Lee Yeon-woo is a financial journalist at The Korea Times. Her wide range of reporting includes policies, macroeconomics, stock market, companies and even crypto. She is passionate about connecting the dots in Korean finance and making it easier for foreign nationals to understand. Based on her previous experience as a national reporter, she also has a keen interest in social issues within the sector, including gender equality and ESG. Your tips and insights are always appreciated. You can send them to yanu@koreatimes.co.kr.
Korea trapped in state of declining productivity
Senior citizens relax in the shade as a child plays on a swing at the park, July 31. Korea Times file
By Lee Yeon-woo
By Lee Yeon-woo
Koreans work longer hours than most of the Organisation for Economic Co-operation and Development (OECD) members but earn less in return. This disparity, exacerbating the nation's lagging economic growth, is adding to calls for the government to take decisive actions to address diminishing productivity.
According to a recent report by National Assembly Budget Office, Korea's workforce productivity per hour in 2022 stood at $49.40, placing it 33rd out of the 37 OECD member countries. Ireland, which ranked first, registered $155.50. Germany and the U.S. followed with figures of $88 and $87.60 while Japan posted $53.20. The only countries ranking lower than Korea were Greece, Chile, Mexico and Colombia.
The country's workforce productivity has taken a concerning turn. In the first quarter of 2023, productivity across all industries dropped by approximately two percent compared to the same period in the previous year. The budget office cites a “greater increase in labor input relative to the rise in added value” as the reason for this decline. This suggests that labor productivity improvements are lagging behind wage increases.
If the current productivity trajectory persists, the nation's potential growth rate could plummet to around zero percent in 2050, Korea Development Institute (KDI) has warned.
What heightens the concern is Korea's notably low birthrate and aging population. The rigid labor market system and lack of support for cutting-edge services are also cited as factors behind low productivity.
“Countries where individuals work fewer hours yet earn higher incomes typically prioritize promoting part-time employment, easing labor regulations and achieving elevated employment rates. Their high wage levels are fundamentally anchored in elevated productivity,” said Choo Kwang-ho, chief of Korea Economic Research Institute's economic policy division.
The government is striving to invigorate the economy by rolling out a series of initiatives. However, experts have voiced concerns, emphasizing that the government should continually refine policies to bolster productivity, especially in light of demographic changes.
“If we continue to witness a decline in productivity, we will inevitably return to a state of low growth and low inflation. This could put further strain on our monetary policies, so proactive measures are essential,” said Suh Young-kyung, a member of the Bank of Korea's monetary policy board, during a recent seminar at the bank. “Consistent efforts, such as welcoming immigrants with skills in high-value-added services, are vital for genuine labor market restructuring.”
“Employment conditions need enhancement to encourage the active participation of women,” said Kim Ji-yeon, a senior researcher at KDI. “Despite their high productivity, many women typically remain outside the labor force due to childbirth and child-rearing. The participation of elderly citizens, a rapidly growing demographic, should also be facilitated.”