Korean Economy - Main
Korea's Main Page
Employment in Korea
Population and Labor Supply
In 1980, Korea's
working age population (15 years or above) stood at 24.463 million. Since then
this figure increased rapidly, providing the country with ample human resources
needed to support rapid economic growth. However, since the 1990s, this growth
rate slowed down slightly, with the working age population reaching 34.736
million in 1997.
This growth trend
brought about major changes to the labor supply situation. Between 1980 to 1997,
the economically active population grew steadily from 14.431 million to 21.604
million for an increase of roughly 1.5 times. Accordingly, the economic
participation rate breached the 60% mark in the 1990s, and continued to increase
to 62.0% in 1996 and 62.2% in 1997 (See Table 1).
However, since 1998,
the severe economic recession following the financial crisis and the subsequent
IMF bailout program has greatly worsened employment conditions, and the economic
participation rate, which had been steadily increasing, is currently declining.
Thanks to the steady
economic growth, the number of those employed increased from 14.97 million in
1985 to 21.048 million in 1997. This represented an annual average increase of
structure by educational background shows a gradual trend of workers attaining
higher levels of education per year. Among the total number of employed, the
percentage of those with education through middle school or lower has fallen
sharply from 58.9% in 1985 to 48.6% in 1990 and 36.8% in 1997. On the other
hand, the percentage of highly educated workers with a college degree or higher
has virtually doubled, from 10.3% in 1985 to 20.3% in 1997 (See Table 2).
Employment by Industrial Sector
industrial sector shows that the employment structure is gradually becoming more
oriented toward the service industries. The percentage of those employed in the
agriculture-related (agriculture/forestry /fisheries) and industrial (mining
& manufacturing/electricity, gas and piped water/construction) sectors is
decreasing while the percentage of those employed in the service sector is
increasing. The percentage of those employed in the agricultural sector has
fallen rapidly from 24.9% in 1985 to 18.3% in 1990 and 11.0% in 1997. For the
industrial sector, the percentage of employed increased from 30.8% in 1985 to
35.1% in 1990. However, as the industrial structure shifted from labor-intensive
industries to more technologically intensive industries, this percentage has
started to decline, reaching just 31.1% in 1997. On the other hand, the
percentage of those employed in the service sector has steadily increased thanks
to the relatively higher wage increases and the gradual expansion of the size of
the service sector. The percentage rose from 44.3% in 1985 to 46.9% in 1990, and
then jumped to 67.2% in 1997(See Figure 1).
Employment by Status
The percentage of
non-salaried employees (for example, those who are self-employed or working at
family businesses) has been decreasing over the years while the percentage of
salaried employees has been on the increase. In 1985, non-salaried employees
accounted for 45.9% of the work force, but this dropped to 39.5% in 1990 and
further to 37.2% in 1997. Meanwhile, the percentage of salaried employees has
topped the 60% level in the 1990s and steadily increased to 62.8% as of 1997.
(See Table 3).
In 1990, the
unemployment fell to 2.4% and remained low until 1997, staying in the 2% range.
In fact, the unemployment rate stood at 2.0% in 1996, the lowest level recorded
since statistics were first kept. (See Table 4).
However, starting in
1997, unemployment began to increase considerably with the continued economic
downturn. During 1998, the employment situation has greatly worsened in the wake
of the financial crisis which erupted in late 1997 which was followed by the
subsequent IMF bailout program. Since the request for the IMF bailout loan in
November 1997, the unemployment rate has started to rise sharply, reaching 4.5%
in January 1998, 5.9% in February, 6.5% in March, and 6.7% in April. (See Figure
breakdown by age shows that the 15~24 years age group continues to have a higher
level of unemployment in comparison to any other age group. As of the end of
1997, the unemployment rate among 15~24 years was 7.6% around three times the
overall unemployment rate of 2.6%.
