Project title
IFS
Topic
Labor market reform tasks for restoring the dynamism of the Korean economy
Research contents
Ⅰ. Declining economic dynamism and changing labor market
□ The economy is always changing, and creative destruction is the key to sustainable economic growth.
ㅇ An economy that continues to innovate changes dynamically as old products disappear and new products and services are continuously introduced to replace them.
ㅇIn recent years, the economic environment has been changing rapidly in various aspects such as demographics and technology, and the dynamism of the economy is even more important for sustainable growth.
□ However, in recent years, our economy has been experiencing a continuous decline in dynamism and is facing various challenges that may negatively affect its future dynamism.
ㅇ Our economy is experiencing a decline in entrepreneurial entry and a slowdown in the productivity of young businesses (Lee, Yoon-Soo, Kim, Won-Hyuk, and Jeong, Ji-Gu, 2019).
- Unlike many major economies such as the U.S., where the gross entry rate has declined, but the net entry rate at the business level has not declined, the net entry rate has also declined in Korea, making the negative impact of slowing dynamism on productivity greater (Aum, 2024)
ㅇ Continued low birthrate due to a steep decline in the fertility rate is rapidly accelerating the aging of the population, which is expected to lead to a decline in the working-age population in the future.
- In particular, as the age structure of employed people differs by industry, the aging process is likely to lead to a widening of labor supply and demand imbalances by sector (Lee, Chul-hee, Eom, Sang-min, Jong-kwan, 2023)
ㅇ The development of digital technologies is likely to shift the direction of technological development and change the production environment.
- In particular, digital technologies such as AI are likely to have a different impact from technological changes in the past decades in terms of their impact on the labor market (Felten et al., 2018).
ㅇ External uncertainties such as increased protectionism and high global inflation, including shrinking global value chains, are also expanding.
□ Declining dynamism reduces creative destruction, making adaptation to change difficult and undermining long-term growth drivers
ㅇ It will be necessary to diagnose the causes of weakening dynamism and propose solutions to them.
Ⅱ. Labor Market Reform Tasks
1. Flexible working hours reflecting diversification of working styles
□ Korea is known as a country with long working hours, and the government has been promoting policies to regulate working hours above a certain level by law.
ㅇ The Labor Standards Act limits the five-day workweek, 52-hour workweek, breaks, and overtime pay.
□ However, the way of working is very heterogeneous depending on the industry, occupation, etc. and therefore it is impossible to regulate with a uniform law and system.
ㅇ Regulations that ignore the way individual companies operate, their circumstances, and the choices of individual workers, such as the 52-hour workweek, can undermine not only the productivity of individual companies but also the efficiency of the economy as a whole.
ㅇ In addition, productivity deterioration due to regulations on working hours may actually encourage long working hours, limiting the trend decline in working hours.
□ Especially in recent years, changes in technology have rapidly transformed the way we work, potentially rendering current working hours regulations invalid.
ㅇ New forms of work, such as platform labor and remote and telecommuting, are on the rise.
ㅇ Various types of labor supply are emerging that deviate from the traditional employment form of one-person-one-job.
□ Policy proposals based on empirical evidence rather than ideological approaches, and bold reforms rather than eclectic proposals inhibited by labor-management confrontation are needed.
ㅇ Korea's social conflict index ranks 3rd among OECD countries
ㅇ Empirically examine how heterogeneous working hours are by industry, occupation, etc. and how they fluctuate with economic fluctuations using data.
ㅇ Identify the need and feasibility of exempting R&D and white-collar workers from the working hours system
2. Remodeling employment protection to overcome the polarization between regular and irregular workers
□ The level of employment protection in Korea is polarized between regular and irregular employees.
ㅇ Regular employees are protected from general dismissal and unfavorable changes to employment rules.
ㅇ Non-regular employees are prohibited from being used for permanent work (work lasting more than two years) and are less likely to be converted to regular employees in large companies and the public sector.
- Workplaces where it is difficult to change employment rules for regular employees are less likely to convert non-regular employees to regular employees.
□ The free movement of labor is an important condition for economic growth, as economies grow through the movement or relocation of labor and capital from low-productivity sectors to high-productivity sectors.
ㅇ The workforce is polarized, with 60% of wage earners in the formal sector and 40% in the informal sector, with limited mobility between the two.
