Firing Workers in Korea Three Times More Expensive than OECD Average

Firing workers is still difficult in Korea.

The World Bank released the “Doing Business in 2006” report on Tuesday in which it looked into the corporate regulations of Organization for Economic Cooperation and Development (OECD) countries. The category in which Korea ranked the lowest was the cost of firing workers.

The report analyzed the corporate environment of different nations in terms of paying taxes, hiring workers, getting credit, enforcing contracts, dealing with licenses, and other areas. Korea’s overall ranking was 27th out of 155 nations. New Zealand, Singapore, U.S., Canada, Norway, Australia, Hong Kong, Denmark, Britain, and Japan comprised the top 10.

Easy Exports, Convenient Close-downs-

Korea, the world’s 11th largest economy, ranked 16th in terms of trading across borders, which is higher than the OECD average. The report found that goods customs takes about 12 days in Korea, similar to the OECD average. It takes 12 procedures over 22 days to start a business in Korea, more complicated than the OECD average of six procedures in 19 days. However, closing down a business takes 18 months and four percent of the total corporate assets, lower than the OECD average of 7.6 percent during the same time period.

Businesses pay 26 different types of taxes in Korea, and it takes 290 hours to do so. The OECD average is 16 taxes and 192 hours. However, companies in Korea pay 29.6 percent of their net profit as taxes, a lighter burden than the OECD average of 46.1 percent.

A total of 29 steps need to be taken to seal a contract, more complex than the OECD average of 19. However, 75 days were needed until mandatory enforcement of contracts, far shorter than the OECD’s 232 days. Litigations costs and other costs associated with executing credit rights were half the level of the OECD average.

Too Expensive to Fire a Worker-

However, Korea ranked a dismal 105th in terms of the labor market. In particular, firing costs are 90 times the weekly wages, or roughly two year’s pay. This is nearly three times that of the OECD average of 32.6 times (equivalent to about eight months’ salary).

Compared to the OECD average, Korea is maintaining a similar level of financial institutions’ loan-related credit information accumulation and legal system that governs loan transactions.

Korea urgently needs to make improvements in the investor protection category, in which it ranked 87th. Korea had an index of 2 for the investor protection mechanism of holding the management responsible in case of a problem and 5 for shareholders suing the management that committed an intentional or severe mistake. The figures were far below those of the OECD average, which were 5.3 and 6.7, respectively.

Seung-Ryun Kim srkim@donga.com