Major Labor Issues in 2012 and Outlook for 2013

1. Industrial Relations

Strong ties between labor and politicians

Industrial relations in 2012 have been influenced by politics rather than by law and principle. Labor disputes over such issues as work hour reduction, non-regular workers and in-house subcontract workers have been hot issues for politicians. Labor has continued to increase their influence in cooperation with political parties. Moreover, the stable industrial relations which had been maintained throughout the Lee Myung Bak administration, began to suffer from general strikes by the KCTU (Korean Confederation Trade Union) and industry-level strife led by the KMWU (Korea Metal Workers Union). Unstable industrial relations are expected to continue in 2013.

Unstable labor relations with labor-friendly election pledges

Many politicians have announced labor-friendly policies and nominated candidates from labor groups to gain the upper hand during the general elections in April. As a result, over 40 pro-labor candidates were elected and the Environment & Labor Committee has higher proportion of its members from the opposition parties than the ruling party this term, which led to greater political intervention in individual labor disputes. In particular, during the parliamentary inspections illegal and aggressive strikes by labor went unnoticed while minor faults of employers were exaggerated, as if employers were responsible for unstable industrial relations.

Also, a former president and officials from both umbrella unions participated in the election camps of major candidates. Labor-friendly policies are also expected from the new administration as presidential candidates have made such proposals as revision of the Trade Union Act, reduction of working hours and extension of the retirement age.

However, political intervention will only protract aggressive strikes by trade unions. For example, Hanjin Heavy Industries is still having difficulties finding stability due to the long-term strike being carried out by the trade union, with support from various politicians. In 2012, the number of labor disputes and lost workdays increased along with more frequent political intervention.

 

<Figure 1> Number of Labor Disputes & Lost Workdays in Past 5 Years 

* Source: MOEL

Government measures to boost employment rate increasing burden on enterprises

In 2012, the government promoted active employment and labor policies with an aim to create more jobs and improve job quality. These include proposals to consider work on holidays and weekends as “extended work” as a way to create jobs through work hour reduction. The government also exposed 73 companies which had violated regulations on working hours and implemented measures for those companies to hire 1,478 new employees.

Labor law was also revised to allow labor inspectors to guide companies in correcting discrimination against non-regular workers. Government is also continuing to monitor such discrimination (including against illegally dispatched workers) in large companies. However, without improving labor flexibility, such restrictive measures enforced through labor inspections can only lead to other problems. If enterprises lose competitiveness or close down, both employers and employees will suffer.

Influenced by ‘economic democratization’ election pledges, the new government is expected to continue legislative efforts to reduce working hours and decrease discrimination against non-regular workers, while seeking to improve working conditions and induce companies to employ more people. Therefore, labor management difficulties are expected to continue for companies in 2013.

Working hour reductions, multiple unions and ordinary wage

The time-off system and the multiple union systems were the biggest labor issues during the current administration. Meanwhile other issues such as reduction of work hours, reform of the work shift system and expansion of the scope of “ordinary wage” have been emerged. The two-shift system, in particular, became an issue for labor and politicians in collective bargaining and decisions were made to reduce working hours by including work on holidays and weekends in the legal definition of “extended work”. Labor is also expected to demand work hour reductions without wage cuts or increase in workload.

However, reducing work hours will only weaken enterprise competitiveness as it will place additional burden on companies already facing rigidity in employment management options. Therefore the government needs to find ways to encourage enterprises to reduce working hours through increasing labor market flexibility and expanding tax benefits. Meanwhile, as the Supreme Court has ruled that fixed bonuses should be included in calculation of ordinary wage, an increasing number of trade unions are expected to demand reconstruction of their wage systems. The Supreme Court’s ruling on ordinary wage calculation not only denies the government’s long-held administrative interpretation and ordinary wage calculation guidelines but also fails to reflect the reality of business management.

The multiple unions system seems to have taken root at workplaces. However, it is worrisome that conflicts over the system might emerge again in 2013 at a time when bargaining representative unions should be selected at a considerable number of companies. It is highly likely that labor will try to increase their influence in the 1st half of 2013 by signing up more union members to win the position of representative union. In particular, the Korea Metal Workers Union under the KCTU seems to be targeting companies such as Yoosung Enterprise (YPR) and Valeo Electrical Systems Korea whose representative unions withdrew their membership from the umbrella union, raising the possibility of labor-labor or labor-management conflicts.

The business environment in 2013 is not bright due to deteriorating export conditions and sluggish domestic consumption. Against this backdrop, the pro-labor trends in political circles, if continued well into 2013, will increase the current economic difficulties.

The new government would be well-advised to avoid intervening in industrial relations, recognizing that labor-management harmony can be achieved only through autonomy of both labor and management, free of intervention from outside, including politicians, and only according to law and principle. Any unreasonable demands or illegal activity should be dealt with strictly according to law and principle.

2. Labor Market

Total employment showed a steady increase between January and October 2012 as the number of people joining the workforce increased to 24.68 million, up 461,000 from the previous year.

The unemployment rate remained stable, with an average of 3.3% between January and October 2012. Nevertheless, the quality of employment is concerning. The number of employees increased by only 322,000, a large decline over the previous year, whereas the number of self-employed increased by 139,000.

