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Employment in Korea

Population and Labor Supply

In 1980, Korea's working age population (15 years or above) stood at 24.463 million. Since then this figure increased rapidly, providing the country with ample human resources needed to support rapid economic growth. However, since the 1990s, this growth rate slowed down slightly, with the working age population reaching 34.736 million in 1997.

This growth trend brought about major changes to the labor supply situation. Between 1980 to 1997, the economically active population grew steadily from 14.431 million to 21.604 million for an increase of roughly 1.5 times. Accordingly, the economic participation rate breached the 60% mark in the 1990s, and continued to increase to 62.0% in 1996 and 62.2% in 1997 (See Table 1).

However, since 1998, the severe economic recession following the financial crisis and the subsequent IMF bailout program has greatly worsened employment conditions, and the economic participation rate, which had been steadily increasing, is currently declining.

Thanks to the steady economic growth, the number of those employed increased from 14.97 million in 1985 to 21.048 million in 1997. This represented an annual average increase of around 2.0%.

The employment structure by educational background shows a gradual trend of workers attaining higher levels of education per year. Among the total number of employed, the percentage of those with education through middle school or lower has fallen sharply from 58.9% in 1985 to 48.6% in 1990 and 36.8% in 1997. On the other hand, the percentage of highly educated workers with a college degree or higher has virtually doubled, from 10.3% in 1985 to 20.3% in 1997 (See Table 2).

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Employment by Industrial Sector

Employment by industrial sector shows that the employment structure is gradually becoming more oriented toward the service industries. The percentage of those employed in the agriculture-related (agriculture/forestry /fisheries) and industrial (mining & manufacturing/electricity, gas and piped water/construction) sectors is decreasing while the percentage of those employed in the service sector is increasing. The percentage of those employed in the agricultural sector has fallen rapidly from 24.9% in 1985 to 18.3% in 1990 and 11.0% in 1997. For the industrial sector, the percentage of employed increased from 30.8% in 1985 to 35.1% in 1990. However, as the industrial structure shifted from labor-intensive industries to more technologically intensive industries, this percentage has started to decline, reaching just 31.1% in 1997. On the other hand, the percentage of those employed in the service sector has steadily increased thanks to the relatively higher wage increases and the gradual expansion of the size of the service sector. The percentage rose from 44.3% in 1985 to 46.9% in 1990, and then jumped to 67.2% in 1997(See Figure 1).

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Employment by Status

The percentage of non-salaried employees (for example, those who are self-employed or working at family businesses) has been decreasing over the years while the percentage of salaried employees has been on the increase. In 1985, non-salaried employees accounted for 45.9% of the work force, but this dropped to 39.5% in 1990 and further to 37.2% in 1997. Meanwhile, the percentage of salaried employees has topped the 60% level in the 1990s and steadily increased to 62.8% as of 1997. (See Table 3).

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Unemployment

In 1990, the unemployment fell to 2.4% and remained low until 1997, staying in the 2% range. In fact, the unemployment rate stood at 2.0% in 1996, the lowest level recorded since statistics were first kept. (See Table 4).

However, starting in 1997, unemployment began to increase considerably with the continued economic downturn. During 1998, the employment situation has greatly worsened in the wake of the financial crisis which erupted in late 1997 which was followed by the subsequent IMF bailout program. Since the request for the IMF bailout loan in November 1997, the unemployment rate has started to rise sharply, reaching 4.5% in January 1998, 5.9% in February, 6.5% in March, and 6.7% in April. (See Figure 2).

The unemployment breakdown by age shows that the 15~24 years age group continues to have a higher level of unemployment in comparison to any other age group. As of the end of 1997, the unemployment rate among 15~24 years was 7.6% around three times the overall unemployment rate of 2.6%.

