Value context and insight. lkm@koreatimes.co.kr
Korea's economy dragged by rigid labor market
By Lee Kyung-min
Korea ranks 144th out of 162 countries in labor market regulations
By Lee Kyung-min
The “rigid” labor market remains the biggest factor that undermines the nation's corporate competitiveness, according to a free market advocacy group Friday.
According to the Economic Freedom of the World: 2019 Annual Report, Korea ranked 33rd in 2017 out of 162 countries.
Most notable was that it ranked 144th in the labor market regulations category, one of five areas of evaluation.
The remaining four areas were size of government, legal structure and security of property rights, access to sound money and freedom to trade internationally.
The index with 42 data points measures the degree to which the policies and institutions of countries are supportive of economic freedom.
Center for Free Enterprise (CFE), a Seoul-based nonprofit organization and co-author of the report, said Korea ranked 16th in sound money scoring 9.60, and 30th in legal system and property rights scoring 6.47. It came in 37th in credit market regulations with a score of 9.33.
It ranked 49th in the size of government scoring 7.04, and 62nd in freedom to trade internationally with a score of 7.59.
However, it was among the lowest-rated in terms of labor market regulations with a score of 4.84.
CFE President Choi Sung-no said the business environment is not at all conducive to enriching entrepreneurship, under the current labor-friendly environment.
“Business owners have no full discretion over wages, working hours and period of work, the three basic elements that determine effective labor force management. When the company is not able to make the calls concerning key managerial issues, corporate competitiveness will inevitably be hurt,” Choi said.
In Korea, businesses cannot hire and fire employees easily, and the unions know it, a reason unions are becoming more militant to the point where their threats to strike and halt manufacturing operations are effective, he said.
Frequent strikes therefore have been a way for unions to leverage deals to increase wages and boost other employment benefits.
“This is unimaginable in Germany or many other advanced countries. No work, no pay stands as a principle which both labor and management respects. But in Korea, companies cannot make money when labor strikes because hiring substitute manpower to replace such workforce during a strike is illegal in Korea. This is beyond unreasonable,” he said.
Unlike advanced countries which by law not only clearly state what businesses can or cannot do but also leave little room for arbitrary interpretations, Korean law allows too much of a possibility for “undue intervention” by those in power.
When it comes to the law, he said, most of the specifics are determined by ordinances, which the government ministries can revise easily. The ordinances lack consistency because president-appointed ministers make legal interpretations that best suit the current administration.
“Given the uncertainty, how can the businesses rely on the law to make plans in a consistent and thorough manner? It is next to impossible,” he said.
The growing number of manufacturers seeking to relocate their factories overseas should therefore be a sobering reminder of how the government should consider what is in the best interest of the economy, he added.
“For businesses in Korea, it is cheaper to run overseas facilities to avoid management risks, notably the frequent strikes. They have no reason to stay here,” Choi said.
Alicia Garcia-Herrero, Asia-Pacific chief economist at Natixis Global Market Research, said it is all about labor regulations.
“The worst ones are hiring and firing so the solution is quite obvious. You should eliminate barriers to entry and exit to make it more dynamic,” she said.