<Table 1> Major Employment Indicators

 (Unit: year-on-year, 1000 people, %)

According to the OECD, the employment-to-population ratio in Korea was 63.9% in 2011, much lower than the major advanced nations (OECD average 64.8%, USA 66.6%, UK 70.4%, and Germany 72.6%). Youth unemployment is close to 20%, far higher than the official unemployment rate of 7%.

<Figure 2> Non-Regular Workers by Company Size
(Units: 1,000 people, %)

* Source: Korea Employers Federation, “Changes in Recruitment of Non-regular Workers by Company Size & Implications”, November 2012

Although the organizations evaluating national competitiveness pointed out the rigidity of the Korean labor market, there has been no improvement. The total number of non-regular workers in Korea was 5,911,000 as of October 2012, accounting for 33.3% of the all workers. The proportion of non-regular workers has been staying at around 34% since 2008. In detail, 70.4% of non-regular workers are in micro businesses with 30 or fewer people, 24.4% are in SMEs employing 30 to 299 people, while only 5.2% are working in large enterprises with at least 300 employees.

On top of the economic uncertainties in the US and Europe that seem to continue in 2013, developing economies such as India and China are also showing signs of economic recession. The Korean economy is at risk of experiencing an ‘L-shaped long term depression,’ as it faces weak domestic consumption along with declines in export and investment. Thus, the number of people employed in 2013 is expected to increase by around 200,000. Issues of youth unemployment and small business redundancy are also expected to continue.

Employment regulations seem to increase in 2013 to create jobs for disadvantaged groups such as non-regular workers, the youth, retirement-age people, and women, and to decrease discrimination

Reducing polarization and limiting the use of non-regular workers (by restricting the use of non-regular workers, reducing discrimination against subcontract workers, and posting types of employment at companies) were the major topics in politics last year. Although the major presidential candidates had differences in the degree of regulations, they agreed on reducing non-regular workers and discrimination in employment. It is highly possible that the new government focuses on those topics in 2013. Nonetheless, regularization of non-regular workers is expected to place significant burden on micro businesses and SMEs as 70.4% (4,161,000 as of August 2012) are employed by companies with less than 30 people. There are also concerns that strengthening regulations on subcontract employment will hinder HRM and the productivity of manufacturing companies since subcontract employment is used widely in manufacturing, including the automobile and shipbuilding industries.

If a large increase of minimum wage, one of the election promises of major presidential candidates, is realized, it will be particularly burdensome for micro businesses and SMEs, as they hire 98.8% of minimum wage workers, which will inevitably lead to fewer jobs for disadvantaged groups.

Working hour reduction will remain a controversial issue in the labor market. The Ministry of Employment & Labor(MOEL) actively pushing for reduced working hours by counting holiday work as statutory overtime working hours. The MOEL however postponed the reduction due to strong opposition of business which feels the reductions do not consider the reality in workplace and will further damage the business environment for SMEs.

Solutions for youth unemployment focused more on populism-driven regulations such as a youth employment quota or banning academic discrimination, rather than revitalizing the labor market. When considering that youth unemployment will become more serious with economic downturn in 2013, both societal and political demands for youth employment quotas are likely to increase, which will infringe upon the right to manage workforces and increase the burden of employment. A bill on youth employment quota in public institutions was passed by the Legislation & Judiciary Committee under the National Assembly’s Environment & Labor Committee on Nov. 21st, 2012. This bill will cause the public sector to be too large and poorly managed, resulting in additional burden on the nation.

The National Assembly and the Economic & Social Development Commission discussed legislating an extension of the retirement age, with the right to request reduced working hours of retirement age people and outplacement support as the main issues. However, as the weaknesses in the Korean labor market (such as the seniority-based wage system and strict requirements for layoffs) remain unresolved, legislating an extension of retirement age would increase employment rigidity and result in conflicts between the generations for the limited number of jobs.

Meanwhile, regulations regarding employment of women increased in 2012. The regulations included posting a list of companies failing to comply with the obligation to install childcare facilities in the workplace, paid maternity leave and family care leave, the right to request reduced working hours during childcare periods, and divided use of maternity leave. Presidential candidates’ pledges for free childcare at the age of 0~5 will also add exorbitant financial strain. Increased pressure for longer leave for fathers and affirmative employment action seem to continue.

Reasonable reforms are required to reduce labor market rigidity

According to the World Economic Forum’s Global Competitiveness Report released in September 2012, Korea’s labor market efficiency improved slightly to rank 73rd out of 144 countries. Nonetheless, it is very revealing that Korea ranked 140th in labor-management relations and employment flexibility such as cooperation in labor-employer relations, 115th in hiring and firing practices, and 118th in redundancy costs.

Rather than short-term employment policies targeting a particular group, policies that support job creation and employment through logical reform of market regulations and diversification of employment types are required. Company competitiveness can be improved through widespread use of a performance-based wage system and relaxing the strict regulations for layoffs. Balanced policies that promote accessibility to the labor market by disadvantaged groups must also be prepared.

Protection for regular workers needs to be less excessive, and social understanding that non-regular jobs are stepping stones to better jobs should spread. A market-friendly environment for employment should be formed that will improve the quality of life through autonomous reduction of working hours based on labor-management cooperation.