1. Labor market trends in the 1st half of 2016
In the 1st half of 2016, the labor market appears to be very depressed. Sustained low economic growth of around 3.0% and ongoing massive restructuring in shipbuilding and marine industries has made the employment conditions even more difficult.
The Employment Index remained negative, with the number of employed increasing by only 288,000 in the 1st half of the year, the lowest increase since 2010 (283,000). This number also represents a drop of 13.0% from the 331,000 in 2015, and more than 50% from the 597,000 in 2014.
As employment growth is slowing down, the employment-to-population ratio recorded 59.9% in the 1st half of 2016, up only 0.1%p from a year earlier. As the employment rate among people aged 15~64 (in accordance with OECD standards) remained at 65.6%, it seems unlikely that the government will achieve its 2016 goal of a 68.4% employment rate, as part of the employment road map for a 70% employment rate.
Slowdown in employment was evident in the manufacturing sector, with an increase in the 1st half of the year of only 82,000, which represents a more than 40% decrease from the year before when it increased by 143,000 new workers. This decrease is attributed to restructuring in shipbuilding and shipping industries and sluggish exports thereafter. On the other hand, new employment in the services sector increased by 25% (287,000 workers) over the previous year (229,000 workers).
2. Labor market outlook for the 2nd half of 2016
Uncertainties regarding labor market reform continue
It is difficult to say that labor market circumstances can be improved in the 2nd half of 2016. The Bank of Korea has forecasted that the growth rate in the 2nd half will remain at 2.4%, a decrease of 0.6%p over the 1st half. In addition to this forecast of low growth, uncertainties will also continue to increase as planned reforms are delayed due to the ruling party having a minority of seats in the National Assembly.
The capacity of companies to create new jobs is also likely to decrease. Discussion on the five bills about labor market reforms have not even started in the National Assembly despite the fact that the retirement age has been extended to 60. Reform of wage systems is also being delayed due to the opposition of labor.
Potential for further confusion from policies to boost youth employment
The unemployment rate of youth (persons 15 to 29) in the 1st half reached 10.8% (spiking to 12.5% in February): the highest since 1999, when the new standards for statistics were adopted. The number of unemployed youth, including potential unemployed such as discouraged workers, exceeded 1 million persons a long time ago. Nevertheless, it is very difficult to find policies that promote investment and foster SMEs, which can create jobs for young job seekers.
Moreover, confusion is growing due to populist policies such as youth employment quotas or youth allowances, neither of which consider market forces, but only coerce companies to create jobs or redirect their budgets. Pragmatic policies to address youth unemployment are not being carried out.
Policy focuses only on labor supply
The government accounted that it increased its budget for job creation in 2017 by 10.7% to KRW 17.5 trillion (US$ 15.8 billion), planning to spend more of the funds on training, education and assistance with start-ups, rather than direct job creation. This policy direction will be reflected in the 2nd half of 2016, but no policy to boost the demand for labor, such as regulatory reform or establishment of a fair and flexible labor market is on the way.
Policies to support employment of women and a better work-life balance are also being discussed, with enhancing benefits for workers as the priority, rather than enhancing the ability of companies to employ. Moreover, it is concerning that the foundation for job creation may shrink since bills to reduce tax incentives for investment (e.g. job creation deductions, R&D tax credits) have been submitted to the National Assembly.
Establishing a fair and flexible labor market needs to be priority
The fundamental solution for a better labor market and to resolving the employment crisis is to increase companies’ demands for labor, as they are the ones who create jobs. For now, it is no exaggeration to say that the current policy discussion only focuses on enhancing labor supply when there is already an oversupply.
Improving company abilities to employ and enhancing demands for labor should be the first item on the agenda. Particularly, regulations which interfere with job creation in the services sector should be eased and an environment conducive to job creation by companies should be established. A recognition that a fair and flexible labor market will lead to more jobs and a better quality of life is crucial.