While this rate
steadily decreased from 10.0% in 1985 to 6.1% in 1996, the unemployment rate for
this age group started to rise again in 1997 since firms refrained from hiring
new workers due to the economic downturn. In fact, the unemployment level for
the 15~24 age group is rising even faster, hitting 14.8% in the first quarter of
1998. What is even more worrisome is that the unemployment rate for the 15~19
age group has now reached 19.5%, which means that one out of five of recent
entrants into the labor pool is looking for work.
As of 1997, the
average Korean worker's monthly nominal wage level was 1.463 million won (US$
1,200), 7.0% higher than that of the previous year. Starting in 1987 with the
large-scale labor-management conflicts, wages continued to rise considerably
each year at a high, double-digit rate. Since 1992, however, the increased rate
has slowed down, and in 1997, it dropped sharply back down to single digit
figures. (See Figure 3) This was particularly evident in the manufacturing
sector. The main reasons for the sudden drop in the wage increase rate were the
changing patterns and overall decrease in labor in the wake of the economic
downturn which began in September 1995 combined with the weakening bargaining
power of labor unions.
into account, the increase in real wages in the nonagricultural sectors also
fell considerably to 2.4% in 1997, most notably in the manufacturing sector
where the increase was only 0.7%.
Starting from 1987,
wage differentials by gender, educational level, and the type of occupation were
all showing a shrinking trend, but in 1997 they increased slightly once again.
The wage differential was clearest among the various types of occupation in the
Unit Labor Cost
Unit labor cost to
produce one unit product is useful in measuring a country's international
competitiveness. According to the U.S. Bureau of Labor Statistics, Korea's unit
labor cost on a national currency basis increased by an annual 0.86% between
1990-1996, which is a much more stable increase rate than that which occurred
during the mid-1980s, but still higher than that of Korea's major competitors.
However, if exchange
rates are taken into consideration, the increase rate of Korea's unit labor cost
is lower than those of Japan or Taiwan. In other words, the devaluation of the
Korean won over that period offsets the loss of international competitiveness
due to wage increases.
minimum wage system, a country determines an absolute minimum wage level and
legally binds applicable employers to pay wages at this least level to ensure
that workers at the lowest wage level are not grossly underpaid and are
guaranteed at least a minimum standard of living. Korea enacted and promulgated
its minimum wage law on December 31, 1986, which went into effect on January 1,
The range of those
covered under the minimum wage system has been expanded from all manufacturing
workplaces with 10 or more regular employees in 1988 to include all mining and
construction workplaces with 10 or more regular employees in 1989, and further
to all workplaces with 10 or more regular employees in 1990.
The minimum wage
level is jointly decided upon by labor, businesses, and the government through
the Minimum Wage Council. The applicative minimum wage level from September 1997
to August 1998 is 1,485 won/hour (about US$1.5), which is 6.1% higher than the
Working Hours and Holidays/Vacation
In Korea, the
maximum number of working hours by law is 8 hours per day and 44 hours per week,
which is more than Japan's and the United States' 40 hours and France's 39
hours. The situation is the same in terms of actual working hours; in 1997 the
average work week in the manufacturing sector was 47.8 hours, which is also
longer than Japan's 38.2 hours, the United States' 41.6 hours, and Taiwan's 46.3
A flexible working
hour system is currently being implemented, under which terms employers can more
effectively distribute working hours across a two-week or one-month period. For
the two-week work period, work rules limit an average of 44 working hours per
week or 48 hours for special weeks, while for the one-month period, labor and
management have agreed that working hours are to limited to an average 44 hours
per week, 56 hours for special weeks, and 12 hours for special days.
The average number
of working days per month is 24.2 days, which works out to about 240 days per
year. There are 18 days per year allocated for public holidays and vacation.
There is also at least one day of paid-leave per week, Workers' Day or May Day,
monthly paid leave (one day per month), and annual paid-leave (8 ~ 10 days per
year). Women are allowed menstruation leave (one day per month) and maternity
leave (60 days).
