[Saving SMEs through Labor Flexibility] ④ The Four-and-a-Half-Day Workweek May Further Widen the Gap Between Large Companies and SMEs

President Lee Jaemyung Pledges Four-and-a-Half-Day Workweek Without Wage Reduction
Productivity Gains Limited Despite Reduced Working Hours
Concerns Over Widening Gap Between Large Corporations and SMEs
Aims to Lower Work Hours Below OECD Average...
"But Fundamental Issues Remain Unresolved"

Editor's NoteLabor regulations such as the 52-hour workweek, introduced with the intention of creating advanced working conditions, continue to weigh heavily on both companies and workers across various industrial sites. The problem is becoming increasingly recognized, especially as small and medium-sized enterprises (SMEs) face significant difficulties due to a structurally stagnant economy, management challenges, and labor shortages. Amidst this, as the Lee Jaemyung administration accelerates the introduction of a 'four-and-a-half-day workweek without wage reduction,' anxiety is mounting among SMEs, who are both the backbone of the economy and industry and its most vulnerable link. There is a growing call to urgently consider a labor culture based on flexibility and autonomy, rather than one-size-fits-all, rigid regulations that cause more pain to smaller and less-resourced companies. Asia Economy seeks solutions based on the realities faced by SMEs.

[Saving SMEs through Labor Flexibility] ① Even 'century-old businesses' cannot withstand labor regulations

[Saving SMEs through Labor Flexibility] ② Rigid labor regulations threaten 'work-life balance'

[Saving SMEs through Labor Flexibility] ③ Criminal punishment even after labor-management agreement: No other country does this

[Saving SMEs through Labor Flexibility] ④ The four-and-a-half-day workweek may worsen the gap between large companies and SMEs

[Saving SMEs through Labor Flexibility] ⑤ "SME jobs are the backbone of industry; flexibility and autonomy must protect them"

As the negative repercussions and side effects of the standardized and rigid 52-hour workweek continue to surface throughout the SME sector, concerns are mounting as the government accelerates the introduction of the four-and-a-half-day workweek?President Lee Jaemyung's campaign pledge?by reporting its implementation plan to the National Policy Planning Committee.

The four-and-a-half-day workweek is one of President Lee's signature labor pledges. It aims to reduce the current statutory workweek from 40 hours to 36 hours, or four and a half days per week. The long-term goal is to move to a 32-hour, four-day workweek. President Lee has emphasized that the four-and-a-half-day workweek should come with "no reduction in wages."

However, the SME sector, which is particularly vulnerable to the effects of economic downturns, has expressed strong opposition. There is also a persistent concern that, even if this system is legislated after much debate, in reality, only workers at large companies will benefit.

A worker is taking a short break in the steel street of Mullae-dong, Yeongdeungpo-gu, Seoul. Photo by Kang Jinhyung

◆ The Burden on Companies from the Four-and-a-Half-Day Workweek = If the four-and-a-half-day workweek reduces weekly working hours to 36, this amounts to a 10% reduction in working time. Unless productivity increases by a corresponding amount, the SME sector?especially those with vulnerable production and employment structures?argues that an immediate decrease in production and sales is inevitable. While some claim that reducing working hours will cut unnecessary tasks and boost productivity, there is little evidence to support this.

According to the Korea Development Institute (KDI) on June 24, when working hours were previously reduced from 44 to 40 hours per week?a decrease of about 9.1%?labor productivity rose by only 1.5%. Thus, the productivity gains expected from shorter working hours do not offset the losses incurred by companies. Kim Daeil, professor of economics at Seoul National University, explained, "Some attribute Korea's low hourly productivity to long working hours, but simply reducing hours does not increase productivity. Workers need incentives to work hard, but such incentives are currently lacking. There should be some allowance for differentiating bonuses or salaries based on performance."

In this situation, to maintain production levels despite reduced working hours, companies will have to bear additional labor costs. If these positions are filled with non-regular or part-time workers, there are concerns that this will lead to the proliferation of low-quality jobs and a vicious cycle of declining corporate competitiveness. The head of a manufacturing SME pointed out, "When there is a labor shortage, it becomes increasingly difficult to meet orders on time, and the defect rate rises as inexperienced workers take on tasks."

◆ Widening Gap Between Large Companies/Public Institutions and SMEs = The SME sector's most realistic concern about the four-and-a-half-day workweek is that it may further widen the gap in working conditions between employees at large companies or public institutions and those at SMEs. As of last year, about 84.7% of all workplaces and 36.3% of all workers were employed at businesses with fewer than five employees. These workers are not subject to the Labor Standards Act, including the 52-hour workweek, annual leave, or paid holidays. They are entirely excluded from discussions about the four-and-a-half-day workweek.

Even among SMEs covered by the Labor Standards Act, many are already struggling with the 52-hour workweek. Professor Kim noted, "Only about 3% of all workers in Korea?those at large companies?are able to enjoy the benefits of the 52-hour workweek and go home early."

The situation is similar in the startup sector. Lee Inkyu, CEO of the AI startup Wayple, said, "To properly implement a four-and-a-half-day or four-day workweek, you need backup staff, which doubles labor costs. In the end, only large companies or successful firms with surplus staff will be able to benefit." Noh Minseon, research fellow at the Korea Small Business Institute, also stated, "The four-and-a-half-day workweek is likely to benefit large companies or public institutions with sufficient resources. Since most ordinary SMEs will find it difficult to benefit, a delicate approach is needed from a perspective of mutual growth."

◆ The Stigma of Long Working Hours Among OECD Members = Returning to the starting point of the four-and-a-half-day workweek debate, there remains the challenge of reducing working hours to below the OECD average. In 2023, Korea's annual working hours stood at 1,872, which is 130 hours longer than the OECD average of 1,742 hours. President Lee's pledge for a four-and-a-half-day workweek is based on this OECD data, which highlights Korea as a country of long working hours. He has stated that he aims to reduce Korea's working hours to below the OECD average by 2030 through the introduction and spread of the four-and-a-half-day workweek.

From the perspective of businesses, if you exclude the impact of self-employed people who work long hours and part-time workers who work short hours, and compare only full-time workers, the gap in annual working hours between Korea and other OECD countries is largely resolved. Lee Myungro, head of workforce policy at the Korea Federation of SMEs, explained, "Korea has a lower proportion of part-time workers and a higher proportion of self-employed than Europe, which inflates the numbers. The image of Korea as a 'long working hours republic' is exaggerated."

He added, "If the problem is the average working hours, it would be possible to lower the statistics by increasing the proportion of part-time workers, but that is not a fundamental solution. The debate over flexible working hours should focus on practical feasibility and institutional suitability rather than statistical figures." Research fellow Noh also pointed out, "The average working hours in OECD countries is greatly influenced by long vacations. To reduce our working hours, we also need to approach the issue from the perspective of promoting vacations."