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Wage gap fuels Korea's employment woes

By Korea Herald
Published : Jan. 4, 2017 - 16:54
When announcing its economic policy direction for 2017 last year, the South Korean government pledged to create 60,000 additional jobs in the public sector and increase tax benefits for private companies that hire more young people.

These measures reflect concerns that employment conditions will continue to worsen in the coming year, as the country‘s economy is in a low-growth rut and ongoing corporate restructuring is expected to result in a large number of workers losing their jobs. 


According to data from the Ministry of Employment and Labor, 31,208 companies that each have more than five employees plan to hire 304,000 workers in the six months through March, up 3 percent from a year earlier.

The number of new jobs to be offered by large corporations that have more than 300 employees stands at just 30,000 over the cited period, an on-year decrease of 8.8 percent.

“Labor market conditions may prove worse than expected, as companies are refraining from making new investments this year in the face of growing uncertainties at home and abroad,” said Kim Jong-jin, a researcher at the Korea Labor and Society Institute.

Under such conditions, young job seekers will find it harder to land jobs that match their expectations.

The country’s youth unemployment rate reached 8.2 percent in November, a record high figure for the month. The rate is expected to surge further in the coming months as college graduates enter the labor market.

Difficulties in landing stable and well-paying corporate jobs have driven a large number of young people to spend years preparing for exams to become civil servants.

More than 700,000 applicants flocked to tests held this year to select slightly over 30,000 employees at central government agencies and regional administrations.

The creation of more jobs could help boost domestic consumption and reinvigorate the country’s sluggish economy.

Reducing the widening wage gap between regular and irregular workers, and between large and small businesses, is also needed to bring more people in the workforce and promote consumption, experts say.

According to data from Statistics Korea, a regular employee received an average monthly wage of 2.8 million won ($2,319) last year, nearly double the 1.49 million won for an irregular worker. The average monthly wage amounted to 5.02 million won at large corporations compared to 3.11 million won at small and medium-sized enterprises.

In terms of the income gap between the highest 10 percent and lowest 10 percent of waged workers, South Korea ranked the third highest among the 34 member states of the Organization for Economic Cooperation and Development in 2014.

Kim from the KLSI said that to ease the unemployment problem in the near term, it might be necessary to require public firms to increase youth employment and offer more incentives to induce large private companies to recruit more young job seekers.

These measures, however, need to be accompanied by long-term efforts to increase wages at SMEs, he said.

Since 2013, small and medium-sized firms have created more than 1 million jobs, while recruitment by the country’s 20 largest conglomerate groups has decreased.

Experts said policies should be implemented to encourage young people preoccupied with landing jobs at large corporations and public organizations to work at promising small businesses.

The average pretax annual salary for the lowest level of civil servants currently starts at 25 million won. This is lower than the average commencing wage of 34.9 million won at large corporations, but still attractive compared to the 21.9 million won for new employees at SMEs.

“Given economic conditions and public sentiment, there needs to be caution in increasing the number of civil servants and raising their salaries,” said Choi Byung-dae, a professor of public administration at Hanyang University.

Reducing the wage gap between regular and irregular employees is also urgently needed to improve the country’s income inequality.

Along with increased welfare spending, reduced income inequality could serve to revive the faltering economy by bolstering domestic consumption.

Experts said politicians and government policymakers here should pay attention to recent efforts by Japanese Prime Minister Shinzo Abe’s government to push up the wages of irregular workers to 80 percent of the pay for regular workers, similar to the level in other major western economies.

In its session starting in January, Japan’s parliament is likely to pass a bill enforcing equal pay for permanent and temporary workers doing the same jobs.

Economists here said the next administration to take over from impeached President Park Geun-hye should put top priority on making the labor market more efficient and flexible to provide young people with more job opportunities and reduce the wage gap.

Some commentators note demographic changes may ease or solve youth unemployment in the long term.

From 2020, the population of 20-somethings in the country is projected to decrease by about 200,000 annually in a reflection of the decades-long low birthrate. This trend may result in a shortage of young manpower.

Economists with more cautious views, however, said the decreased population also means the weakening of consumption spending and the withering of businesses targeting younger generations. This may lead to a reduction in jobs, leading to the labor market remaining unfavorable for youths, they say.

By Kim Kyung-ho (khkim@heraldcorp.com)

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