Maturing S Korea Suffers Labour Pains
Korea's economic woes are forcing the chaebol to consider what economists and government officials have long recommended they do by streamlining their operations. With total net profits for listed companies having fallen by 55 per cent during the first half of 1996, it is clear the chaebol must cut their production costs, which exceed those of other Asian tiger economies such as Taiwan and Singapore.
Korea will have to go through a painful adjustment period, just as the US and Japan did, over the next five years if it is to recover its competitiveness, said John Pinkel, head of research at HG Asia Securities in Seoul.
An obvious place to start is labour. Nominal manufacturing wage costs have climbed on average 16 per cent annually over the past decade, outpacing productivity growth. Wage costs for the chaebol have grown even higher since they provide generous social benefits, such as subsidised housing, to workers.
However, cutting jobs is difficult because of Korea's rigid labour laws. Although still regarded as a developing economy, its labour market can be as inflexible as those of advanced European industrial countries.
Korean workers enjoy strong job security rights that make it difficult for companies to dismiss employees when they need to downsize, said Rha Woong-bae, a former finance and economy minister.
Companies that cut jobs must offer generous redundancy payments. In Sunkyong's case, these included two years of school fees for children as well several years of wages.
Burdened with a bloated workforce that is expensive to reduce, most chaebol have normally chosen the alternative of expanding their industrial facilities to create jobs for excess workers. This unusual strategy had been encouraged by the government, which favoured a policy of full employment. Moreover, it reflected Korean social values.
Korea is a highly egalitarian society and anyone engaged in massive job losses would be blamed and criticised for creating social inequality, said an executive with Hyundai, one of the largest chaebol.
But the country's economic problems are changing official attitudes. The government is seeking a reduction in job security rights in return for giving trade unions greater freedom to organise.
The issue is being debated by a presidential panel that will propose labour law reforms as part of Korea's application to join the Organisation for Economic Co-operation and Development.
Meanwhile, most chaebol are taking a cautious approach to job cuts, in spite of Sunkyong's example.
The Federation of Korean Industries, which represents the chaebol, earlier this month proposed a policy of a wage freeze and early retirements.
But it quickly climbed down under union pressure. Instead, chaebol executives have offered to freeze their wages next year in an attempt to persuade the workforce to do likewise.