In terms of industrial relations, 2014 was a tough year in Korea. At the beginning of 2014, the Korean Confederation of Trade Unions (KCTU) staged all-out strikes, accusing the government of breaking into KCTU offices to suppress railway worker strikes. The Federation of Korean Trade Unions refused to take part in the Economic & Social Development Commission (ESDC), a tripartite committee of labor, business and government representatives in Korea. As a result of these actions, ‘social dialogue’, one of the government’s major labor policies, has been a bumpy road.
Herein we will review 2014 in terms of government labor policy and labor issues, and look ahead to 2015.
At the beginning of 2014, the government announced job creation as its primary policy goal and began multi-faceted efforts to achieve a 70% employment rate, which included policies designed to assist youth, and women who had interrupted their careers to give birth and care for their children to find jobs again, and increase the number of part-time jobs in many areas. As a result, key indicators in the Korean labor market, including the employment rate, showed some improvement. However, such government labor policies have left much to be desired due to their lack of consideration for business. For example, the system of disclosing employment type requires enterprises to release to the public information on employment types and ratios within the workplace, and will have a considerably negative effect on the labor market. It is regrettable that the government took insufficient effort to ease regulation or increase labor market flexibility, both critical factors to job creation.
[Picture 1] Trends: Number of Employed, Employment Rate
Furthermore, despite government efforts to reach a tripartite agreement, things did not go well. The ESDC has been seriously disrupted by KCTU struggles against the government and the FKTU withdrawal. A sub-committee formed under the National Assembly’s Environment & Labor Committee on 14 February, 2014 for social dialogue between labor, business, the government and the National Assembly, also failed to make any real progress. However, in mid-August, the FKTU returned to the ESDC and the urgent labor issues of ordinary wage, working hour reduction and retirement age are currently under discussion. And in December 2014, the tripartite reached a social agreement on a framework for labor market reform after a long period of antipathy between the three parties to the tripartite. However, no details were agreed on due to FKTU opposition. Given that a social agreement would greatly impact on the industries nationwide, including labor and business, there is an absolute need for all stakeholders to responsibly participate in social dialogue. In 1982, the Wassenaar Agreement allowed the Netherlands to successfully work through its severe economic crisis and national challenges, the so-called ‘Dutch Disease’. We should not miss this critical ‘golden time’ of opportunity for economic recovery in Korea.
Industrial relations in Korea worsened in 2014 over the first year of President Park Geun-Hye’s administration, and politicians continued to intervene in labor issues at individual workplaces. Of particular note, the KCTU pushed forward with its plans to unionize partner firms of such large companies as Samsung Electronics Services, SK Broadband, and LG Uplus, with the new unions prolonging the existing labor disputes in 2014. Hyundai Motors’ trade union, affiliated with the Korean Metal Workers Union and the largest enterprise-level trade union in the country, went into a 40-hour-long strike (total 67 hours with extended work hours), despite being known as a down-to-earth labor union. This strike moved onto Kia Motors and eventually rippled through labor-management relations throughout the entire car manufacturing industry.
[Table 1] Number of Labor Disputes & Lost Working Days
| 1 Jan. ~ 19 Nov. 2014 | 1 Jan. ~ 19 Nov. 2013 | |
|
Labor disputes
Lost working days |
100
551,305 |
50
439,490 |
The most contentious issue in the 2014 labor market was ordinary wage. After the en banc decision on ordinary wage in December 2013 by the Supreme Court of Korea, ordinary wage emerged as the most critical issue in collective bargaining negotiations for 2015 – whether to include regularly-paid bonuses into ordinary wage – and 2014 ended with labor and management unable to find a resolution through negotiations. Therefore, collective bargaining negotiations proceeded very slowly and overall wage increase rates in collective bargaining agreements tended to be higher than the previous year.
[Table 2] Rate of Wage Bargaining Settlement & Wage Increases
|
1 Jan. ~
19 Nov. 2014 |
1 Jan. ~
19 Nov. 2014 |
|
|
Wage bargaining settlement rate
Average wage increase |
79.7%
4.2% |
46%
3.6% |
Conditions for determining ordinary wages were specified through many lower court rulings made in 2014. However, some rulings were contradictory and included different opinions on the ‘fixedness’ of ordinary wage (only paid to incumbent employees) and requirements for application of the principle of good faith (critical financial difficulties), which caused confusion in the labor market. Currently, about 250 cases involving ordinary wage are pending in courts and related lawsuits continue to increase.