While this rate steadily decreased from 10.0% in 1985 to 6.1% in 1996, the unemployment rate for this age group started to rise again in 1997 since firms refrained from hiring new workers due to the economic downturn. In fact, the unemployment level for the 15~24 age group is rising even faster, hitting 14.8% in the first quarter of 1998. What is even more worrisome is that the unemployment rate for the 15~19 age group has now reached 19.5%, which means that one out of five of recent entrants into the labor pool is looking for work. 

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Wages

As of 1997, the average Korean worker's monthly nominal wage level was 1.463 million won (US$ 1,200), 7.0% higher than that of the previous year. Starting in 1987 with the large-scale labor-management conflicts, wages continued to rise considerably each year at a high, double-digit rate. Since 1992, however, the increased rate has slowed down, and in 1997, it dropped sharply back down to single digit figures. (See Figure 3) This was particularly evident in the manufacturing sector. The main reasons for the sudden drop in the wage increase rate were the changing patterns and overall decrease in labor in the wake of the economic downturn which began in September 1995 combined with the weakening bargaining power of labor unions.

Taking inflation into account, the increase in real wages in the nonagricultural sectors also fell considerably to 2.4% in 1997, most notably in the manufacturing sector where the increase was only 0.7%.

Starting from 1987, wage differentials by gender, educational level, and the type of occupation were all showing a shrinking trend, but in 1997 they increased slightly once again. The wage differential was clearest among the various types of occupation in the manufacturing sector.

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Unit Labor Cost

Unit labor cost to produce one unit product is useful in measuring a country's international competitiveness. According to the U.S. Bureau of Labor Statistics, Korea's unit labor cost on a national currency basis increased by an annual 0.86% between 1990-1996, which is a much more stable increase rate than that which occurred during the mid-1980s, but still higher than that of Korea's major competitors.

However, if exchange rates are taken into consideration, the increase rate of Korea's unit labor cost is lower than those of Japan or Taiwan. In other words, the devaluation of the Korean won over that period offsets the loss of international competitiveness due to wage increases.

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Minimum Wage

  Under a minimum wage system, a country determines an absolute minimum wage level and legally binds applicable employers to pay wages at this least level to ensure that workers at the lowest wage level are not grossly underpaid and are guaranteed at least a minimum standard of living. Korea enacted and promulgated its minimum wage law on December 31, 1986, which went into effect on January 1, 1988.

The range of those covered under the minimum wage system has been expanded from all manufacturing workplaces with 10 or more regular employees in 1988 to include all mining and construction workplaces with 10 or more regular employees in 1989, and further to all workplaces with 10 or more regular employees in 1990.

The minimum wage level is jointly decided upon by labor, businesses, and the government through the Minimum Wage Council. The applicative minimum wage level from September 1997 to August 1998 is 1,485 won/hour (about US$1.5), which is 6.1% higher than the previous year. 

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Working Hours and Holidays/Vacation

In Korea, the maximum number of working hours by law is 8 hours per day and 44 hours per week, which is more than Japan's and the United States' 40 hours and France's 39 hours. The situation is the same in terms of actual working hours; in 1997 the average work week in the manufacturing sector was 47.8 hours, which is also longer than Japan's 38.2 hours, the United States' 41.6 hours, and Taiwan's 46.3 hours.

A flexible working hour system is currently being implemented, under which terms employers can more effectively distribute working hours across a two-week or one-month period. For the two-week work period, work rules limit an average of 44 working hours per week or 48 hours for special weeks, while for the one-month period, labor and management have agreed that working hours are to limited to an average 44 hours per week, 56 hours for special weeks, and 12 hours for special days.

The average number of working days per month is 24.2 days, which works out to about 240 days per year. There are 18 days per year allocated for public holidays and vacation. There is also at least one day of paid-leave per week, Workers' Day or May Day, monthly paid leave (one day per month), and annual paid-leave (8 ~ 10 days per year). Women are allowed menstruation leave (one day per month) and maternity leave (60 days). 

