ED Labor market reform

The nation must tackle difficult but unavoidable tasks

Rep. Hong Young-pyo, floor leader of the ruling Democratic Party of Korea, recently emphasized the need to reform Korea's labor market. “We need to achieve a great social compromise that enhances both flexibility and security in the job market simultaneously,” Hong told the National Assembly, Monday.

The governing party whip was stressing the nation should cope more flexibly with workforce restructuring as the inevitable result of business cycles and the Fourth Industrial Revolution. He proposed providing 70 percent of a person's previous income in unemployment benefits for up to two years, and offer support for job-seeking activities, including relocation training.

Hong, as a former labor activist, ran a political risk in making these remarks, which reflect the urgency to reform the “labor culture” here. Low labor market flexibility results in the inefficient allocation of resources. If businesses are not allowed to trim an unnecessary workforce, they tend to avoid new hiring, which in turn, weakens their vitality and dynamism.

Many institutions, here and abroad, have long pointed out that the rigid labor market stands in the way of Korea's development. According to the World Economic Forum, last year the nation was ranked 124th out of 140 countries in labor-management cooperation, 114th in layoff costs, and 75th in labor mobility. All this indicates Korea has no other choice but to reform its labor market to see further growth.

Reinventing labor culture is the path the country must follow. To this end, society needs to dispel fears of unemployment to some extent. It will of course not be easy to expand unemployment benefits drastically as Rep. Hong suggested, because of financial problems. Nor will people be willing to accept the proposal because they will have to pay more taxes.

The time has long past, however, for Korea to seek a breakthrough via dialogue. If labor, management and the government reach a “grand agreement” by conceding to one another, the benefits will far outweigh the costs. Hong's speech at the National Assembly ought to be a starting point for a national discussion. The longer it takes to tackle this task, the more severe the damage will be.