The June 29, 1987
Declaration marked a major turning point in the relationship between management
and labor. Bolstered by the growing democratization movement, union activity
reached a crisis between 1987 and 1989. Not only did confrontations with
management multiply, but unions themselves became more powerful and organized,
while union memberships rose sharply. Whereas management had previously
controlled the agenda before, labor was beginning to turn this imbalance of
power with its newfound strength. Labor-management relations came to be
characterized by confrontations and conflict-and by the 1990s, it became
apparent that Korea would have to find a middle ground, a different paradigm for
resolving labor disputes if the country was going to remain internationally
In 1996, the
Presidential Commission on Industrial Relations Reform was formed under the
direct authority of the President in order to establish such a paradigm. The
committee initiated major reforms in labor legislation. In January 1998, the
Tripartite Commission representing labor, management and the government was
formed. The commission reached an unprecedented social accord in which all three
parties agreed to cooperate in order to overcome the economic difficulties
precipitated by the foreign exchange crisis of 1997. The agreement included
several ground-breaking concessions that promise to change the nature of
management/labor relations in Korea.
Amidst massive labor
disputes and conflicts in 1987, unions gained strength in number and power.
Union membership stood at 1,050,000 as of June 30, 1987; this number rose
sharply to 1,267,000 by the end of that year. Membership continued to increase
for the next two years, peaking at 1,932,000 by the end of 1989. Union rolls
began to drop off in the 1990s, a trend which continues today. At the end of
1996, there were 1,599,000 registered unionists, of which 1,260,000 were men and
339,000 were women.
density rose steadily from 1987, when 13.8% of the work force belonged to a
union, to the end of 1989, when it reached a peak of 18.6%. Thereafter, union
density fell to 12.2% at the end of 1996 (see Table 7).
There are a number
of factors to explain why union membership began to decline in the 1990s. As
Korea's economy shifted away from its labor-intensive industrial base, many
manufacturing jobs-in which unions were heavily represented-were lost. Also,
workers themselves lost interest in the labor movement as their pay and working
conditions continued to improve.
In Korea, there are
labor unions at individual companies, unions for entire industries, and unions
with nationwide representation. Since company-level unions are the most
prevalent type, collective bargaining is mostly held at this level, although
occasionally other unions may join in support.
The only legally
recognized nationwide union is the Federation of Korea Trade Unions (FKTU).
Originally founded in 1946 as the General Council Korean Trade Unions (GCKTU),
the umbrella organization adopted its present name in 1960.
In response to what
was seen as the FKTU's conservatism, the Korean Confederation of Trade Unions (KCTU)
was formed in 1995. Because some of the industry-wide unions affiliated with the
KCTU are considered illegal, the KCTU itself is not officially recognized.
However, the KCTU was represented at the Tripartite Commission, leading to the
possibility that the organization will be legalized in the near future.
revision in March 1997 of labor statutes allowing multiple unions,1)
the number of industry-wide unions and union umbrellas has increased from 26 to
40 as of June 1998.
In Korea, there are
organizations representing the interests of management for most industries.
However, the five most prominent are at the national level: the Federation of
Korean Industries (FKI), the Korean Chamber of Commerce and Industry (KCCI), the
Korea Employers Federation, the Korean Federation of Small Businesses, and the
Korea International Trade Association. Of these, the Korea Employers Federation,
established in 1970, is charged with settling more serious cases of labor
disputes and issues. Its members include major conglomerates and business
organizations. The Korea Employers Federation is also a lobbying group,
representing the interests of business in the shaping of the government's
policies on industrial relations. Towards that end, the federation conducts
various public relations and public awareness activities such as sponsoring
opinion polls on policy recommendations, proposals, petitions and statements for
each type of labor dispute or industrial relations issue.
Strikes and Lockouts
Prior to June 29,
1987, collective bargaining and other joint labor activities were severely
restricted by the government's policy of suppressing mass labor movements.
Throughout the 1960s and 1970s, there had been very few incidences of strikes or
other labor disturbances, despite an increase in the number of wage earners as a
result of rapid economic growth-a fact which indicates that labor activities
were heavily regulated or repressed.
