Constraints on Expanding Large Enterprise Jobs and Policy Improvement Measures

Since the 1998 Asian Financial Crisis, the capacity of large Korean firms to create new jobs has steadily weakened. As a result of structural changes such as automation and the relocation of production facilities overseas, employment in the primary labor market has remained stagnant for an extended period. In contrast, employment growth has been concentrated among small and micro-sized firms, leading to a deepening qualitative imbalance in the labor market. In particular, the persistent productivity and wage gaps between large firms and small and medium-sized enterprises (SMEs) have constrained the transition toward high value-added industries and highlighted the need for policy responses to address the shortage of quality jobs, especially for young workers. Expanding employment in high-productivity sectors requires institutional reforms that strengthen the growth foundation of large firms and eliminate distortions in resource allocation.

The current structure of large-firm employment reveals several structural problems.
First, there is the excessive market persistence of marginal firms. Companies with chronically weak financial structures continue to survive through policy and financial support, undermining overall industrial efficiency and crowding out employment and investment capacity at healthy firms.

Second, the industrial imbalance resulting from the expansion of SME employment has intensified. An employment structure in which SMEs account for more than 80 percent of total employment limits the realization of economies of scale and weakens the growth base of large firms with strong technological innovation capabilities.

Third, government SME support policies have contributed to delayed market exit. Various support measures—such as policy loans, credit guarantees, and tax incentives—have prolonged the market presence of financially fragile firms and restricted the reallocation of resources toward firms with higher growth potential.

Fourth, the erosion of the growth foundation for innovative large firms has become evident. As an increasing share of resources is absorbed by inefficient firms, large firms face constraints on entering new business areas and undertaking large-scale investments, weakening innovation across the domestic industrial base. In particular, skilled labor and capital remain tied to low-productivity sectors, perpetuating a vicious cycle that limits large firms’ entry into high value-added industries.

Based on this analysis, the study proposes the following policy directions to expand employment at large firms:

introducing preemptive restructuring mechanisms for marginal firms and establishing early warning systems;

implementing a phased reform of SME support programs and adopting a selective support framework based on key performance indicators (KPIs); and

reforming institutions to enhance labor market flexibility and facilitate labor mobility.



I. Stagnation of Primary Labor Market Employment

II. Analysis of Labor Market Conditions by Firm Size

1. Scale of Job Creation by Large Firms

2. Employment Stagnation at Large Firms and Its Economic Impact

III. Structural Causes of Employment Stagnation at Large Firms

1. Excessive Market Persistence of Marginal Firms

2. Industrial Imbalance Resulting from the Expansion of SMEs

3. Diagnosis of Redundant SME Support Policies: Causes of Delayed Exit of Marginal SMEs

4. Weakening of the Growth Foundation for Innovative Large Firms

IV. Policy Recommendations for Expanding Employment at Large Firms

1. The Need for the Swift Exit of Marginal Firms

2. Structural Reform of SME Support Policies

3. Measures to Enhance Labor Flexibility and Facilitate Talent Mobility

4. Institutional Improvement Directions for the Exit and Restructuring of Marginal Firms

References

Korean version: https://www.cfe.org/20250826_28006