Saturday, April 11, 2015

Labor reforms face hurdles in Korea

First published in The Korea Herald.

The presidential office last week urged representatives of labor, management and the government to compromise on contentious reform measures aimed at providing greater flexibility in the labor market, a day after they failed to narrow their differences within the deadline.

The Economic and Social Development Commission ― a consultative body comprising representatives of labor, management and the government ― had set March 31 as the deadline for concluding months of talks on overhauling Korea’s labor market.

The discussions focused on the issue of the labor market’s dual structure ― the huge gap between full-time regular employees and nonregular workers ― pending topics like wages, working hours and retirement, the issue of partnership among tripartite partners, and other policy and institutional improvements.

In particular, in light of the importance and urgency of the pending issues such as the reduction of working hours and ordinary wages ― whether to include regularly-paid bonuses in ordinary wage calculations ― they agreed to come up with “principles and direction for a solution of the pending issues and labor market structure improvement.” Details are expected to be arranged in the first half of the year.

The trilateral meetings reportedly reached some agreement, especially on ordinary wages, plans to reduce working hours and an extension of the retirement age. However, labor unions strongly resisted a government proposal to grant employers more discretion in firing underperforming regular workers. News reports also suggested that management opposed the labor groups’ suggestion to force them to give nonregular workers regular status if their work is similar to that of regular workers.

The presidential office took the unusual step of reminding the panel to find common ground, stressing “it is necessary for the nation’s economic growth and future generations.”

The overhaul of the labor market is one of the reform measures President Park Gyeun-hye is pushing as part of her three-year economic revitalization plan. She has argued that labor reform is key to job creation.

To increase labor market flexibility, the government and management have urged labor groups to accept the idea of lifting some labor regulations for employers so they can replace underperforming workers. But labor groups oppose the idea, saying it would eventually allow businesses to seek massive lay-offs and pressure poorly performing workers to accept salary reductions.

The idea is intended to force regular workers out and replace them with nonregular workers, which would lower the overall quality of jobs, they claim.

Given the continued mistrust between the concerned parties, it is unlikely that they will reach an agreement anytime soon. Unions have even threatened a general strike if the government and management push for reforms without consent from workers.

Therefore it may be prudent to take a look at Korea’s labor market from a historical perspective, before we analyze what, exactly, are some of the current problems.

Seeing eye-to-eye

Since the 1960s, Korea has achieved remarkable economic growth, mainly due to cheap labor and diligent and skilled workers. Labor policies during this period were intended to guarantee the basic livelihood of workers and provide sufficient workers for industrial development. But it was not until the mid-1970s that the government recognized the importance of labor issues.

Until then, industrial relations were not viewed as a major social and economic issue, but in the following years, when the country’s labor market saturated, the problem of working conditions replaced that of job creation as the central social and economic focus. Many fierce labor disputes erupted, which resulted in severe government crackdowns.

In the early 1980s, workers’ awareness of their rights became widespread, especially with regard to claiming their fair share of the fruits of the economic growth achieved in the past two decades. However, the government cracked down on the labor movement. As a result, in spite of the marked increase in the number of workers from 1980 to 1987 and the growing awareness of their rights, the number of unionized workers remained at around 1 million.

With rapid democratization in 1987, Korea underwent significant changes in its labor movement. A number of new labor unions were formed, and many businesses saw a dramatic increase in disputes.

The shortage of manual workers in the construction and manufacturing sectors became acute as workers became less willing to take on difficult, dirty and dangerous jobs.

Labor was no longer cheap, as wages rapidly increased. These changes forced the nation to transform from a labor-intensive economy a more technology-based one.

The labor policy underwent dramatic changes through the reduction of government intervention based on the principle of labor-management autonomy and the revision of labor-related laws to meet international standards.

The government also made efforts to actively promote the interests of workers with the institutionalization of the minimum wage system, the reduction of working hours and the abolition of legal restrictions on strikes.

Trade unions called for the introduction of new labor laws in the early 1990s to ensure that job seekers received appropriate vocational training to meet the demand for new skills generated by structural changes in companies. When the nation was hit by the 1997 Asian financial crisis, the urgent need to reform both the social and economic sectors was recognized.

While making continuous efforts to reach a consensus on major labor issues, the government revised labor laws to meet international standards in 1997 with the founding of the Labor-Management Relations Reform Committee, thereby achieving remarkable improvements in the area of basic labor rights. However, it had its own side effects.

The Tripartite Commission was formed as the need to draw a national consensus for the sake of overcoming the economic crisis became clear after Korea had to introduce reforms after being bailed out by the International Monetary Fund. A historic consensus was reached among labor, management and the government over structural reforms and burden-sharing in February 1998. On the basis of this consensus, many businesses could implement corporate restructuring measures, including employment adjustments and pay freezes.

Since 2000, there have been both legislative reforms such as shortening working hours, enacting the Law on Nonregular Works, and structural reforms such as the spread of industry-level unions and the expansion of labor’s political activities.

