[Foreign Grand Prize] Foreign Workers to Sharpen Korea’s Edge
By Rim El Khoury
The Korean economy is a puzzle wrapped in a mystery inside an enigma. Korean economic growth is one of the great success stories of the last half-century. A growth rate averaging 8 percent per annum over the period fundamentally transformed the country and the lives of its citizens.
From a starting point as one of the very poorest countries, South Korea is now the 13th largest economy in the world; it is a member of the OECD; and it is known around the world as a producer of high-quality vehicles, consumer electronics and other goods. The Korean pop culture is also sweeping Asia. Currently, Korea is one of the fastest growing economies in the OECD area on its high technology strength. So, it is hard to imagine a more dramatic success story.
At the same time, the labor market is undergoing new changes, facing new challenges. Although Korea was one of the nations exporting laborers in the 1960s and 1970s, it has turned into a country importing labor force.
This was driven by an increased labor turnover and more evident mismatches between demand and supply of labor, reflecting the decline in young workforces and a growing elderly population.
With all these changes, Korea has to address the problem of domestic manpower shortages with imported migrant workers. Recently, the flow of foreign workers into Korea has been increasing and issues about the economic consequences of foreign workers are drawing greater attention.
But what are the reasons for the reversal in the flow of labor? And are foreign workers necessary for Korean economy? This reversal of labor flows in and out of the country can be attributed to the higher income of Korean citizens, rapid economic growth, stronger wages relative to other neighboring countries and a lower labor participation rate.
This is further deepened by adverse demographic changes such as an end to the period of baby boomers, the lower birth rate among Koreans, the ageing population (as in many countries in East Asia), all resulting in a shrinkage of the working age population. Therefore, foreign workers are needed to fill the gap between demand and supply and to maintain Korean economic growth.
On the other side, despite its progress the Korean population is almost homogenous and Korea remains relatively isolated in terms of inflow of foreign workers where large scale immigration remains politically sensitive. The problem of unfavorable demographics trends combined with significant control of foreign labor importation raise the concern about the sustainability of Korean economic growth in the future.
Not only this, but Korea is also facing the external challenge of losing its price competitiveness as China is expanding its global market share with cheap labor. In response, Korea's most successful companies are seeking to increase the quality of their products. This will further increase the need for high-skilled foreign workers. Thus, foreign workers are more important than ever to boost productivity and to cope with labor shortage problems
Given these facts, making greater use of foreign workers will produce bigger economic benefits, simply by reducing labor shortages in some sectors where foreign workers account for less than 1 percent of the labor force.
However, the degree of the positive contribution of foreign workers to stronger productivity depends on the extent to which these workers are skilled. Now, high-skilled foreign workers account for only 6 percent of total foreign workers in Korea. This proportion should increase to help sharpen Korea's international competitive edge.
However, it is often argued that the inflow of foreign workers can create some costs to the host country. Generally speaking, immigrants could be harmful to the employment level in Korea by taking jobs away from native works and lowering wages.
Nevertheless, I think that these workers will not simply take jobs away as they are there to fill the shortage not to replace Korean workers. I don't think foreign workers will put downward pressure on Korea's overall wage levels if Korea is able to choose the right inflow. Since Korea needs not only foreign workers, but also high-skilled migrant workers, the latter are less likely to lower wage rates.
Therefore, in summary, Korea's economic future depends on its ability to maintain its global edge in the information and telecom industry, which will be an important driver of productivity growth. To achieve this, Korea needs labor force that can provide a boost to the country's fast-growing IT industry.
From this perspective and given the adverse demographics trends, the influx of foreign and high-skilled workers can help resolve the labor shortage problem that exists in Korea. These workers can become great assets for the country's industries, supporting the maintenance of Korean competitiveness worldwide, and therefore, contributing positively to Korea's economic growth.
Finally, although the Korean business environment enjoys a high quality macroeconomic environment and market opportunities by its large, increasingly wealthy and well educated population, its strengths will be reinforced by reducing rigidities in the labor market and accepting the influx of foreign workers, more specifically high-skilled workers who can power Korea's global competitiveness.