Table Of Content«
EMPLOYMENT
Pushing Ahead with Reform in Korea Pushing Ahead
LABOUR MARKET AND SOCIAL SAFETY-NET POLICIES with Reform
in Korea
At the end of 1997, Korea was hit by a major financial and economic crisis, which
resulted, among other things, in a huge rise in unemployment. The event caught
the country’s labour and social institutions unprepared, so that many workers and
their families were hit hard. LABOUR MARKET
AND SOCIAL SAFETY-NET
The economy has now turned the corner. This book shows that government
labour and social policies, together with improved basic workers’ rights, have POLICIES
helped minimise the costs of the crisis while also contributing to overcome it.
However, this book also highlights the need for further actions in these areas in
order to pave the way for a healthy, socially-sustainable economic performance EMPLOYMENT
and argues the case that the momentum of reform should not be slowed.
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ISBN 92-64-17685-3
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Pushing Ahead
with Reform in Korea
LABOUR MARKET AND SOCIAL
SAFETY-NET POLICIES
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
3
Foreword
This report examines labour market and social safety-net programmes, as
well as issues of industrial relations and labour law reform in Korea. It has been
prepared within the OECD Secretariat by Willem Adema, Elena Stancanelli, Peter
Tergeist and Raymond Torres (team leader), with the assistance of Jaehung Lee and
Sylvie Jeannot. The analysis is based on information collected by the Secretariat
team during a visit to Korea in October 1999 and on subsequent data submissions
by the Korean government.
The report was discussed by the Employment, Labour and Social Affairs
Committee in April 2000 and is published on the responsibility of the Secretary-
General of the OECD.
© OECD 2000
5
Table of Contents
Introduction.............................................................................................................. 7
Summary and Policy Conclusions.......................................................................... 9
CHAPTER 1. THE LABOUR MARKET...................................................................... 23
A. Introduction..................................................................................................... 23
B. Economic development, the financial crisis and the labour market ....... 23
C. Current labour market challenges................................................................. 31
CHAPTER 2. INDUSTRIAL RELATIONS AND LABOUR LAW REFORM............... 43
A. Introduction..................................................................................................... 43
B. The actors in industrial relations.................................................................. 43
C. Characteristics and outcomes of collective bargaining.............................. 50
D. Recent labour law reforms............................................................................. 61
CHAPTER 3. LABOUR MARKET PROGRAMMES
AND THE PUBLIC EMPLOYMENT SERVICE................................................ 75
A. Introduction..................................................................................................... 75
B. The Employment Insurance System and unemployment benefits.......... 78
C. Active labour market policies........................................................................ 87
D. Public and private employment services.................................................... 103
E. Assessment...................................................................................................... 118
CHAPTER 4. SOCIAL SAFETY-NET POLICIES....................................................... 121
A. Introduction..................................................................................................... 121
B. The changing social policy context............................................................... 122
C. The present social assistance system.......................................................... 127
D. Introducing the concept of “productive welfare” into social
assistance programmes.................................................................................. 135
Annex A – Key Players in the Korean Labour Market ......................................... 145
Annex B – Selected Features of Social Policies................................................... 155
Notes......................................................................................................................... 159
Bibliography............................................................................................................. 171
Glossary .................................................................................................................... 177
© OECD 2000
7
Introduction
Until the 1997 financial crisis, Korea exhibited one of the most impressive
economic records of modern capitalism. In 1953, the country emerged from the
ashes of the Korean War as one of the poorest in the world. Several decades of
rapid economic development followed, as amply documented in many studies,
and, in 1996, Korea became member of the OECD.
With the advent of the financial crisis, the impressive economic develop-
ment process came to a sudden halt. The crisis hit many workers and their families
hard, in a country where the social safety-net was not as firmly established as in
other OECD countries.
However, the economy has now turned the corner. GDP has grown vigor-
ously over the past few quarters and the prospects are for a continuation of the solid
recovery underway. The recovery owes much to supportive macroeconomic poli-
cies, including the substantial devaluation of the Won that occurred at the begin-
ning of the crisis. However, the implementation of structural reforms, including in
the area of labour and social policies, has also played an essential part in the
recovery.