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Industrial Relations

The June 29, 1987 Declaration marked a major turning point in the relationship between management and labor. Bolstered by the growing democratization movement, union activity reached a crisis between 1987 and 1989. Not only did confrontations with management multiply, but unions themselves became more powerful and organized, while union memberships rose sharply. Whereas management had previously controlled the agenda before, labor was beginning to turn this imbalance of power with its newfound strength. Labor-management relations came to be characterized by confrontations and conflict-and by the 1990s, it became apparent that Korea would have to find a middle ground, a different paradigm for resolving labor disputes if the country was going to remain internationally competitive.

In 1996, the Presidential Commission on Industrial Relations Reform was formed under the direct authority of the President in order to establish such a paradigm. The committee initiated major reforms in labor legislation. In January 1998, the Tripartite Commission representing labor, management and the government was formed. The commission reached an unprecedented social accord in which all three parties agreed to cooperate in order to overcome the economic difficulties precipitated by the foreign exchange crisis of 1997. The agreement included several ground-breaking concessions that promise to change the nature of management/labor relations in Korea.

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Union Organizations

Amidst massive labor disputes and conflicts in 1987, unions gained strength in number and power. Union membership stood at 1,050,000 as of June 30, 1987; this number rose sharply to 1,267,000 by the end of that year. Membership continued to increase for the next two years, peaking at 1,932,000 by the end of 1989. Union rolls began to drop off in the 1990s, a trend which continues today. At the end of 1996, there were 1,599,000 registered unionists, of which 1,260,000 were men and 339,000 were women.

Similarly, union density rose steadily from 1987, when 13.8% of the work force belonged to a union, to the end of 1989, when it reached a peak of 18.6%. Thereafter, union density fell to 12.2% at the end of 1996 (see Table 7).

There are a number of factors to explain why union membership began to decline in the 1990s. As Korea's economy shifted away from its labor-intensive industrial base, many manufacturing jobs-in which unions were heavily represented-were lost. Also, workers themselves lost interest in the labor movement as their pay and working conditions continued to improve.

In Korea, there are labor unions at individual companies, unions for entire industries, and unions with nationwide representation. Since company-level unions are the most prevalent type, collective bargaining is mostly held at this level, although occasionally other unions may join in support.

The only legally recognized nationwide union is the Federation of Korea Trade Unions (FKTU). Originally founded in 1946 as the General Council Korean Trade Unions (GCKTU), the umbrella organization adopted its present name in 1960.

In response to what was seen as the FKTU's conservatism, the Korean Confederation of Trade Unions (KCTU) was formed in 1995. Because some of the industry-wide unions affiliated with the KCTU are considered illegal, the KCTU itself is not officially recognized. However, the KCTU was represented at the Tripartite Commission, leading to the possibility that the organization will be legalized in the near future.

Following the revision in March 1997 of labor statutes allowing multiple unions,1) the number of industry-wide unions and union umbrellas has increased from 26 to 40 as of June 1998.

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Employer Organizations

In Korea, there are organizations representing the interests of management for most industries. However, the five most prominent are at the national level: the Federation of Korean Industries (FKI), the Korean Chamber of Commerce and Industry (KCCI), the Korea Employers Federation, the Korean Federation of Small Businesses, and the Korea International Trade Association. Of these, the Korea Employers Federation, established in 1970, is charged with settling more serious cases of labor disputes and issues. Its members include major conglomerates and business organizations. The Korea Employers Federation is also a lobbying group, representing the interests of business in the shaping of the government's policies on industrial relations. Towards that end, the federation conducts various public relations and public awareness activities such as sponsoring opinion polls on policy recommendations, proposals, petitions and statements for each type of labor dispute or industrial relations issue.

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Strikes and Lockouts

Prior to June 29, 1987, collective bargaining and other joint labor activities were severely restricted by the government's policy of suppressing mass labor movements. Throughout the 1960s and 1970s, there had been very few incidences of strikes or other labor disturbances, despite an increase in the number of wage earners as a result of rapid economic growth-a fact which indicates that labor activities were heavily regulated or repressed.

