Send to

Moon’s policy weakens labor elasticity

Nov. 21, 2018 - 17:32 By Kim Kyung-ho
The Moon Jae-in administration’s employment policy has precipitated the weakening of the Korean economy’s ability to create new jobs, experts say.

According to the Bank of Korea, the country’s employment elasticity, which is calculated by dividing the rate of increase in the number of employees by the economic growth rate, is estimated to fall to a nine-year low of 0.11 this year. The higher the figure is, the more jobs are added by economic output.

The central bank recently forecast that the Korean economy would expand 2.7 percent this year, with the rate of on-year increase in the number of employees reaching 0.3 percent.

The estimated employment elasticity for this year is less than a third of the figure for last year at 0.39.

The country saw the indicator decline steadily from 0.72 in 2014 to 0.39 in 2015 and 0.3 in 2016 before bouncing back last year.

The downward trend has been attributable largely to moves by companies to replace workers with automated systems and robots.

But the sharp decline over the past year seems to have been significantly affected by the Moon government’s labor-friendly policy, which has been combined with growing external risks, pushing companies to reduce investments and cut payrolls, experts say.

Since the administration’s launch in May last year, private companies have been struggling to cope with its pro-labor measures, including steep minimum wage hikes, the shortened maximum workweek and increased pressure to turn nonregular jobs into regular positions. President Moon and his aides have focused on creating new jobs in the public sector by expanding fiscal spending.

Official data showed the increase in public-sector employment has been more than offset by job losses in the private sector.

In the first 10 months of this year, the number of public-sector jobs increased by 88,750, compared with 18,600 three years earlier, according to figures from Statistics Korea.

But the number of employees at manufacturing companies, wholesale and retail businesses, lodging facilities and restaurants fell by 163,700 over the cited period. It marked the first time that these sectors, which hire nearly 40 percent of the country’s workers, had recorded negative growth in employment since the state statistics office began compiling relevant data in 2013.

The average monthly number of employees in both the public and private sectors was up 96,900 from a year earlier in the first 10 months of the year, compared with the 328,000 in the same period last year.

In October, the number of employees increased by 64,000 on-year. The figure marked an improvement from the numbers for July and August, which remained at 5,000 and 3,000, respectively, but was far below the 281,000 increase seen the year before.

Nearly 300,000 jobs disappeared last month in the sectors of distribution, lodging and business facilities management, which economists say have been affected more severely by minimum wage hikes. The manufacturing sector also shed about 45,000 jobs in October, due partly to ongoing industrial restructuring.

This massive loss of private-sector jobs overshadowed the increase in the number of public-sector jobs last month -- 159,000 in health care and welfare services and 31,000 in public administration and defense areas.

As a result, the number of jobless people and the unemployment rate were at the highest levels for the month since 1999 and 2005, respectively.

“There is a high possibility that the number of employees will record negative growth next year, as the minimum wage is set to rise 10.9 percent (following a 16.4 percent hike this year) and global economic conditions are expected to worsen,” said Shin Se-don, an economics professor at Sookmyung Women’s University.

Experts say the recent employment data disprove arguments by government policymakers that concerns about the weakening job market are more or less exaggerated.

They call on Moon and his aides to abandon their misconceived notion that the government should play a larger role in increasing employment by expanding fiscal expenditure.

Yoon Chang-hyun, a professor of finance at the University of Seoul, said the government should seek to create more jobs by encouraging companies to increase investment through more corporate-friendly policies rather than adhering to its pro-labor stance.

The Moon administration has recently shown signs of running the risk of becoming estranged from the country’s major umbrella labor groups to push for a more flexible implementation of the shortened workweek. The business community is worried that strict application of the measure to cut maximum weekly working hours to 52 from 68 could disrupt production and other corporate activity.

There is still skepticism that the government would go so far as to enact a law to allow companies to apply flexible working hours on a yearly basis instead of the current three-month span, despite intensifying objections from Moon’s key political support base.

Experts say it is also necessary to readjust the pace of minimum wage hikes and differentiate the wage floor by industrial sector and region.

Such policy readjustments need to be accompanied by regulatory reforms and tax incentives to encourage companies to bring home their overseas production as well as to increase domestic investments, they say.

By Kim Kyung-ho