Jobless might number 1 million soon

It is anticipated that the number of jobless people will hit 1 million by the end of this year in line with the second round of corporate liquidation.

Dongwon Economic Research Institute reported that corporate liquidation hit many large construction companies that employ many workers, noting that the unemployment rate would rise by 1 percentage point at the year¡¯s end from the current 3.6-3.7% level.

The institute estimated that about 28,000 workers might lose their jobs as a result of the corporate liquidation. What is more, it could produce more jobless people, as many of their subcontractors will suffer from financial difficulties.

In particular, if Hyundai Engineering and Construction and Dong Ah Construction are to face the same destiny, the impact will last through the first half of next year and further raise the unemployment rate.

Besides, analysts predict that it will be inevitable to produce tens of thousands of jobless people, as the projected restructuring of banks and secondary financial institutions is carried forward. Bank restructuring scheduled for this month will result in laying off 5,000 to 7,000 workers, according to bank sources.

Financial institutions and corporations are expected to halt new hiring, so college graduates might find it almost impossible to find jobs.

Kang Soon-Hee, analyst at Korea Labor Institute, said that the jobless rate would rise close to 4% in line with corporate liquidation. But he warned that the rate would rise even higher if the restructuring is delayed. Kang anticipated that the number of unemployed people would soar to more than 1 million next year if the restructuring of corporations, financial institutions and the public sectors is not carried out properly.

Kang pointed out that the jobless rate might rise to as high as 4.7% with 1.03 million of jobless people in February, when college students graduate and construction businesses are weakened greatly.

The number of the nation's unemployed people soared to 1.78 million in February 1999, although its fell below 1 million last April as a result of economic recovery.

The amount of loans financial institutions offered to the 29 companies that are subject to liquidation or court receivership totals 11.5 trillion won. If all 29 companies are liquidated, financial institutions would have to set aside 3.5 trillion won in additional bad-debt reserve. The problem is that their non-performing assets would snowball if Hyundai Engineering & Construction and Ssangyong Cement, which will be placed under court receivership, go under.

Then, it would require further input of public funds, and banks such as Cho Hung and Korea Exchange would be hit severely. And it would be inevitable for the government to inject public funds to these banks, which are seeking survival strategies on their own.

The companies to be liquidated are largely construction firms. However, the percentage of construction business in the nation's gross domestic product was reduced to 8.7% last year from 1998's 10.1%. And many construction firms already are under court receivership or workout programs, so the impact of the liquidation won't be that great, according to the institute.

Still, the massive liquidation of construction firms, which might lead to downgrading of credibility of Korean companies in overseas markets, would have negative effects on the overseas construction business of Korean contractors.

Kim Du-Young nirvana1@donga.com