[Diagnosis and Prescription] Korea’s Labor Market: Problems, Causes, and Solutions
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Writer
CFE
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Table of Contents
I. Raising the Issue
II. Problems in the Labor Market
1. High Youth Unemployment and Low Employment Rates
2. Increasing Underemployment
3. Long Working Hours
4. The Multiple Structure of Wages
5. Forced Conversion of Non-Regular Workers into Regular Workers
III. Causes of Labor Market Problems
1. Labor Unions
2. Business Fluctuations
3. Minimum Wage System
4. Seniority System
5. Unemployment Insurance
IV. Solutions to Labor Market Problems
References
1. Raising the Issue
Even when the economy is functioning well, a low level of unemployment always exists. However, when unemployment rises beyond that low level, it is correct to view it as a sign that the economy is experiencing problems. One example is South Korea’s current youth unemployment rate. As of the second quarter of 2018, the youth unemployment rate was 10.1%, but as of March 2018, the expanded youth unemployment rate was 24%. As of March 2018, the overall unemployment rate was 4.5%, and the expanded unemployment rate was 12.2%.
Conventional unemployment figures cannot be regarded as statistics that accurately reflect reality. This is because people who have not engaged in job-seeking activities for a long period are not classified as unemployed and are also excluded from the economically active population. To overcome these limitations of unemployment statistics, employment rate statistics were introduced. However, employment rate statistics still suffer from limitations similar to those of unemployment statistics because they include underemployment within the employed population. To overcome these limitations once again, the concept of the expanded unemployment rate has recently emerged. The expanded unemployment rate can be said to be the least problematic unemployment statistic available.
Compared with the 1960s through the 1990s, the share of underemployment in employment has steadily increased today. Underemployment roughly refers to cases in which a person works 35 hours or less per week. In other words, underemployment refers to non-regular, part-time work. Today, underemployment can be broadly divided into two groups: workers who voluntarily choose it and workers who are temporarily employed because they have no other job opportunities. In the past, most underemployment was voluntary, but today workers who are underemployed because they have no other employment opportunities can no longer be ignored. However, we do not know which of these is more important, because the situation has not been investigated. If workers voluntarily wish to remain underemployed, an increase in underemployment is not a problem. The real problem is being underemployed “involuntarily.”
Compared with other countries, one reason working hours are a problem for Korean workers is that unofficial working hours are not insignificant. Unofficial working hours refer to time worked outside official working hours by arriving before regular starting time and leaving after regular finishing time. At present, however, even the actual state of unofficial working hours is unknown. This is because they are “fundamentally” unofficial. Nevertheless, it is presumed that they are not insignificant on a weekly or monthly basis. In addition, there are still some sectors of society in which official working hours are themselves long. However, it would be best to leave this to the autonomy of the parties to the exchange, because if the government imposes regulations here, labor costs are highly likely to rise.
Average wages for workers show a clear difference depending on the size of the firm. This is because wages rise in proportion as firms become larger. However, such wage disparities in the labor market are not solely the result of the free market. Labor unions also affect these disparities. This is a point that should be kept in mind when discussing wage gaps in the labor market.
Even people who were once left-wing labor activists but later changed their views, as well as experts on labor issues, are sometimes seen fiercely criticizing unions at some large corporations that strike as routinely as eating meals, calling them “aristocratic unions.” However, there is clearly a problem with such an attitude toward unions. This is because all unions have negative effects on the economy and society. The only difference is the degree. They fail to understand this point. Their attitude may become one factor that makes the union problem more difficult to solve.
Business fluctuations are a cause of mass unemployment. And in the Korean economy, business fluctuations appear frequently and repeatedly. To solve this problem, it is necessary to analyze the monetary and financial systems. Moreover, under a paper money system, business fluctuations caused by the dollar, the key currency, also affect the lives of Koreans. The 2008 financial crisis originating in the United States is a representative example. However, this section will be analyzed only briefly here and discussed in greater depth elsewhere.
Politicians can never achieve the purpose for which they decided to introduce the minimum wage system. The minimum wage system is one that causes unemployment among unskilled workers and negatively affects economic growth and job creation. As a result, the minimum wage system worsens the material lives of unskilled workers. Of course, this applies to unskilled workers as a whole. In other words, it is true that some workers benefit from the minimum wage system, but those benefits are always smaller than its negative effects. The minimum wage system also forces marginal firms out of the market. It also causes inefficiency in the use of capital, and as a result, the economy becomes worse off than it would be without the minimum wage system. In other words, the minimum wage system creates problems in the allocation of resources, namely labor and capital. Therefore, because the minimum wage system can never be a means for economic growth, the best policy is to abolish it as soon as possible.
A factor in the labor market that has negative effects no less than labor unions is the “seniority system.” After going through the 1997 economic crisis, some large corporations abolished the seniority system while introducing wage systems based on productivity. However, it is also true that many organizations in Korea—including public institutions, educational institutions, small and medium-sized enterprises, and some large corporations—still adopt the seniority system. The seniority system causes income redistribution in multiple stages and lowers productivity. Once it exceeds a certain level, the seniority system functions as a price floor. As a result, the harmful effects of a price floor cannot but negatively affect organizations that adopt the seniority system and the Korean economy.
Compulsory unemployment insurance imposed by the government is, in reality, little different from a tax. Such unemployment insurance therefore carries all the harmful effects of taxation. Unemployment insurance is one of the means used to pursue the welfare state. Welfare statism is a type of interventionism and in the long run becomes socialism. Naturally, welfare statism is not the direction Korean society should pursue.
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Wiki:
https://www.cfe.org/w/bbsDetail.php?&idx=27
Original title: [진단과 처방]한국의 노동시장: 문제, 원인 그리고 해법
Author: Yong-deok Jeon
Date: 2019-01-07
Source: https://www.cfe.org/bbs/bbsDetail.php?cid=report&pn=3&idx=11331