The fact that a solid recovery is now underway should not lead to any let-
up in the reform process, and the purpose of this Review is to identify those areas
where labour market and social safety-net policies could be further strengthened.
The Review begins with a summary of the main findings and policy conclusions. It
then provides an overview of the Korean labour market and an analysis of the main
employment and social challenges that lie ahead (Chapter 1). The extent to which
different policies can address these challenges is then reviewed in the following
chapters, namely the complex issue of labour law and industrial relations reforms
(Chapter 2), labour market programmes and the public employment service
(Chapter 3), and social assistance policies (Chapter 4).
© OECD 2000
8 Studies of Korea
© OECD 2000
9
Summary and Policy Conclusions
Korea was a star Korea has experienced one of the most impressive eco-
economic nomic records of modern capitalism. Following the Korean
performer before War, from which the country emerged as one of the poorest
the 1997 crisis. in the world, the economy registered four decades of almost
uninterrupted rapid growth. Today, per capita income has
reached about 65 per cent of the OECD average (close to the
levels in Greece and Portugal), while Korea has earned an
international reputation as a successful exporter of techno-
logically-advanced goods, such as micro-chips and
electronic equipment.
The economy has The financial crisis which started at the end of 1997 brought
recovered from the the growth process to a sudden, unexpected halt. The crisis
crisis quickly, … forced the government to agree to a rescue package with the
IMF. Unemployment rocketed from 21/ per cent to a peak of
2
81/ per cent in early 1999, and more than one million
2
Koreans were thrown into poverty. The difficult economic
and social situation forced the authorities to implement
quickly a wide range of macroeconomic and structural
reforms, including in the areas of labour market policies and
social safety-nets. In response to these reforms, the
economy has now turned the corner, permitting the unem-
ployment rate to fall rapidly to about 5 per cent, and short-
term prospects point to a continuation of the solid recovery.
… but the Review In this context, it may be tempting to assume that the crisis
argues that much was just a blip in an otherwise high-growth path and that, as
remains to be done. a consequence, a pause in the reform agenda might be
called for. On the contrary, while it pays due tribute to what
the Korean authorities have achieved in a very short period
of time, this Review argues that much remains to be done to
strengthen the social sustainability of the development
process. It calls for further action to consolidate the indus-
trial relations system, reform labour law, and to improve the
© OECD 2000
10 Pushing Ahead with Reform in Korea
coverage and effectiveness of labour market and social
safety-net policies. The recovery should not lead to any let-
up in these policy reforms.
The role of labour and social policy in the recovery
Recovery from the The Tripartite Commission has been instrumental in
crisis has been achieving agreement between the social partners and the
facilitated by government on the response to the crisis. Thus, the
agreements Tripartite Agreement of February 1998 urged the major
between the social industrial conglomerates (chaebols) to improve the effective-
partners, … ness and accountability of corporate governance and intro-
duce greater transparency of their management and
accounts. In addition, the agreement recommended a sub-
stantial reduction in the indebtedness of the chaebols. In
order to facilitate enterprise restructuring, it was also
decided to make it legally possible for firms to dismiss
workers for “urgent managerial reasons”, and greater
flexibility was introduced in the area of temporary work
through the legalisation of agencies for so-called
“dispatched workers”.
… substantial wage In addition, wage moderation has been substantial. In 1998,
moderation, … average nominal wages per employee fell by 21/2 per cent,
equivalent to a cut by almost 10 per cent in real terms (which
is unusually large by OECD standards), cushioning the
effects of the crisis on unemployment. Such wage moder-
ation was mainly attributable to the dramatic cut in bonuses
and overtime payments, which account for a significant
portion of Korean wages and are mainly determined by
firms’ economic performance. In 1999, as a result of
increased overtime and bonus payments, real wages rose
robustly (by over 10 per cent), so recuperating their pre-
crisis level. However, since in the meantime labour produc-
tivity has increased (by about 6 per cent, cumulatively, in
1998-99), real unit labour costs have been reduced, thereby
improving business profitability and providing room for
reducing corporate indebtedness. Together with the
depreciation of the Won in 1998, these wage and
productivity trends have enhanced the cost-competitive-
ness of the Korean economy, contributing to an export-led
recovery.
© OECD 2000