Thanks to such efforts, the economy rebounded quickly. Industrial relations, however, worsened as expectations ran high and more structural reforms got underway. The number of factors that contributed to labor-management conflicts, such as lay-offs, a decrease in new hiring, a larger number of nonregular workers, a widening gap between labor and management positions on wage hikes, compensation and provisional seizure claims against strikers etc., has been on the rise, in line with worsening economic conditions.

Experts have pointed out that despite this, when comparing Korea’s labor standards and regulations to those of advanced economies, it is important to keep in mind that the core labor standards have developed through an evolutionary process over more than a century, and it has been less than 30 years since the democratic movement in 1987 began to free Korea from its long past of oppression and autocratic control. It can be safely said that Korea’s labor movement is still in a transitional period, in which the labor structure is slowly converging with global labor culture and practices.

Trade unions

Trade unions in Korea are broadly divided into three organizational types: enterprise-level trade unions, federations of trade unions and nationwide federations of trade unions. There are 42 federations of enterprise-level unions and two nationwide federations.

The Federation of Korean Trade Unions was formed in 1961 after a military coup, and the dissolution of the General Federation of Korean Trade Unions and its affiliates. It was placed under the guidance of the military authorities and was the sole legal trade union center in Korea until the Korean Confederation of Trade Unions was recognized in November 1999. Of the two, the KCTU is generally considered to be more militant.

As of the end of 2013 ― the latest available government estimates ― the number of unionized workers in Korea was 1.848 million, up 66,000 from the previous year. The unionization rate was 10.3 percent, meaning that 1 in 10 Korean workers is a member of a trade union.

According to a report on trade unions published by the Ministry of Employment and Labor, Korea’s unionization rate fell from 19.8 percent in 1989, and declined to single digits (9.8 percent) for the first time in 2010. In 2011, the figure bounced back to 10.1 percent, due to the law allowing multiple unions to operate within one company, and has stayed around 10.3 percent for the past few years.

Segmenting the number of unionized workers by umbrella organizations shows that the FKTU had the largest membership of 819,755 members (44.4 percent); the KCTU had 626,035 members (20.7 percent); the Korean Labor Unions Confederation had 22,221 members (1.1 percent); and the remaining 381,575 workers (20.7 percent) belonged to independent trade unions.

The number of members climbed by 11,000 (1.4 percent) for the FKTU; by 21,000 (3.5 percent) for the KCTU; by 2,000 (12.9 percent) for the KLUC; and by 32,000 (9 percent) for independent unions.

At end-December 2014, it was announced that the FKTU and the KLUC would merge. They claimed that the decision to reconstitute as a single organization was “to eliminate unnecessary conflict between labor organizations, make themselves more reliable for the public, and play a bigger role in social issues based on a higher unionization rate.”

As a result of the merger, the FKTU will take on 15,000 government workers belonging to the KLUC to reach 960,000 members.

The number of independent unions, meanwhile, went up eightfold, compared with 2003, perhaps due to a new tendency emerging among workers to pursue practical interests, instead of politically-charged labor movements, the report noted.

According to sectorial classification, private sector labor unionization is 9.1 percent, the government employee unionization rate is 63.5 percent, and the educational worker unionization rate is 16.8 percent.

It is important to mention that the ESDC has been seriously disrupted by the KCTU’s struggles against the government and the withdrawal of the FKTU. However, in mid-August 2014, the FKTU returned to the ESDC and the urgent labor issues of ordinary wages, working hour reductions and the retirement age are currently under discussion.

Labor relations

As per the latest available figures, in 2014 there were over 100 labor disputes and 551,305 lost working days. Given the stalemate in the ESDC talks, one can only expect the conflict between labor and management to degenerate this year.

For that matter, according to a recent survey of 306 companies by the Korea Employer’s Federation, 63.1 percent of respondents said “industrial relations will worsen in 2015 than last year.” Being more specific, 11.4 percent of companies responded that “industrial relations will worsen much,” “industrial relations will worsen a little” (51.7 percent), “similar to last year” (33.5 percent), and “more stable” (3.4 percent).

The most common answer from companies was “industrial relations will worsen” due to conflicts surrounding industrial relations regarding ordinary wages, the reduction of working hours, and in-house subcontracts and partner firms (outsourcing).

The major risk factor in industrial relations in 2015 are legal conflicts surrounding pending industrial relations issues, conflicts over the improvement of the wage system, and the improvement of labor related law and systems.

The companies which projected unstable industrial relations in 2015 pointed out legal conflicts surrounding pending industrial relations issues, conflicts over the improvement of the wage system, and the improvement of labor-related law, and systems. In particular, companies viewed the expansion of legal conflicts surrounding pending industrial relations issues as the biggest risk factor since the burden on companies increased due to lawsuits regarding ordinary wages on industrial sites, ruling on additional payments for holiday work, and ruling on the violation of illegal dispatches.

Companies projected that the major issues in the 2015 wage negotiation and collective bargaining would be wage increases, extended scope of ordinary wages, welfare expansion and employment security like prohibiting reconstruction. In particular, it is presumed that many companies would carry out only wage negotiations and trade unions would focus on demanding wage hikes and welfare expansion that are the major interests of union members.

