[Exclusive] Signal for Reform of the 52-Hour Workweek System... Promotion of the Enactment of the 'Special Act on Improving SME Productivity'

Ministry of SMEs and Startups Conducts Internal Analysis and External Research
Bill to Be Prepared by the Second Half of This Year

A scene from last June when an economic organization held a press conference urging measures for the 52-hour workweek system.

[Asia Economy Reporter Donghyun Choi] The government has officially begun the process of enacting the ‘Special Act on Improving Productivity of Small and Medium Enterprises (SMEs).’ Despite increases in labor costs due to the 52-hour workweek system and minimum wage hikes, productivity remains at the lowest level compared to global standards. To address this, the government is promoting the act as a national agenda item.

According to a comprehensive report by Asia Economy on the 14th, the Ministry of SMEs and Startups recently started drafting the ‘Special Act on Improving Productivity of SMEs.’ Since the appointment of Minister Lee Young, internal meetings on this issue have accelerated. The plan is to conduct research involving all affiliated organizations under the ministry, such as the Korea Institute for SMEs and Startups, and complete the draft law by the second half of this year. A ministry official stated, "Government legislation requires considerable time for review by the Ministry of Government Legislation, so it is highly likely that the bill will be pursued through other means (such as parliamentary legislation). Even if the law passes in the first quarter of next year, it is expected to be implemented around 2024, so we are moving as quickly as possible."

Labor productivity refers to the ratio of output produced to the amount of labor input over a certain period. Labor productivity increases when working hours decrease or output increases. South Korea’s labor productivity ranks among the lowest compared to global competitors. According to the OECD’s productivity indicators, as of 2019, South Korea’s hourly labor productivity was $40.5, ranking 30th out of 36 OECD member countries. The situation is even more severe when focusing on SMEs. Labor productivity in SMEs is only 32.5% of that in large enterprises (as of 2019). Although 9 out of 10 workers are employed by SMEs, their per capita labor productivity is only about one-third that of large companies.

Several structural factors contribute to the low labor productivity of SMEs, including unfair trade practices between large enterprises and SMEs, the poaching of personnel and technology, and price-cutting on deliveries. Moreover, the productivity gap between large enterprises and SMEs is a major cause of wage disparities. This leads to avoidance of SMEs, increases labor costs for SMEs, and creates a vicious cycle that lowers labor productivity. This is also why the government is hastening the enactment of the special act.

There is also a view that the enactment of this special act may serve as a foundation for revising the 52-hour workweek system. Generally, labor productivity increases when working hours decrease. However, SMEs, where labor input time is a measure of productivity, are experiencing greater difficulties due to increased labor costs from minimum wage hikes and the impact of COVID-19, and are demanding revisions to the 52-hour workweek system. President Yoon Suk-yeol has repeatedly expressed the opinion that flexibility should be granted to the 52-hour workweek system by industry. Therefore, it cannot be ruled out that the framework of the 52-hour workweek system may be relaxed, especially in industries where productivity gains have been minimal or have even declined since its implementation in 2018.

In fact, the project overview of the ‘Research Service on the Enactment of the Special Act on Improving Productivity of SMEs,’ recently commissioned by the Ministry of SMEs and Startups, cites the increase in labor costs over the past five years due to the minimum wage hike and the implementation of the 52-hour workweek system, while labor productivity remains low, providing specific figures. The ministry plans to carefully examine the causal and correlational relationships between the 52-hour workweek system, minimum wage increases, and labor productivity through internal analysis and external research. A ministry official refrained from commenting directly, stating, "The revision of the 52-hour workweek system falls under the jurisdiction of the Ministry of Employment and Labor and is not directly related to the enactment of this special act."

Experts advise that the reform of labor productivity in SMEs should proceed within a broader macro framework rather than simply revising the 52-hour workweek system or providing technological support. Lee Dong-joo, senior research fellow at the Korea Institute for SMEs and Startups, emphasized, "Labor productivity in SMEs will not improve simply by lowering labor costs or supporting simple process innovations such as the spread of smart factories. We need to establish a comprehensive and systematic framework that overcomes the limitations of productivity improvement policies pursued over the past 30 years, taking examples from overseas cases such as the UK."