"Many Countries Work 80 Hours a Week... Korea's 6 PM Forced Leave Won't Boost Competitiveness" [Report Interview]

Interview with Kim Seong-hyun, President of the Korean International Finance Association (Dean of Sungkyunkwan University College of Economics)
Labor Market Rigidity Pushes Companies Overseas, Weakening National Competitiveness
Even for Sectors Competing Globally like Semiconductors, the 52-Hour Workweek Should Be Revised
Improving Corporate Competitiveness Is Difficult Without Resolving Labor Issues

Professor Kim Seong-hyun, Dean of the College of Economics at Sungkyunkwan University, is being interviewed by Asia Economy at the Dasan Economics Hall of Sungkyunkwan University in Myeongnyun-dong, Seoul. Photo by Jo Yong-jun

The Bank of Korea has projected South Korea's economic growth rate to be 1.9% next year. The forecast for the following year is even lower at 1.8%. There is a warning that a long-term low-growth era may be approaching, with growth rates failing to reach the potential growth rate of 2.0%. While there are various causes for low growth, the most concerning factor is the weakening competitiveness of Korean companies. Most of Korea's core industries, including semiconductors, secondary batteries, displays, shipbuilding, and steel, have already been caught up with or nearly overtaken by China, their biggest competitor.

At the root of this weakening corporate competitiveness is an analysis that points to South Korea's labor market as one of the most rigid in the world. The introduction of the 52-hour workweek, excessive minimum wage hikes, labor laws that heavily favor workers, and various labor regulations have gradually eroded corporate competitiveness. It is pointed out that unless the rigidity of the labor market is resolved through more proactive labor-management-government compromises and deregulation, the problem of weakening competitiveness of Korean companies and the nation will not be solved.

Kim Seong-hyun, President of the Korean International Finance Association (Professor and Dean of Economics at Sungkyunkwan University), stated in an interview with Asia Economy on the 27th of last month at the Dean's office of the College of Economics in Jongno-gu, Seoul, that "It will be difficult for the Korean economy to regain competitiveness without structural reforms in the labor market."

Professor Kim, an expert in international finance and macroeconomics, recently gained attention for his paper titled "Analysis of the Impact of Labor Market Rigidity on Corporate Overseas Expansion," in which he argued that excessive rigidity in Korea's labor market has significantly increased corporate overseas expansion and weakened national competitiveness.

Excessive Labor Regulations Undermine Labor Market Autonomy and Weaken Corporate Competitiveness

Professor Kim said, "Korea's labor market is excessively rigid compared to advanced countries, partly due to strong labor unions, but mostly because policies that undermine labor market autonomy and flexibility?such as the uniform application of the 52-hour workweek and excessive minimum wage hikes?were heavily implemented during the previous Moon Jae-in administration."

However, even under the current administration, which is relatively evaluated as more business-friendly, there appears to be no progressive labor market policy. Professor Kim criticized, "The current government promised to make Korea a good country for businesses, but in the past two years, few policies have been properly realized. This is because labor market policies are deprioritized compared to other economic policies like fiscal policy, real estate, and financial markets."

He also expressed regret that the relaxation of the 52-hour workweek for some urgent advanced industries such as semiconductors has not been realized. He questioned, "The 52-hour workweek should not be uniformly applied in sectors competing in the global market. Even just looking at semiconductors, competitor countries have many workers working over 80 hours a week, but in Korea, research lab computers automatically shut down at 6 p.m., forcing workers to go home. How can we be competitive under such conditions?"

He added, "It is desirable to apply the 52-hour workweek differentially, allowing workers in advanced industries, strategic industries, and research and development (R&D) sectors to work as much as they want and for companies to offer better compensation to such workers. This will revive corporate competitiveness and increase the national economic growth rate."

He also pointed out that excessive protection of workers is a cause of labor market rigidity. He emphasized, "Once companies hire employees, it is practically impossible to dismiss them due to excessive worker protections, which actually reduces corporate hiring. Because dismissals are difficult, companies become reluctant to hire from the start, creating a vicious cycle that reduces good jobs."

He proposed that to resolve the severe dual structure of the labor market, characterized by a stark difference between good and bad jobs, it is necessary to guarantee some degree of employment flexibility to companies. Professor Kim said, "In the U.S., where hiring and firing are free, many hires occur, and workers can easily move to better jobs, creating a virtuous cycle. While it may be difficult for us to increase employment flexibility to the level of the U.S., at least the direction of labor policy should move toward that."

The Government Must Take a More Proactive Role in Leading Labor-Management Harmony for Economic Development

Professor Kim advised that the current government should engage more actively in dialogue with labor unions. Since the current administration has shown many confrontational stances and broken off talks with unions, it is difficult to solve labor market problems under such circumstances.

He said, "The government should act as a mediator between unions and companies to resolve issues that companies cannot handle, such as indiscriminate strikes and severe labor-management conflicts, but such efforts are not visible. Labor market issues, which have been deprioritized in policy agendas, need to be brought forward and addressed more actively."

He continued, "Research shows that companies with harmonious labor-management relations are more likely to remain in the domestic market. To prevent companies from being pushed overseas and to increase domestic employment and investment, the government's efforts to ease rigid labor-management relations are crucial."

Professor Kim Sung-hyun, Dean of the College of Economics at Sungkyunkwan University, is being interviewed by Asia Economy at the Dasan Economics Hall of Sungkyunkwan University in Myeongnyun-dong, Seoul. Photo by Jo Yong-jun

Below is a Q&A with Professor Kim Seong-hyun.

- Why is South Korea's labor market rigidity particularly severe compared to other countries?

