KDI Warns of Growth without Employment

According to reports, the protection of regular workers is driving up unemployment rates.

The employment rate last year fell because of stiff regulations for layoffs and the high rate of salary increases.

The Korea Development Institute (KDI) warned of economic growth without employment in its report. It indicated that the flexibility of the labor market to ease layoffs and solve employment problems is the most important subject to be addressed.

According to the report, the elasticity of employment, which is the rate of increase in employment modified by the economic growth rate, was 0.16. That figure is 25 percent of the figure posted by the economy, 0.63, in 2001. Elasticity of employment had averaged 0.33 up until 1997. It fell to 0.16 in 1999 after the financial crisis. The figure appeared to rebound afterwards, but has been moving downwards again as of 2001.

Employment per 1 percent of economic growth has been decreasing since 2001.

The KDI pointed out that some of the reasons for this downward tendency include strong protection for regular workers and the selfishness of labor unions. Korea is ranked second out of 27 Organization for Economic Cooperation and Development (OECD) countries in its level of employment protection for regular workers according to the KDI.

The International Institute for Management Development (IMD) in Switzerland has analyzed the Korean government’s strict regulation of its labor market and ranks it third overall in that department. That indicates that employment and layoffs are both difficult.

“Korea should embody the requisites of layoffs in law and eliminate its provisions for the punishment of unfair dismissal that are unique worldwide,” suggested the KDI.

The KDI also insisted that, as indicated by the OECD, Korea should reduce the period of 60 days that employers have to inform or consult with employees before laying them off. The KDI noted that regulations currently in force burden employers and may possibly break down the stability of labor-management relations.

The Samsung Economic Research Institute and Bank of Korea Governor Park Seung have already warned that the Korean economy can grow without any employment.

Ki-Jeong Ko koh@donga.com