Reduction of working hours was the second major labor issue in 2014, with both the ruling and opposition parties proposing their own revisions to the Labor Standards Act.
Many factors need to be taken into consideration when discussing working hour reductions, such as labor market inflexibility, low productivity, labor shortages at SMEs and the difficulties connected to wage adjustment. So far, enterprises have been adjusting working hours as the only way to cope with market changes. If working hours are shortened, these businesses will be forced to restructure their workforces, and SMEs already strapped for competent workers will have no choice but to violate the law or fold. Further, working hour reductions are likely to lead to lower employee incomes, which in turn will provoke severe conflict between labor and management.
Another debate that heated up in 2014 surrounded in-house subcontract and non-regular workers. The Seoul Central District Court ruled on September 18 that subcontract workers working for carmakers are to be regarded as employees directly hired by the contracting company. In particular, the Court’s decision expands the scope of directly-hired employees to include both primary and secondary suppliers, and considers reasonable cooperation at work under a labor contract as work orders under a dispatched employment contract. There are growing concerns that this ruling does not reflect the reality of businesses in Korea.
In Korea, the industrial relations outlook for 2015 is not optimistic. Specifically, the economic outlook is not very rosy for 2015. The end of the USA quantitative easing and the weakening Japanese yen will likely negatively impact the export-oriented Korean economy. With this in mind, the government announced that the wages of public employees will increase by 3.8% in 2015, up from 2.1% the previous year, as a way to stimulate domestic consumption. This higher wage increase in the public sector has the potential to lead to wage hikes in the private sector as well. This will place a heavier financial burden on businesses who already worried about increased labor costs due to the expanded scope of ordinary wage, extended retirement age and likely reduced working hours. For each of the past 2 years, the statutory minimum wage has increased by more than 7%.
This trend in wage increases is expected to continue in 2015. Furthermore, while labor groups and opposition parties are engaged in attempts to scrap the minimum wage system, the Seoul city government has announced a ‘Seoul City living wage system’, deciding to introduce a ‘living wage’ from 2015 at KRW 6,580, which is 26% higher than the statutory minimum wage of September 2014. This system is expected to spread into liberal-led local governments. If private companies are required to implement the ‘living wage system’, this will severely damage the market’s ability to determine this by itself.
The outlook for industrial relations in 2015 is gloomy. As the KCTU marks its 20th anniversary this year and new leadership has been elected through direct voting, it is predicted to begin an active unionization campaign in 2015, which is expected to target small and medium-sized factories, the retail service sector, immigrant workers, and suppliers to large companies. There is significant concern that more labor disputes are likely to occur in these targeted workplaces.
Other uncertainties still remain in the Korean labor market. Unless there is progress in the National Assembly or in social dialogue over ordinary wage and working hour reductions, labor-management conflict and confusion at workplaces are likely to worsen. In particular, as many companies and their trade unions agreed to establish special consultative bodies for ordinary wage negotiation in 2014 collective bargaining, conflict over this issue is still ongoing. Reform of the current wage system is essential to resolving issues over ordinary wage and retirement age extension, something to which labor is still opposed. Labor-management conflict over restructuring is likely to escalate in 2015 as economic conditions worsen.
There are also growing worries that conflict between labor and the government is set to deepen. The government completed its plans to normalize 38 public agencies and institutes on a special watch list for irresponsible management, as a part of reforming the public sector, and plans to implement the 2nd stage of normalization in 2015, something to which labor will be opposed. The 1st stage of the normalization plan was mainly focused on reducing the national debt and reforming poorly-managed public agencies, while the 2nd stage aims to enhance productivity, efficiency, and quality of national services. However, labor accuses the government of plotting to privatize public agencies and institutes, and will most likely strongly oppose the 2nd stage. In addition to this, resistance to the government among office workers and teachers in the civil service is mounting amidst attempts to reform the current public pension system. Close attention will be required in 2015 to see how the government resolves these conflicts with labor.