ed Urgent labor reform

The visiting head of the Organization for Economic Cooperation and Development (OECD) has advised Korea to reform its labor market to revitalize the economy.

During a meeting with Labor Minister Lee Ki-kwon, Tuesday, Angel Gurria, secretary-general of the economic club of rich countries, said Korea needs to make its labor market flexible. “Labor reform will not only strengthen Korea’s fundamentals but also make it easier for the country to counter external impacts,” Gurria was quoted as saying.

Gurria even said he was willing to meet with Korean lawmakers to convince them of the need for the National Assembly to approve major labor reform bills.

It is unusual for the OECD secretary-general to mention the employment problem of a specific country. This highlights the urgency of pushing for the structural reform of our labor market.

The key point of the reform is to curtail privileges granted to regular workers and raise the flexibility of the market. That’s because it’s impossible to narrow the wage gap between regular and non-regular workers while laws and systems intended to overprotect regular workers remain intact.

Just looking at the dual structure of the labor market makes one sense the urgency of labor reform. The monthly pay of regular workers at large companies with militant labor unions averages 4.17 million won. This figure is nearly treble the monthly pay of non-regular workers at union-free small and medium-sized firms. Given that regular workers at large companies with unions account for only 7 to 8 percent of total wage earners, the stark reality is that much of the fruits from economic growth go to the establishment.

As long as this polarized structure persists, it’s difficult to expect the working class to enjoy the virtuous circle of higher income leading to increased consumption. Since the nation’s democratization in 1987, union workers at large companies such as Hyundai Motor have received wages in excess of their productivity improvements thanks to strikes and other militant struggles. These excess wages, in fact, have been reaped at the expense of non-regular workers at smaller companies.

The solution to all these problems is to make the labor market flexible by spreading the merit-based salary system and the peak wage system, as Gurria suggested.

True, the government’s passion for labor reform appears to have gone up in smoke as President Park Geun-hye is mired in the snowballing Choi Soon-sil gate scandal. Therefore, it is imperative that leaders from the ruling and opposition parties cooperate to approve the pending labor reform bills.