Moreover, the government announced its Comprehensive Measures for Nonregular Workers in 2014, stating its intention to work on structural reform of the labor market ― enhancing flexibility within the labor market and reforming wage systems.

Furthermore, discussions on changes to labor law and regulations will not be easy since labor is strongly opposed to the government’s policies in this area. Conflict between the government and labor may well intensify as the government plans structural adjustments to public institutions and public pensions. Under these circumstances, collective bargaining this year is likely to be difficult.

Issues on hand

On Dec. 29, the government submitted comprehensive plans for nonregular workers to the ESDC aimed at eliminating the abuse of and discrimination against nonregular workers, and narrowing the gap in terms of working conditions between regular and nonregular workers.

To achieve these goals, the plans focus on reducing the differences between workers of different status, enhancing job security, and improving regulations for the labor market.

As of end-2014, the number of nonregular workers was about 32.4 percent of the total paid workforce, a 53.5 percent of female workers. The percentage of nonregular workers among workers aged 60 or older was 68.7 percent.

The government has proposed a measure to amend the fixed-term work act and the temporary agency work act so that employees of either status aged 35 years or older can, if they want, work for the same company for up to four years, as opposed to the current two. Also, it would become much easier for workers to be eligible for severance pay. It wants to make employees eligible to receive severance pay if they work for a company for three months or longer, as opposed to the current one year or longer, so 1.95 million workers are expected to benefit from this relaxation in requirements.

In addition, the government recommended that employees should be able to receive a transition benefit worth 10 percent of their wage for the two-year period of extended service, along with severance pay if they fail to become regular workers after the extension.

So far, temporary agency work has been permitted in 32 business categories, and such work is now allowed for those aged 55 years or older, and for highly paid professionals as well.

The Labor Ministry said it would take measures to rationalize the regulations on temporary agency work following discussions with the ESDC. The ministry will also allow six special types of worker to be covered by work injury and employment insurance.

The requirements for layoffs will become more specific, making it easier for businesses to dismiss underperforming regular workers, and the layoff process will become more demanding, requiring companies to hire people for positions that were lost due to financial difficulties.

The government will formulate “Layoff Guidelines,” which will specify what efforts companies should make before dismissing underperformers, such as assigning them to different positions.

Currently, nonregular workers have to appeal to the Labor Relations Commission as individuals if they believe they have been discriminated against in terms of wages or welfare benefits, but they will be able to use a trade union to appeal on their behalf. Businesses will be prohibited from the practice of paying only 90 percent of the full salary for menial workers, such as convenience store clerks or gas station workers, for a training period, which is usually three months.

Also, for those whose performance is closely linked to human safety, such as captains or chief engineers on cruisers, train engineers, airport controllers and airplane pilots, nonregular work will not be allowed as a matter of principle.

However, both business and labor communities have expressed their concerns about the “side effects” of the government plans.

The corporate sector has argued that “The government plans will expand the scope of nonregular workers too much, and have focused on strengthening regulations relating to the use of nonregular workers, ignoring the real situations of employers and of the labor market. The plans will put significant burdens on business operations.”

In an official statement, the KEF noted that the reforms “disregarded the circumstances of corporates that are the main agents for job creation and the reality of the labor market. It is deeply concerning that these opinions are written in a way that it mainly represents the labor stance on important issues that possibly influence decisions on directions for the Korean labor market.”

The barriers to labor market entry should be lowered in order to create jobs and improve the dual structure of the labor market, it said. However, the current policy will “strengthen the vested rights of workers who are already in the labor market.”

Major causes for polarization of the labor market are the overprotection of regular employment and the excessive hike of wages based on a seniority-based wage system. Therefore, it is almost impossible to expect an improvement of vulnerable workers’ labor conditions unless these issues are solved in the first place.

However, these new regulations may shift the burden to companies by disregarding the improvement of reasonable human resource management such as resolving the current overprotection of regular employment and alleviating requirements for changing working conditions.

Also, it is not appropriate to intensify the burden through introducing such systems as living wages and market wage prices at a time when minimum wage stability is urgent, since minimum wages surged rapidly after 2000.

Trade unions point out that “The government is seeking to massively increase the number of nonregular workers by extending how long companies can hire a nonregular worker for a position, by introducing a new status of ‘semiregular worker,’ which falls between regular and nonregular workers, and by allowing temporary agency workers aged 55 years or older in more business categories.”

Kim Dong-man, president of the FKTU, which is negotiating in the trilateral commission, stressed, “The government is pushing ahead with full-scale strategies for labor flexibility without making an effort to reach an agreement among social partners. We have no option but to stop social dialogue if the government continues to do so. The unilateral plan will be faced with strong protest by the FKTU and we are ready to stage a general strike.”

He went on to say, “We are demanding the government drastically change the economic structure and policy directions for the achievement of income-led growth. To this end, we will step up our efforts for the alleviation of discrimination against precarious workers, the eradication of unfair subcontracting practices and the achievement of fair taxation.”

It now remains to be seen whether the government can get labor groups and management on the same page in the near future, so the Park administration can focus on economic revitalization. The next few weeks are surely going to be very dramatic.