[No One to Build Ships ②] Chronic Dilemma Between Subcontracting Structure and Workforce Supply

Shipbuilding Industry Employment Drops from 203,441 to 92,687
Low Wages and High-Intensity Labor Prevail Amid Multi-Tier Subcontracting
Increasing Direct Employment Is the Solution, but Shipbuilders Struggling with Deficits

Editor's NoteSouth Korea's shipbuilding industry is sweeping up global orders with eco-friendly vessels such as LNG (liquefied natural gas) carriers and propulsion ships. However, the workforce lost during the prolonged downturn is not returning. Despite having work, it is difficult to find people to work, leading to a "cry of agony amid the boom." Both the previous and current governments have introduced measures to train shipbuilding personnel and secure foreign workers, but these are seen as solutions that fail to address structural problems. Although it is a period of order boom, doubts remain about whether the structural issues of the shipbuilding industry?such as continued deficits, cutthroat competition, and low wages?can be resolved. Talented individuals who should be responsible for future growth are turning away from the shipbuilding sector, and skilled craftsmen needed for construction work are not moving despite reports of labor shortages at shipyards. Due to the prolonged downturn, the treatment in the shipbuilding industry has worsened compared to other industries, and the large gap between downturns and booms has lowered employment stability. The issue is not just about securing skilled workers but also urgently acquiring high-level personnel in eco-friendly ship technology and design. This article examines how to solve the problems facing the shipbuilding industry.

"There are no young people worth working anymore. They only hire subcontracted workers, and when there is no work, they get fired. Is there a future for the shipbuilding industry...?"

This was the remark of a subcontractor worker in his 50s whom we met in front of the Geoje Okpo Shipyard on the 21st of last month, as the Daewoo Shipbuilding & Marine Engineering strike was nearing its end. The shipbuilding industry, once considered a backbone of our economy, no longer attracts workers. Orders have increased, but there are neither workers to handle the immediate workload nor talents to drive future growth. There are no special incentives to attract them to shipyards. The sense of crisis over whether the domestic shipbuilding industry can maintain its current level of competitiveness is growing daily. The root cause of the labor shortage is pointed out to be the 'multi-tier subcontracting structure' created by chronic deficits and unstable order cycles, which perpetuates low wages.

According to the Korea Offshore & Shipbuilding Association on the 11th, the total employment in the domestic shipbuilding industry reached 203,441 in 2014 but decreased to 92,687 last year. More than half of the workforce left due to restructuring and other issues. The number recorded up to May this year is only 92,992.

Workers are commuting at Daewoo Shipbuilding & Marine Engineering Okpo Shipyard in Geoje-si, Gyeongnam. The photo is not directly related to the article. [Image source=Yonhap News]

Low wages are hampering workforce supply in the shipbuilding industry. According to Statistics Korea, shipbuilding wages compared to manufacturing wages were 150.8 in 2006. If manufacturing workers earned an average of 1 million KRW, shipbuilding workers earned over 1.5 million KRW. By 2019, shipbuilding wages compared to manufacturing were 102.8, showing no difference from the average manufacturing monthly wage. The high labor?high wage structure shifted to high labor?low wage.

The shipbuilding industry has a multi-tier subcontracting structure. Because orders are not stable, instead of maintaining employment levels, subcontracting ratios were increased to reduce fixed costs as a self-help measure. However, in this process, first-tier subcontractors increasingly subcontracted to volume teams (teams performing specific processes for a set period) or rush teams (teams performing tasks with short-term bonuses). This subcontracting of subcontractors led to second- and third-tier subcontracted workers receiving low wages, and the shipbuilding industry faced issues such as quality degradation, safety negligence, and a shortage of skilled workers.

The Metalworkers' Union Geoje Tongyeong Goseong Shipbuilding Subcontracting Branch has been occupying and protesting at Daewoo Shipbuilding & Marine Engineering Dock 1 in Geoje City, Gyeongnam Province since the afternoon of the 12th of last month. The Daewoo Shipbuilding & Marine Engineering strike is regarded as having exposed the subcontracting structure issues in the shipbuilding industry.
[Image source=Yonhap News]

According to Lee Jeong-hee, Senior Research Fellow at the Korea Labor Institute, in the study "Current Status and Problems of Employment Structure in the Shipbuilding Industry," subcontracting rapidly expanded in shipyards in the 2000s. Originally, direct employees were more numerous, but from 2007 onward, subcontracted workers surpassed direct employees. According to the Korea Offshore & Shipbuilding Association, in 2001, there were about 54,265 direct employees and 32,417 subcontracted workers, but by 2011, the numbers were approximately 66,842 (direct) and 90,098 (subcontracted), with subcontracted workers becoming the majority. Since then, the number of subcontracted workers was more than twice that of direct employees, but last year the numbers were similar at 45,435 (direct) and 47,252 (subcontracted) due to restructuring starting with subcontractors caused by order declines.

Dismantling this subcontracting structure is also difficult. The answer is for the three major shipbuilders to increase direct employment and reduce subcontracted workers, but these three companies are struggling with chronic deficits and are in a position of contemplating the 'survival of shipbuilding.' Kim Young-hoon, professor in the Department of Naval Architecture and Ocean Engineering at Gyeongnam National University, said, "Despite the increase in orders, the current business performance is negative, and due to rising raw material costs, there are few factors for wage increases from a management perspective. It will take time for business performance to stabilize, such as through rising ship prices."