By Yoon Ja-young
Staff Reporter
Korea should further open up its service market to enhance the nation's economic competitiveness as heavy-handed rules in the sector are hindering productivity of the entire economy, the OECD said Thursday.
At a forum organized by the Korea Development Institute (KDI), Chiara Criscuolo, an economist at the OECD, said the performance of the services industry affects the efficiency of other sectors.
"Recent evidence shows that regulation and lower productivity in services is negatively associated with productivity in other sectors, such as manufacturing," she said.
"Hence, ensuring a competitive and open services sector will be a double boost, guaranteeing an efficient and innovative sector as well as indirectly leading to efficiency gains in manufacturing."
She suggested further opening and integration of service markets.
The OECD's recommendation comes as the Korean economy has been sustained mostly by the export-oriented manufacturing sector while the domestic services sector has been uncompetitive.
At the forum, Hur Kyung-wook, vice minister of strategy and finance, said that such an imbalance should disappear, and the education, medicine and social service industries in particular will be the focus in upgrading the services sector.
"In particular, the economic crisis has revealed that to reduce vulnerabilities against external shocks, the Korean economy must reduce its external dependency and strengthen domestic demand," he said.
He added that the services sector is half as competitive and productive as the manufacturing sector.
The government is focusing on revamping education, medicine and social services.
"Strong emphasis will be placed on nurturing high value-added services such as education and medicine, which convert external consumption into domestic consumption, and social services which bring high job creation," Hur said.
Economists agree that education and medicine could be the right choice. "Developed economies, especially the social democratic countries in Northern Europe, have good social and medical services. Korea, which has a low birthrate and an aging society, should invest in these areas as businesses can't suddenly jump into the sector," said Sohn Min-jung, a research associate at Samsung Economic Research Institute.
He pointed out that Korea was not lagging behind its Western counterparts in the ratio of services jobs to total jobs. The problem, however, is that most of these workers are dedicated to the retail and wholesale or restaurant and lodging sectors, which are less industrialized, and both salaries and productivity are low.
"To sum up, the job structure isn't as developed as in other OECD member countries," Sohn said.