The June 27, 1987
Declaration unleashed a torrent of labor demands and grievances pent up under a
tradition of patriarchal management and restrictive government. In 1987 alone
there were 3,749 incidences of strikes or lockouts, a trend which escalated
rapidly until 1989. The latter half of the 1980s can be seen as a transition
period for industrial relations-from conflict and friction towards balance and
stability in the 1990s, such that after 1995 the number of strikes and
industrial disputes was down to the double digits. A common index to gauge the
extent of industrial disputes is the number of work days lost per 1,000 workers.
This index fell drastically to 33.6 days in 1997.
Reforming Industrial Relations
Korea embarked on a
wholesale reform of its industrial relations policies in 1996 in order to ensure
continued stability, to improve the quality of life for workers, and to enhance
national competitiveness in preparation for globalization and the information
age. As part of that effort, the Commission on Industrial Relations Reform was
established under the direct authority of the President who set the stage for
legal and structural reforms. Phase one of labor reform, concluded in February
1998, was the laying of the groundwork for reform; phase two attempted to reform
the current system, and phase three signals the opening of a new chapter in
A significant step
towards reform was the enactment of a bill to revise labor-related legislation
in December 1996. However, the bill was revised in March 1997 in the face of
fierce opposition from labor. Under the new labor laws, statutes concerning
labor unions and the mediation of labor disputes were combined into a single
statute, while the title of a law concerning consultations between labor and
management was changed to Act Concerning the Promotion of Worker Participation
and Cooperation. By allowing multiple unions in the collective bargaining
process, the reforms were intended to establish the principle of autonomous
bargaining-that is, arbitration between labor and management, without government
intervention-and to eliminate irrational policies and practices. At the same
time, unnecessary regulations were relaxed or lifted to encourage greater
flexibility in the labor market. As noted, laws regarding discussions between
labor and management were revised to allow workers greater participation and to
promote cooperation, while other statutes were enacted to strengthen the
independence, fairness and professionalism of the Labor Committee.
Social Accord Negotiated by the Tripartite Commission
Commission was inaugurated on January 15, 1998, with representatives from labor,
management, the government and each of the political parties. Its aim was to
come up with ways to revise labor legislation that could be agreed upon by all
parties involved. The objective was to find a way to share the pain of
overcoming the economic crisis occasioned by the foreign currency shortfall of
late 1997 as evenly and fairly as possible. The Commission produced a joint
declaration to overcome the economic crisis and make a new start in February
1998. The declaration was followed by a 10-point social accord to implement its
objectives. A brief outline of that accord is provided below.
Commission agreed to legalize layoffs, as well as to introduce a system to
dispatch workers as needed in order to promote more flexibility in the labor
market. Second, it gave teachers and public servants the right to form unions;
it extended the mandatory prior notification period before the unilateral
termination of collective agreements; and it recognized the right of unemployed
workers to maintain memberships in unions above the company level, and to
further strengthen workers' rights. Third, the Commission strengthened the
social safety net by establishing a fund for employment security and its
unemployment policy, by unifying the medical insurance system and expanding
coverage, and by improving the national pension plan and other public funds.
Fourth, the Commission agreed to accelerate corporate restructuring and to
enhance transparency in business transactions, by calling on corporations to
improve their financial structure and to establish more accountable management.
Furthermore, the Commission also agreed on reforms within the bureaucracy and
the political parties, as well as reforms in other sectors.
revised the Basic Workers Act and enacted the Act on Dispatched Workers
Protection and other bills after announcing the social accord. A second
commission was formed in June 1998 to evaluate the progress of reforms adopted
Employment Insurance System
New Concept and Structure of Employment Insurance System
insurance system has three components: employment stabilization schemes, job
ability development schemes, and unemployment insurance schemes. In turn, the
unemployment insurance schemes can be divided into two different types of
subsidies for the unemployed: vocational training allowances, which provide
subsistence to the unemployed, and employment promotion benefits, which are
intended to help unemployed workers find a new job as quickly as possible.
