Shorter work week to hurt Korea's growth

Goldman Sachs headquarters in New York

By Lee Kyung-min

Korea's shorter work week ― 52 hours from 68 ― will reduce economic growth by 0.3 percentage points in 2020, according to a global investment banking powerhouse, Sunday.

The bleak assessment poses greater concern for Asia's fourth-largest economy already beset by low growth and low inflation, compounded by lingering external uncertainties involving the U.S.-China trade dispute and sharply declining memory chip sales.

In the report “Korea: Reduction in Work Hours Could Pose Growth Headwinds for 2020,” Goldman Sachs said the country's growth prospects could be further clouded, leading to a slower growth rate of 2 percent, down 0.3 percentage points from the previous projection of 2.3 percent.

“The new work-hour limit comes against the backdrop of slowing growth, highlighting the risk that Korean companies may not be able to quickly fill in the productivity gap left by the reduced work hours,” the report said.

Effective July 1, business operators with more than 300 workers that fail to follow the revised law on the state-set shorter work week will be given a verbal warning. Those that continue to ignore the change will face up to two years in prison or up to a 20 million won ($18,000) fine.

Businesses with fewer than 300 workers will be granted a six-month grace period.

The Goldman Sachs corporate logo

The report said the new measure, affecting 13 percent of Korea's workforce, will compel companies to hire 350,000 new workers, leading to a 9 trillion won increase in labor costs.

The figure is equivalent to about 0.5 percent of the country's nominal GDP of 1,893 trillion won in 2018.

Business investment sentiment and profit margins could be substantially weakened, the report said, especially in the transport, facility and manufacturing sectors.

“Conservatively assuming that labor productivity does not improve sharply over the short term, we believe the lower work-hour limit will likely reduce corporate margins through higher labor cost burdens or reduced revenues,” it said.

Korea's slowing economy will only continue to suffer, according to an economist.

“Corporate competitiveness is fast marred by anti-business government policies and the report has nothing that we do not already know,” Yun Chang-hyun, a business professor at the University of Seoul, said.

“Businesses have simply no reason to hire at this point, when their profit margin is shrinking and will continue to shrink. The government policy is straining them, demoralizing them.”

The report comes amid growing frustration from some workers in the labor-heavy sector because fewer hours worked means less money in their hands.

“Other than the regular monthly paycheck, I received about 600,000 won extra for working nightshifts or early hour shifts,” a bus driver said. “I need the money rather than rest.”