The employment and labor policy vision of the Park Geun-hye administration, which was inaugurated this year, is “Work Together, Happy People.” The government aims to achieve a 70% employment rate and promote a law-abiding spirit at workplaces nationwide. To this end, it has been working to establish a labor-management culture that respects the law and principles.
So far, the government’s employment and labor policies seem to have reached half their goals. Since President Park took office, a social agreement for 70% employment was reached and the employment rate has increased by 3.5%. The down side of this partial success is that these employment policies have been made without increasing employment flexibility or easing regulations, something which will serve only to increase the burden on businesses.
Although the number of labor disputes and lost working days has significantly decreased thanks to the government’s efforts to ensure order at workplaces, politicians still frequently intervene in labor issues and trade unions still stage strikes that are both violent and illegal. It is too early to say that Korea’s industrial relations have significantly improved in terms of international assessment and business sentiment.
The other side of the Park administration’s goal of a 70% employment rate
Since announcing that raising the employment rate is the core goal of its national agenda, the government has focused on job creation though improving the practice of long working hours, increasing part-time employment and introducing a youth employment quota. In response, the employment rate in Korea has risen from 62.7% when the Park administration took office to 65.2% as of the end of October.
However, the government has also been pushing ahead with its other employment policies. It has conducted comprehensive labor inspections and pushed the private sector to create more jobs together with the public sector, resulting in a greater burden on employers.
Worse yet, the government plans to expand youth employment and set mandatory retirement age at 60 for corporations. Businesses already suffering from the economic slowdown are going to have a double burden of hiring more employees while retaining their existing workforce for longer.
Raising the employment rate is the top priority in the government’s 2014 employment and labor agenda. But to achieve this goal through corporations creating jobs, some requisite measures need to be taken such as easing employment regulations and creating more flexibility in the labor market. The Park administration would be wise to learn from Germany’s experience. Once called the ‘Sick Man of Europe,’ Germany has successfully transformed itself into Europe’s economic powerhouse through labor market reforms. This was achieved through implementation of Agenda 2010 and the Hartz Reform by Merkel’s administration, actions which eased regulations on dismissal and the hiring of fixed-term/non-regular workers.
Legislation influencing company survival
The most prominent change in labor law this year is legislation of retirement to age 60. In April, a revised draft of the Act on Age Discrimination Prohibition in Employment and Aged Employment Promotion (which stipulates the extension of retirement age to 60) was passed in the National Assembly. This will be effective from 2016 for companies with 300 or more employees. However, concerns are arising over the possibility of conflict between labor and management due to the retirement age extension and introduction of a peak wage system, as the revised act simply recommends that labor and management ‘improve the wage system’ without specific provisions on adjusting wage levels.
Meanwhile, conflict surrounding ordinary wage and reduction of working hours is expected to reach a peak in 2014, as many companies already facing difficulties dealing with lawsuits related to ordinary wage. Lawsuits by labor (related to ordinary wage) are expected to continue after the Supreme Court rules on the KB Auto Tech case, and the proposal on legal revision from politicians. More worrisome is the possibility of companies paying lump-sum of 38.5 trillion KRW ($35.8 billion) or 8.8 trillion KRW ($8.3 billion) annually due to court rulings and legislation of pro-labor bills, even though they followed the regulations issued by government or ordinary wage calculation method agreed by labor.
Reduction of working hours is also expected to be a core issue in 2014. The revised bill on the Labor Standards Act being discussed in the National Assembly is mainly about reducing the maximum working hours from 68 to 52 per week. However, such a drastic reduction in working hours will lead to an enormous increase in costs for labor and facility investment.
[Fig 1] Projected Production Shortfall if Holiday Working Hours are Included in Extended Work without Preserving Productivity
*Source: K-biz (Korea Federation of SMEs), KEF
*Note: This graph shows the percentage of production shortfall if companies do not use any means to preserve productivity such as plant equipment investment or an increase in their workforce
For a soft landing in working hour reduction, lawmakers have announced a gradual application of the law according to company size. Nevertheless, as witnessed in past experience on adoption of the 40-hour work week, gradual implementation offers limited usefulness in minimizing impact on business. Working hour reduction is poised to be one of the most controversial issues in the next year since labor plans to demand such reduction during their 2014 collective bargaining without allowing adjustment in wage or workload.
Polarization of labor relations in workplaces
Overall, industrial relations in 2013 were stable. In particular, the number of labor disputes and workdays lost showed a considerable decline over past administrations.
However, labor carried out a number of illegal strikes, beginning with a sit-in protest at Hanjin Heavy Industries in late January 2013 and a crane-top protest. Also in June and July, industry-level strikes broke out which led to chain-strikes in large companies and in the public sector. This suggests that the reduction in labor disputes did not lead to overall stable labor relations in workplaces.
[Fig 2] Average Number of Labor Disputes in the Last Four Administrations
*Source: Ministry of Employment & Labor
Concerns for 2014 are growing that these unstable industrial relations are likely to continue, especially as the Korean Confederation of Trade Unions has carried out strikes during the 2nd years of previous administrations. The KCTU’s new leadership, established in July 2013, declared during the 2013 National Workers Rally that it would fight outside the law and reconstruct itself through an increase in labor conflict. Union leadership candidates in such organizations as the Korea Metal Workers Union, Hyundai Heavy Industries, and Kia Motors, have promised “more fighting” over wage and collective bargaining in 2014, meaning that many companies will find it to be a very difficult year.
External circumstances related to labor relations are also not looking to be very supportive for companies. Many Korean companies negotiate wages in odd-numbered years and wages and collective bargaining issues (such as for union activities) in even-numbered years. Thus, conflict related to these items will increase next year.
Economic circumstances are also expected to harm industrial relations. A considerable number of companies will find layoffs inevitable due to the long recession. Nevertheless, labor and some lawmakers will use their influence to engage in illegal activity to reject any ‘Dismissal for Managerial Reasons’ as stated in the Labor Standards Act, and prevent layoffs. Companies facing managerial crisis will find their difficulties growing in size due to both internal and external forces.
Labor relations worsening due to political intervention
Political intervention in labor relations in specific workplaces has been prominent in 2013, and many figures from labor made it into the 19th National Assembly. In addition to pressuring companies through labor-friendly legislation and parliamentary inspections, lawmakers directly intervened in almost every single workplace dispute, which included those at E-mart, Samsung Electronics Service, and the Incheon International Airport Corporation. Intervention by lawmakers in labor issues is an attempt to find political solutions for economic problems, and vandalizes the independence of both labor and management under the law.
Concerns are growing that the number of interventions in labor relations next year will increase. Like-minded politicians are planning to band together with labor to stir up controversy that the National Intelligence Service manipulated the presidential elections. Labor is also planning to use the opposition parties’ Euljoro Committee (for weaker parties) in their disputes. Moreover, labor will likely seek to place more labor union personnel in local governments through local elections, and use these people to resolve local labor issues. Since labor is taking labor relations hostage through attempts to form an alliance with lawmakers, deterioration in industrial relations and business environment is inevitable.
Industrial relations face many uncertainties in 2014. However, if the tripartite of labor, management, and government terminate in their relations the conflict which has been ongoing since 1987, and seek harmony instead of leaning towards labor, the crisis brewing for 2014 can become a chance for positive change.