Management of Employment Insurance System
insurance system, implemented from July 1, 1995, together with the workers'
accident compensation insurance, medical insurance and national pension
programs, comprise the nation's social security system. However, until June 30,
1996, the employment insurance system only included employment stabilization
schemes and job ability development schemes. It was not until July 1, 1996, when
the unemployment insurance scheme was also adopted, that the employment
insurance system became fully in place.
Due to a lack of
awareness about the system among workers as well as other special circumstances,
the employment insurance system produced somewhat less than expected results in
its early stages. To address these problems, the government revised regulations
regarding the administration of the system in March 1996 and continued its
efforts to strengthen employment stabilization and job ability development
insurance system and related ordinances were revised again on March 1, 1998, to
combat fears of rising unemployment as a result of comprehensive restructuring
efforts mandated by the International Monetary Fund in exchange for its
Revisions to Employment Insurance System
workplaces with more than 10 employees were eligible for unemployment insurance,
while workplaces with more than 50 employees were eligible for employment
stabilization schemes and job training programs. Revisions to the system
extended eligibility for these programs to workplaces with as few as six
employees, thereby substantially expanding the system and providing subsistence
to workers at small businesses who lose their jobs, as a means of stabilizing
These revisions were
passed on February 12, 1998, and went into effect on July 1. However, another
bill was passed on February 24 to implement the revisions four months earlier,
from March 1, to meet rising demand.
Qualifications for Unemployment Insurance Eased
As the present
economic crisis continues to takes its toll, the number of unemployed workers
continues to climb to record levels. In order to enable more workers to receive
unemployment insurance benefits, regulations regarding eligibility for
vocational training allowances have been temporarily relaxed (until June 30,
1999). Under the new measures, unemployed workers who apply for unemployment
insurance from March 1, 1998, to June 30, 1999, must have been out of work for
at least 12 months to be eligible. Previously, they had to have been unemployed
for 18 months, a difference of six months. However, those who have been out of
work for less than 12 months are limited to a fixed allowance for 60 days.
Minimum Job Training Allowance Raised
Previously, if the
vocational training allowance was lower than the minimum wage, eligible
applicants received 50% of the minimum wage. However, under the revised law, if
the vocational training allowance is lower than 70% of the minimum wage, then
the applicant is entitled to a higher allowance.
Unemployment Insurance Extended in Special Circumstances
who are unable to find a new job can apply to have their vocational job training
allowance extended beyond the 60-day limit if their cases are approved by the
Employment Policy Committee within the first 60 days. However, in order to
encourage workers to find a new job as soon as possible, the revised law
stipulates that workers receive just 70% of the allowance after the first 60
In addition, if the
vocational training allowance is lower than the minimum allowance, workers who
are granted an extension can receive the minimum allowance (70% of the minimum
Early Re-employment Bonus Raised
unemployed worker who found a job before half of his or her vocational training
allowance was paid out, was entitled to one-third of the remaining amount.
However, the law was revised to encourage workers to return to the work force as
early as possible, such that the worker is now entitled to only half of the
Strengthening Employment Stabilization Schemes
Many jobs are likely
to be lost as production levels drop due to economic contraction. In order to
save as many jobs as possible and to encourage other approaches such as reducing
the number of work hours, the government has established a new fund to help
supplement worker incomes reduced as a result of shorter hours. When a company
lays off workers in the course of restructuring it may save money in the short
term, but should the company need to expand its work force to previous levels,
the costs of training the new hires can be significant.
Revisions to the
law now provide for an employment maintenance training fund, which is paid to
employers and avoids laying off workers in favor of training them for a
certain period. Another fund has been planned to support employers which seek
to retain its work force through other means, such as by transferring them to
subsidiaries or affiliates.
Expanding Eligibility for the Hiring Incentive Fund
hiring incentive fund was limited to employers which hired workers laid off by
firms designated as depressed or ailing. The scope of the fund has been expanded
to include employers which hire workers who have lost their jobs due to the
closure or bankruptcy of their companies in the course of restructuring.
provided by the Korean Embassy