Since the Ministry of Employment & Labor (MOEL) announced in January its plans to include weekend and holiday work in the calculation of overtime, reduction of working hours has been emerging as a hot issue in the labor market. Unlike in the past, the government is pushing hard to cut working hours through compulsory measures, instead of leaving it to the discretion of labor and management.
Reasons for long working hours
Everything has a reason. Once we figure out the exact reason for a problem, the best solution becomes possible. What are the reasons behind the long working hours in Korea, and who is responsible for this fact of life? Undeniably, labor, business and the government share equal blame.
To begin with, Korean workers tend to prefer putting in overtime and to avoid using their annual leaves because of the higher wages they receive. Overtime allowance in Korea is higher than the international labor standard (ILO 25%) and the Supreme Court has ruled that employers are obligated to compensate their employees for their unused annual leave.
Companies are also partly responsible for long working hours because they prefer to pay overtime rather than hire new workers. Hiring new employees creates burdens for employers due to the lack of flexibility in the Korean labor market, so they prefer to mobilize their existing workers for extra time rather than hiring. If companies had more flexibility in labor management, they would be able to respond properly to economic cycles. Considering the lack of such flexibility in Korea, it is very difficult for companies to maintain an appropriate number of employees under the rapidly changing economic conditions. Requiring employees to work overtime is the only flexibility in labor management available to companies. It has become apparent that this is the main reason behind the prevalence of overtime in Korea.
The government too shares some blame, along with labor and management. As a nation with extremely limited resources, Korea had no choice but to rely on its human resources for economic development, so the government customarily and institutionally permitted companies to require a lot of overtime. According to administrative interpretation, the government has drawn a line between overtime and weekend/holiday work and companies were able to extend the workweek for their employees to 68 hours and yet still comply with government guidelines. If the government had included holiday work in overtime hours, workers and employers would not have been able to extend working hours as is the case today. Considering these institutionalized reasons behind long working hours, the responsibility of the government is greater than those of labor or management. Any government push to suddenly implement plans to cut working hours will cause considerable shock to companies.
Even though the existing long workweek is cited as a serious problem in the labor market at this time, it is a fact that this has been one of the engines behind Korea’s economic growth and the way Korea excels beyond other nations despite its low labor productivity. In actual fact, labor productivity in Korea per hour is less than half what it is in other advanced countries like the U.S. and France. Such low labor productivity is another reason Korean employees must work more.
How will inclusion of weekend/holiday work in overtime hours impact companies, workers and labor relations in Korea?
If the MOEL’s proposed amendment, which aims to restrict weekend/holiday work, is passed, a greater burden on both companies and workers is expected. For companies, holiday work allowance will be doubled. Now, employers are required to pay 1.5 times the worker’s regular wage for the hours worked during holidays, but if the law is revised, employers will be required to pay 2 times their employees’ regular wages.
This impact is not only about labor costs. Such changes will have many side effects such as changes to equipment, working hour and management systems, all of which will place a significant burden on employers. The main issue is that companies risk additional difficulties in managing their employees as they lose more flexibility in an already rigid Korean labor market. Because employers do not have many managerial options such as layoffs or dismissals, restructuring, they use overtime to adjust production according to economic conditions. When considering those conditions, imposing burdensome restrictions on company management through an artificial shortening of working hours is likely to damage competitiveness and labor market flexibility.
Even worse, financially vulnerable SMEs may not able to afford the increasing labor costs as a result of the shortened working hours. SMEs already suffer from a lack of manpower: this will simply make it worse. They will face additional difficulty in attracting new workers when doing business in Korea.
Consequently, there is a possibility that a considerable number of companies will cut their production and employment levels, which will lead to a reduction in GDP and undermine prospects for growth.
The KEF is also concerned about labor-management conflict caused by a loss in worker income. If working hours are shortened, income will be considerably reduced. Are workers willing to tolerate this? Trade unions have been insisting that working hours should be reduced without any loss in income or increase in workload. Given these demands, if the government further regulates overtime and unions do not back down, labor-management relations will worsen. If companies, already suffering various forms of damage, have labor-management troubles, it is difficult to estimate the additional damage to those companies.
The realities of companies should be considered when shortening working hours
Working hours are apparently on the decrease. If companies and workers voluntarily join forces with the support of the government, it would not be difficult to achieve the goal which this tripartite agreed to: reducing the working hours to 1,800 per year by 2020. It is necessary to minimize side effects by carrying out a plan that reflects reality, not by artificially and suddenly shortening working hours. Sudden changes in law undermine the competitiveness of our companies and cause serious conflict, ultimately impairing the national economy.
Actual working hours should be reduced only after consideration of employment flexibility, productivity and improvement of working conditions through mutual concessions between workers and management. Workers need to intensify their efforts to improve productivity and utilize their annual leave in order to cut working hours. Companies also need to realize the necessity of shortening working hours and voluntarily move to reduce actual working hours in accordance with their own situations.