Labor Market Trends of 2011 and Outlook for 2012

This year has seen some changes in the unemployment insurance system and policies designed to increase birthrate and slow down the aging of Korean society. As part of the 2nd Basic Plan responding to low birthrate and the aging society for 2011 to 2015, the monthly childcare leave benefit was increased from 500,000 KRW to 40% of a mother’s monthly salary in January. Furthermore, the required contribution to employment insurance as a percentage of monthly salary was raised from 0.9% to 1.1% in April, as the funds available presently for employment insurance have proven to be insufficient. Then in June, revision of the Employment Insurance Act, allowing the self-employed to sign up for employment insurance, passed the National Assembly in consideration of the current economic downturn. This law will go into effect from 2012.

Under the recent economic recession in the US, and the debt crisis around Europe, major think tanks forecast next year’s economic growth to be weaker than this year’s. Consequently, the number of new jobs created in 2012 is estimated to decrease to 200,000 from this year’s 340,000. This reflects the decline in demand from the US and Europe for Korean exports.

Although major employment indicators continue to be positive, deepening polarization and serious youth unemployment have been highlighted as major problems in the Korean labor market. Thus, protection for vulnerable groups will be important issues in the upcoming general and presidential elections in 2012.

In September 2011, comprehensive measures for non-regular workers proposed by the Korean government and the ruling Grand National Party were announced. Consequently, strengthened protection for in-house subcontract workers and introduction of affirmative actions are likely to impose a greater burden on companies. In-house subcontract workers are mainly employed in manufacturing (such as shipbuilding and car making), so additional legal intervention in this area will upset the HR management of manufacturing companies.

The government aims to reconcile family and work through its employment policies for female workers and measures to cope with the low birthrate. With attempts to extend maternity leave and require employers to have on-site childcare facilities, the burden on companies will increase. The government allows part time work and a flexible working hour system, but companies are unlikely to follow suit, due to excessive regulation on dispatch and temporary employment, and employer reluctance to use substitute workers. Responding to the growing employment-to-population ratio of middle-aged people (including the baby boomer generation), the government may intervene in this area too.

Although education is increasing, there is a great mismatch between supply of manpower between the ages of 15 and 29, and demand for labor. Despite a recently stabilizing youth unemployment rate of 6%, the employment-to-population ratio of the youth (aged 15 to 29)   remains around 40%. This means that a number of young people have given up looking for work or have chosen to leave the labor market, due to the lack of demand for labor.

In the coming year, controversial discussions on whether to introduce a youth employment quota are expected to continue. However, forcing companies to hire young people regardless of labor demand is not a sustainable countermeasure against high youth unemployment. Mandatory equal treatment of workers regardless of academic background may also be an issue next year, as the government is likely to require companies to hire more high school graduates in 2012.

There are concerns that slow economic growth will hinder an already depressed Korean labor market in 2012. We did our upmost to minimize job losses during the 2008 global economic crisis by increasing public spending on job creation and job sharing. For more job creation, the government needs to remove the factors that cause an increase in the use of non-regular workers as well as be prepared for economic changes.

Along with increasing labor market flexibility, the competitiveness of companies has to be strengthened through flexible management that includes reasonable relocation. Through innovation of the workplace, working hours can be reduced and the current rigid working time system can diversify. Such efforts will greatly help the creation of more jobs and improve the quality of life for employees.