□ The economy is always changing, and creative destruction is the key to sustainable economic growth.
ㅇ An economy that continues to innovate changes dynamically as old products disappear and new products and services are continuously introduced to replace them.
ㅇIn recent years, the economic environment has been changing rapidly in various aspects such as demographics and technology, and the dynamism of the economy is even more important for sustainable growth.
□ However, in recent years, our economy has been experiencing a continuous decline in dynamism and is facing various challenges that may negatively affect its future dynamism.
ㅇ Our economy is experiencing a decline in entrepreneurial entry and a slowdown in the productivity of young businesses (Lee, Yoon-Soo, Kim, Won-Hyuk, and Jeong, Ji-Gu, 2019).
- Unlike many major economies such as the U.S., where the gross entry rate has declined, but the net entry rate at the business level has not declined, the net entry rate has also declined in Korea, making the negative impact of slowing dynamism on productivity greater (Aum, 2024)
ㅇ Continued low birthrate due to a steep decline in the fertility rate is rapidly accelerating the aging of the population, which is expected to lead to a decline in the working-age population in the future.
- In particular, as the age structure of employed people differs by industry, the aging process is likely to lead to a widening of labor supply and demand imbalances by sector (Lee, Chul-hee, Eom, Sang-min, Jong-kwan, 2023)
ㅇ The development of digital technologies is likely to shift the direction of technological development and change the production environment.
- In particular, digital technologies such as AI are likely to have a different impact from technological changes in the past decades in terms of their impact on the labor market (Felten et al., 2018).
ㅇ External uncertainties such as increased protectionism and high global inflation, including shrinking global value chains, are also expanding.
□ Declining dynamism reduces creative destruction, making adaptation to change difficult and undermining long-term growth drivers
ㅇ It will be necessary to diagnose the causes of weakening dynamism and propose solutions to them.
Ⅱ. Labor Market Reform Tasks
1. Flexible working hours reflecting diversification of working styles
□ Korea is known as a country with long working hours, and the government has been promoting policies to regulate working hours above a certain level by law.
ㅇ The Labor Standards Act limits the five-day workweek, 52-hour workweek, breaks, and overtime pay.
□ However, the way of working is very heterogeneous depending on the industry, occupation, etc. and therefore it is impossible to regulate with a uniform law and system.
ㅇ Regulations that ignore the way individual companies operate, their circumstances, and the choices of individual workers, such as the 52-hour workweek, can undermine not only the productivity of individual companies but also the efficiency of the economy as a whole.
ㅇ In addition, productivity deterioration due to regulations on working hours may actually encourage long working hours, limiting the trend decline in working hours.
□ Especially in recent years, changes in technology have rapidly transformed the way we work, potentially rendering current working hours regulations invalid.
ㅇ New forms of work, such as platform labor and remote and telecommuting, are on the rise.
ㅇ Various types of labor supply are emerging that deviate from the traditional employment form of one-person-one-job.
□ Policy proposals based on empirical evidence rather than ideological approaches, and bold reforms rather than eclectic proposals inhibited by labor-management confrontation are needed.
ㅇ Korea's social conflict index ranks 3rd among OECD countries
ㅇ Empirically examine how heterogeneous working hours are by industry, occupation, etc. and how they fluctuate with economic fluctuations using data.
ㅇ Identify the need and feasibility of exempting R&D and white-collar workers from the working hours system
2. Remodeling employment protection to overcome the polarization between regular and irregular workers
□ The level of employment protection in Korea is polarized between regular and irregular employees.
ㅇ Regular employees are protected from general dismissal and unfavorable changes to employment rules.
ㅇ Non-regular employees are prohibited from being used for permanent work (work lasting more than two years) and are less likely to be converted to regular employees in large companies and the public sector.
- Workplaces where it is difficult to change employment rules for regular employees are less likely to convert non-regular employees to regular employees.
□ The free movement of labor is an important condition for economic growth, as economies grow through the movement or relocation of labor and capital from low-productivity sectors to high-productivity sectors.
ㅇ The workforce is polarized, with 60% of wage earners in the formal sector and 40% in the informal sector, with limited mobility between the two.
Director
Jungmin Lee Professor (Seoul National University, School of Economics, College of Social Sciences)
- -
Researcher
No researcher found.