The June 27, 1987 Declaration unleashed a torrent of labor demands and grievances pent up under a tradition of patriarchal management and restrictive government. In 1987 alone there were 3,749 incidences of strikes or lockouts, a trend which escalated rapidly until 1989. The latter half of the 1980s can be seen as a transition period for industrial relations-from conflict and friction towards balance and stability in the 1990s, such that after 1995 the number of strikes and industrial disputes was down to the double digits. A common index to gauge the extent of industrial disputes is the number of work days lost per 1,000 workers. This index fell drastically to 33.6 days in 1997.

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Reforming Industrial Relations

Korea embarked on a wholesale reform of its industrial relations policies in 1996 in order to ensure continued stability, to improve the quality of life for workers, and to enhance national competitiveness in preparation for globalization and the information age. As part of that effort, the Commission on Industrial Relations Reform was established under the direct authority of the President who set the stage for legal and structural reforms. Phase one of labor reform, concluded in February 1998, was the laying of the groundwork for reform; phase two attempted to reform the current system, and phase three signals the opening of a new chapter in labor-management relations.

A significant step towards reform was the enactment of a bill to revise labor-related legislation in December 1996. However, the bill was revised in March 1997 in the face of fierce opposition from labor. Under the new labor laws, statutes concerning labor unions and the mediation of labor disputes were combined into a single statute, while the title of a law concerning consultations between labor and management was changed to Act Concerning the Promotion of Worker Participation and Cooperation. By allowing multiple unions in the collective bargaining process, the reforms were intended to establish the principle of autonomous bargaining-that is, arbitration between labor and management, without government intervention-and to eliminate irrational policies and practices. At the same time, unnecessary regulations were relaxed or lifted to encourage greater flexibility in the labor market. As noted, laws regarding discussions between labor and management were revised to allow workers greater participation and to promote cooperation, while other statutes were enacted to strengthen the independence, fairness and professionalism of the Labor Committee. 

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Social Accord Negotiated by the Tripartite Commission

The Tripartite Commission was inaugurated on January 15, 1998, with representatives from labor, management, the government and each of the political parties. Its aim was to come up with ways to revise labor legislation that could be agreed upon by all parties involved. The objective was to find a way to share the pain of overcoming the economic crisis occasioned by the foreign currency shortfall of late 1997 as evenly and fairly as possible. The Commission produced a joint declaration to overcome the economic crisis and make a new start in February 1998. The declaration was followed by a 10-point social accord to implement its objectives. A brief outline of that accord is provided below.

First, the Commission agreed to legalize layoffs, as well as to introduce a system to dispatch workers as needed in order to promote more flexibility in the labor market. Second, it gave teachers and public servants the right to form unions; it extended the mandatory prior notification period before the unilateral termination of collective agreements; and it recognized the right of unemployed workers to maintain memberships in unions above the company level, and to further strengthen workers' rights. Third, the Commission strengthened the social safety net by establishing a fund for employment security and its unemployment policy, by unifying the medical insurance system and expanding coverage, and by improving the national pension plan and other public funds. Fourth, the Commission agreed to accelerate corporate restructuring and to enhance transparency in business transactions, by calling on corporations to improve their financial structure and to establish more accountable management. Furthermore, the Commission also agreed on reforms within the bureaucracy and the political parties, as well as reforms in other sectors.

The Commission revised the Basic Workers Act and enacted the Act on Dispatched Workers Protection and other bills after announcing the social accord. A second commission was formed in June 1998 to evaluate the progress of reforms adopted in February. 

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Employment Insurance System

New Concept and Structure of Employment Insurance System

Korea's employment insurance system has three components: employment stabilization schemes, job ability development schemes, and unemployment insurance schemes. In turn, the unemployment insurance schemes can be divided into two different types of subsidies for the unemployed: vocational training allowances, which provide subsistence to the unemployed, and employment promotion benefits, which are intended to help unemployed workers find a new job as quickly as possible.

