[Enemies of Reform⑦] Flexible Working Hours and Wage Systems... Easing the 'Sandbag' for Companies

The Yoon Suk-yeol administration plans to loosen the 'sandbags' that have been holding back companies through labor reform. In a situation where labor productivity is declining due to rapid aging and low birth rates, the aim is to revitalize growth potential by flexibilizing rigid working hours and wage systems. To this end, the government intends to make the 52-hour workweek system more flexible to suit the rapidly changing labor environment and to prioritize reforming the deeply rooted seniority-based wage system in our society into a job- and performance-based wage system. 'Enemies of Reform'

◆Maintain 52-hour Workweek but Enhance Flexibility

Among the labor market reform tasks, the government has prioritized flexibilizing working hours. The current Labor Standards Act stipulates a 40-hour workweek and allows up to 12 hours of overtime per week. Since the enactment of the Labor Standards Act in 1953, overtime hours have been managed on a 'weekly basis,' and this has been maintained even after the introduction of the 52-hour workweek system in 2018. As a result, companies have been uniformly bound by the 52-hour limit regardless of industry, but the Yoon Suk-yeol administration plans to increase flexibility by changing the management of overtime hours to a 'monthly basis' for the first time in over 70 years.

The statutory working hours of 40 hours per week will be maintained, but the management unit for overtime will be expanded from 12 hours per week to 48 hours over 4 weeks. This means that when work is heavy, it will be possible to work more than 92 hours in a single week, easing the burden on companies. However, the government will implement health protection measures such as 11 consecutive hours of rest between working days to prevent the reoccurrence of an 'overwork society,' which labor groups are concerned about.

Additionally, the government plans to introduce a working hours savings account system that allows employees to work overtime when workload is high and save the extra hours to take leave when workload is low. The government will also expand the unit period of the selective working hours system, one of the flexible working hour systems. The selective working hours system allows workers to freely adjust working hours within a certain unit period as long as the average weekly working hours do not exceed 52 hours. Currently, the unit period is 1 to 3 months, but this will be extended to increase flexibility.

Efforts to reduce actual working hours will continue. According to the Ministry of Employment and Labor, South Korea’s annual working hours are 1,928 hours, which is more than 300 hours higher than the OECD average. The government plans to activate the use of holidays and leave and expand telecommuting and remote work to reduce the burden on workers. On the 23rd, Employment Minister Lee Jung-sik stated while announcing the direction of labor reform, “Reducing actual working hours is a trend of the times.”

There is also hope that flexibilizing working hours and wages will benefit those with career interruptions. For example, women workers in their 30s and 40s who have had career breaks of 5 to 10 years due to childcare often find it difficult to return to their original positions and tend to move to non-regular jobs. If working systems become more flexible, they can first return to work with reduced hours and lower wages and then increase working hours and wages as their performance recovers.

[Image source=Yonhap News]

◆Abolishing the 'Seniority System' Favoring Regular Workers in Large Corporations

One of the most attention-grabbing labor reform tasks announced by the new government is the transition from the current seniority-based wage system to a job- and performance-based wage system. In an era of low growth and aging, seniority-based wages impose a significant burden on companies and reduce industrial competitiveness. The seniority system benefits regular workers in large corporations and public institutions but is perceived as 'unfair' by young new hires and non-regular workers. Previous governments recognized these issues but failed to implement proper reforms due to opposition from large unions such as the Korean Confederation of Trade Unions.

Professor Choi Young-gi of Hallym University’s Department of Business Administration said, “The MZ generation youth probably do not see the system that raises seniority wages for long-term employees as fair,” adding, “In a situation where structural transformation is accelerating due to COVID-19, it is necessary to reform the wage system to reflect market changes and the demands of diverse worker groups.”

The increasingly severe aging problem and the issue of extending retirement age will also be addressed in earnest by the Yoon Suk-yeol administration. To respond to the population cliff caused by low birth rates and aging, the government plans to hold social dialogues on raising the current retirement age of 60 to 65 or abolishing it altogether. Simply extending the retirement age under the seniority system would excessively increase labor costs for companies, so reforming the job-based wage system is essential. If wage system reform does not follow, rehiring older workers past retirement age as contract workers could be an alternative, but this is also a sensitive issue for labor groups and requires public discussion. The Ministry of Employment and Labor explained, “We also plan to review institutional improvements such as wage peak systems and reemployment to guarantee continued employment of older workers.”

Since the government cannot force private companies to reform their wage systems, it plans to first provide the necessary infrastructure for reform. It will build the 'Korean Job-based Wage Information Provision System,' a basic infrastructure for designing job-based compensation systems, by the year after next. This system will provide accurate wage information and workload data for 450 occupations to support companies that have wanted to implement job-based wage systems but were hindered by lack of information.

The legislative tasks for labor reform will be prepared by the 'Future Labor Market Research Group,' composed of experts in related fields, through surveys and opinion gathering by October. The government plans to review the recommendations submitted by the research group and, if possible, propose amendments to the National Assembly in the second half of the year.

◆Reduced Intensity of Reform

However, there is also analysis that the intensity of reform has significantly decreased compared to previous conservative governments, as the Yoon Suk-yeol administration has decided to focus labor reform only on working hours and wage systems. For example, the Park Geun-hye administration pursued the so-called 'two major guidelines' that allowed dismissal of low performers and changes to employment rules disadvantageous to workers without their consent. Employment Minister Lee described the issue of dismissal regulations, a core of labor flexibilization, as “the most difficult problem” and drew a line by saying, “There are no additional reform tasks at the moment.” Given the experience of radical reforms under President Park that ended in extreme conflicts with labor groups and failure, this can be interpreted as an intention to start with relatively easier reforms. However, the business community has expressed regret over the cautious approach in the early days of the administration, noting that some advanced countries have successfully implemented reforms based on labor flexibility.