Business Standpoint on Recently Discussed Labor Bills at the National Assembly

1. Public Holiday Bill
(As of April 25, under the discussion at the Security & Public Administration Committee)

It is completely against the international standards to force private companies to grant public holidays to their employees. Korean workers presently enjoy a similar number of public holidays as workers in other developed countries enjoy. Only two OECD countries (Japan and Australia) force private companies to grant a day off on government and public holidays, but they do not consider Sunday as a legal holiday as Korea does.

< Table 1> Number of Public Holidays by Country

The Public Holiday bill also contradicts the current Labor Standards Act in terms of the weekly holiday, and is likely to result in additional labor costs for employers as well as a loss in production due to the lost working days.

Furthermore, the number of holidays directly and negatively affects the incomes of vulnerable groups such as temporary employees, daily workers and the self-employed.

<Surveys on Alternative Holidays>

2. Revision of the Act on Protection, etc. of Fixed-term & Part-time Employees 

(As of April 24, pending at the Environment & Labor Committee)

According to the Korean Labor Standards Act, employers should pay workers an overtime work allowance for work in excess of the statutory working hours. Given the original purpose of overtime work allowance, it is unreasonable to obligate employers to pay part-time workers an additional allowance for overtime work not in excess of statutory working hours. Also, the court has concluded that employers are not legally obligated to pay an additional overtime allowance in this case.

Also, an introduction of ‘punitive damages’ is incompatible with the principle of banning excessive enforcement under the Constitution, as this obligates employers to compensate workers up to 10 times the amount of damage or loss.
Given that current labor law does not apply such punitive damages to more serious unfair labor practices such as withholding wages, it is unreasonable, in terms of gravity, to introduce them for discrimination against fixed-term and part-time workers. Even in countries which levy punitive damages, legal disputes over constitutionality are ongoing.

In this regard, it is excessive to allow employees to call for correction orders and an investigation of the entire workplace after just one case of discrimination has been confirmed. Such action means that the employer is a potential offender who discriminates against fixed-term and part-time workers. This action will also provoke unnecessary confrontation between labor and management and stir widespread anxiety at the workplace.

In conclusion, workable solutions that avoid overprotective measures for non-regular workers and ease rigidity of the labor market should be considered. Severe restrictions will only lead to fewer jobs and significant polarization of the labor market.

3. Revision of the Special Act for the Promotion of Youth Employment
(As of April 24, passed at legislative subcommittee of the Legislation & Judiciary Committee)

Given that Korea’s public sector debt amounted to USD 530 billion in the end of 2011, introduction of a mandatory youth employment quota will excessively increase organizational size and increase labor costs which may over time, result in greater taxpayer burden due to government mismanagement.

It is feared that the introduction of the mandatory youth employment quota would incur about USD 800 million in additional labor costs over the next 3 years.

Together with the extension of retirement age to 60, the mandatory youth employment quota (both scheduled to begin in 2016), will mean it is even harder for employers to hire new employees and retain senior workers with high salaries.

Such regulation of employment will serve only to exacerbate the mismatch between supply and demand of labor, including the labor shortage experienced by SMEs, from excessive concentration of job seekers on so-called “decent jobs”: only 9.9% of university graduates in Korea want jobs with an SME. If the mandatory youth employment quota is implemented in the public sector, more young job seekers will choose to wait until they can also benefit from this system.

Young people, unlike the disabled, are not a vulnerable group needing legal protection. In this regard, imposing legal obligations on employers to employ young people is unreasonable, and likely to cause severe competition and conflict between the generations for the limited number of jobs.

The mandatory youth employment quota is not in accordance with other employment laws such as the Framework Act on Employment Policy, the Act on Prohibition of Age Discrimination in Employment & Aged Employment Promotion, etc. It may end up engendering a form of discrimination against job seekers of other age groups.

4. Revision of Act on Prohibition of Age Discrimination in Employment and Employment  Promotion for Aged Workers 

(As of April 24, passed at the Environment & Labor Committee)

Since many businesses in Korea have adopted a seniority-based wage system, extending the legal retirement age to 60 will inevitably result in increased labor costs, resulting in employers avoiding hiring workers near retirement age. According to a Korea Labor Institute survey in 2008, the average wage of an employee who has worked for at least 20 years is more than double the average of beginning salary (office employees 2.18 times, manufacturing employees 2.41 times). In many European countries such as Germany and France, the difference ranges between 1.2 and 1.5 times

In addition, with Korea’s already-rigid labor regulations, if retirement age is legally set at 60, the cumulative increase in aging workers would put a greater burden on businesses against recruiting young workers. In a survey conducted by the KEF in May 2012, 54.4% of businesses and 66.4% of young job seekers said that they were worried that the volume of new employment would shrink if the retirement age is extended. In particular, 70.7% of large companies said they would downsize their recruitment plans if the legal retirement age is extended.

Along with worries over the loss of job opportunities, extending the retirement age is also likely to deepen polarization between large companies and SMEs. In 2011, the Ministry of Employment & Labor found that 94.5% of large companies with 300 employees or more set their mandatory retirement age while this is only true for 20.0% of SMEs with fewer than 300 employees.

Most Korean enterprises are not ready to extend their workers’ retirement age to 60. In Japan, the mandatory retirement age was set at 60 in 1998, 4 years after it became an “aged” society. The Korean government, in contrast, is aiming to set its legal retirement age to 60 about one year ahead of the expected time Korea would become an “aged” society (2017). Sufficient time needs to be given to businesses to prepare new retirement plans and support to be given to businesses regarding the wage peak system.

For a more fundamental solution, the Korean government would be wise to move toward creation of an environment that allows employers to be comfortable hiring aging workers through a more flexible labor market. In particular, the current seniority-based wage system needs to be replaced with a performance-based wage system, and flexibility created enhanced in hiring and firing.