▲ It is because labor unions are very powerful. There are many regulations on the labor market. Especially during the previous administration, policies that forced labor market autonomy and flexibility, such as the 52-hour workweek and excessive minimum wage hikes, were widely implemented, making the labor market environment very unfavorable for companies.

- Is the minimum wage increase strongly related to labor market rigidity?

▲ It is true that the minimum wage should naturally rise due to inflation. However, during the Moon Jae-in administration, the minimum wage rose too abruptly, and companies did not have enough time to adapt to the increase. The difficulty of dismissing employees also increases labor market rigidity. Since companies must continue to employ people once hired, they become more cautious. The labor market lacks flexibility and becomes rigid.

- The current government claims to be more business-friendly and to pursue labor market reforms, but there seems to be little change.

▲ Even under the current government, there do not seem to be many business-friendly policies. Policies to deregulate companies or increase labor market flexibility have not been properly realized. Since bills do not pass through the National Assembly, the government's ability to act is limited.

- There also seems to be little government-level support for companies without passing legislation.

▲ Labor market policies are deprioritized in the current government's policy agenda. Fiscal and monetary policies, real estate policies, financial market policies, stock market activation measures like value-up, and recently discussions on reducing polarization are prioritized. Labor market reform needs to be brought forward in priority.

- Does labor market rigidity contribute to the decline in our economic growth rate?

▲ Researchers working hard in labs have their computers automatically shut down at 6 p.m., forcing them to go home. Other countries do not have this. Many countries competing in semiconductors have workers working 80 hours a week. We have to compete with those countries, but if computers shut down at 6 p.m. and workers must leave, how can we compete? People working in advanced industries, strategic industries, and R&D who want to work more and earn more should be allowed to do so. The 52-hour workweek should be applied differentially. Some sectors can handle the 52-hour limit, while others find it difficult. Especially in sectors competing globally, the 52-hour workweek should not be uniformly applied to all companies.

- There is talk that South Korea has a severe dual structure in its labor market. Is this related to labor market rigidity?

▲ There is a huge gap in labor conditions, from wages to welfare, between large and small companies. Labor market flexibility means freedom to dismiss, but it also means an environment where people can climb the ladder on their own. If someone works at a small company and does well, they can move up to a large company. Such ladder environments need to be well established. Then the dual structure problem will likely decrease.

- The U.S. economy is doing better than any other country. Does labor market flexibility contribute to this?

▲ Labor market flexibility is one reason the U.S. economy is doing well. The U.S. has the most flexible labor market in the world, with minimal restrictions. However, in Korea, no matter how many subsidies or tax cuts are given, if labor market rigidity persists, such policies will not be effective. That is the difference between Korea and the U.S. Without labor market flexibility, even fiscal or monetary policies to stimulate the economy will face difficulties for companies.

The U.S. is doing well now partly because money is flowing into the country. As a leader in the artificial intelligence (AI) revolution, investments are strong, making it difficult for other countries to catch up. Money is expected to continue flowing into the U.S. for the time being.

- The U.S. is said to have freedom of dismissal. How is protection for dismissed workers handled?

▲ In the U.S., even good jobs can be lost quickly. Labor market flexibility means dismissal is natural, but it also means employment is easy. Even if dismissed, workers can quickly find other good jobs. The economy is good, so good jobs continue to be created. It is also an environment where people can climb the ladder continuously.

- Should our labor market take the U.S. as a role model?

▲ The U.S. is an extreme case. Japan is the opposite extreme. Currently, Korea is closer to Japan. While we cannot reach the U.S. level, we should move somewhat closer to it.

- Does increased corporate overseas investment reduce national competitiveness?

▲ When companies go overseas, domestic employment worsens first. For example, building factories in Southeast Asia instead of Korea shifts employment there. Investment outflows also occur. Of course, there are benefits. Increasing overseas investment in advanced countries allows easier learning of advanced technologies. However, if companies are pushed overseas due to wages or labor-management issues rather than seeking better opportunities, it harms both companies and the nation.

- Why has the government's reshoring policy failed?

▲ Tax cuts and subsidies alone are insufficient. If labor market rigidity is not resolved, it is difficult. Labor-management relations are difficult, so companies find it hard to return. The government should negotiate with unions to give and take, preventing strikes and demonstrations, but no one is doing that now. The current government's stance is no negotiations with unions, but they need to sit at the negotiation table.

- What is the most urgent measure to resolve labor market rigidity?

▲ Relaxing the 52-hour workweek and differentiated minimum wage payments are options, but the most important thing now is to ease labor-management relations. The government should help solve problems companies cannot handle, but progress in this area is minimal.

- Are there any clever solutions for labor market reform?

▲ First, dialogue must begin. Labor market reform must become a key issue. Currently, it is deprioritized, so the government must raise its priority and the National Assembly should actively discuss improving the labor market environment for companies.

- There are great concerns about our economy next year following Trump's election.

▲ Since it is a campaign promise, tariffs are expected to rise. However, they will likely not be raised uniformly but vary by product. Tariff policies are a lose-lose game. They are not good for the U.S. either. Trump’s tariff policies aim to revive specific industries, benefiting certain companies but harming the U.S. as a whole. American consumers end up paying more than before.

- What preparations should our government and businesspeople make for a potential second Trump term?

▲ Fundamentally, the most important thing is to strengthen companies so they can grow under any adverse conditions. Productivity must be increased, and efforts made to reduce costs and improve production efficiency so companies can survive. The government should also carefully consider policies to support companies against external shocks. Appropriate industrial policies and fiscal and financial policies need to be developed.