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Management of Employment Insurance System

The employment insurance system, implemented from July 1, 1995, together with the workers' accident compensation insurance, medical insurance and national pension programs, comprise the nation's social security system. However, until June 30, 1996, the employment insurance system only included employment stabilization schemes and job ability development schemes. It was not until July 1, 1996, when the unemployment insurance scheme was also adopted, that the employment insurance system became fully in place.

Due to a lack of awareness about the system among workers as well as other special circumstances, the employment insurance system produced somewhat less than expected results in its early stages. To address these problems, the government revised regulations regarding the administration of the system in March 1996 and continued its efforts to strengthen employment stabilization and job ability development schemes.

The employment insurance system and related ordinances were revised again on March 1, 1998, to combat fears of rising unemployment as a result of comprehensive restructuring efforts mandated by the International Monetary Fund in exchange for its emergency bailout. 

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Revisions to Employment Insurance System

Coverage Expanded

Previously, only workplaces with more than 10 employees were eligible for unemployment insurance, while workplaces with more than 50 employees were eligible for employment stabilization schemes and job training programs. Revisions to the system extended eligibility for these programs to workplaces with as few as six employees, thereby substantially expanding the system and providing subsistence to workers at small businesses who lose their jobs, as a means of stabilizing employment.

These revisions were passed on February 12, 1998, and went into effect on July 1. However, another bill was passed on February 24 to implement the revisions four months earlier, from March 1, to meet rising demand. 

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Qualifications for Unemployment Insurance Eased

As the present economic crisis continues to takes its toll, the number of unemployed workers continues to climb to record levels. In order to enable more workers to receive unemployment insurance benefits, regulations regarding eligibility for vocational training allowances have been temporarily relaxed (until June 30, 1999). Under the new measures, unemployed workers who apply for unemployment insurance from March 1, 1998, to June 30, 1999, must have been out of work for at least 12 months to be eligible. Previously, they had to have been unemployed for 18 months, a difference of six months. However, those who have been out of work for less than 12 months are limited to a fixed allowance for 60 days.

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Minimum Job Training Allowance Raised

Previously, if the vocational training allowance was lower than the minimum wage, eligible applicants received 50% of the minimum wage. However, under the revised law, if the vocational training allowance is lower than 70% of the minimum wage, then the applicant is entitled to a higher allowance.

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Unemployment Insurance Extended in Special Circumstances

Unemployed workers who are unable to find a new job can apply to have their vocational job training allowance extended beyond the 60-day limit if their cases are approved by the Employment Policy Committee within the first 60 days. However, in order to encourage workers to find a new job as soon as possible, the revised law stipulates that workers receive just 70% of the allowance after the first 60 days.

In addition, if the vocational training allowance is lower than the minimum allowance, workers who are granted an extension can receive the minimum allowance (70% of the minimum wage). 

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Early Re-employment Bonus Raised

Previously, an unemployed worker who found a job before half of his or her vocational training allowance was paid out, was entitled to one-third of the remaining amount. However, the law was revised to encourage workers to return to the work force as early as possible, such that the worker is now entitled to only half of the remaining amount.

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Strengthening Employment Stabilization Schemes

Many jobs are likely to be lost as production levels drop due to economic contraction. In order to save as many jobs as possible and to encourage other approaches such as reducing the number of work hours, the government has established a new fund to help supplement worker incomes reduced as a result of shorter hours. When a company lays off workers in the course of restructuring it may save money in the short term, but should the company need to expand its work force to previous levels, the costs of training the new hires can be significant.

Revisions to the law now provide for an employment maintenance training fund, which is paid to employers and avoids laying off workers in favor of training them for a certain period. Another fund has been planned to support employers which seek to retain its work force through other means, such as by transferring them to subsidiaries or affiliates.

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Expanding Eligibility for the Hiring Incentive Fund

Previously, the hiring incentive fund was limited to employers which hired workers laid off by firms designated as depressed or ailing. The scope of the fund has been expanded to include employers which hire workers who have lost their jobs due to the closure or bankruptcy of their companies in the course of restructuring.

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Information provided by the Korean Embassy

 


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