverse options based on monthly, quarterly, half-yearly or yearly limits. This way, workers can work flexibly within the 52-hour labor per week on average, increasing or decreasing their working hours in accordance with changing business demands -- much-needed flexibility that is expected to boost overall productivity and help drive up revenue.

Another key reform proposal is aimed at reconfiguring the seniority-based pay system into a performance-based one. The country’s economic standards have made continued progress in past decades. But labor practices, notably the seniority-oriented pay system, have remained largely unchanged -- a fact that is often cited as a reason for the country’s lower labor productivity compared to other advanced countries such as the US and Germany.

However, introducing a performance-based pay system is no easy task. While a growing number of companies have introduced a new pay system that reflects individual performance, doubts and poor application of the new rules persist due to the lack of an objective and reasonable assessment framework that can satisfy both employers and employees. In addition, strong opposition from labor unions mindful of job security and pay imbalances for workers cannot be ignored.

One noticeable recommendation from the expert group involves the extension of the retirement age in line with the rapidly aging Korean society, exacerbated by the plunging birthrate. “Extending the employment period is an urgent task for Korean society given the fast expansion of the elderly population and the need for maintaining economic growth,” the Future Labor Research Council noted, adding the current retirement age of 60 cannot weather the forthcoming challenges.

Extending the retirement age regulated by law is also needed to deal with the unfairness retirees confront in later years. Under the current pension system, the age of eligibility for pension is 63 in 2023, 64 in 2028 and 65 in 2033. In other words, those who intend to retire at age 60 about 10 years from now will have to live without any pension income for at least five years -- a dreadful situation that could worsen along with fast-paced hikes in property taxes and health insurance payments.

To push for labor reforms, the government should discuss recommendations with members of the Economic, Social & Labor Council before working out related revision bills with lawmakers for legislation at the National Assembly. The outlook for a swift consensus is murky at best, as the Federation of Korean Trade Unions and the Korean Confederation of Trade Unions criticized the proposals for allegedly worsening labor conditions and only benefiting employers.

There is no doubt that labor reforms for greater flexibility are critical for the country’s labor market. To push ahead with the reform measures, however, the Yoon administration has to build up trust among all parties involved -- and then map out a convincing road map that can infuse flexibility into the labor market.