Outsourcing Labor-Intense Jobs Widens Income Gap

Rapidly increasing trade volume with China is widening income disparity in South Korea. This is because China has taken over labor-intense and low value-added production from South Korean domestic companies, leaving limited high-paying jobs for those with lower-education.

However, with the expanding trade volume, companies are enjoying more business opportunities by hiring more people equipped with technological prowess and strategic planning skills. Consequently, the income disparity between the more highly educated and the less educated has widened.

The Organization for Economic Co-operation and Development (OECD) recently published a report titled, “The Impact of Outsourcing in East Asia on the Labor Markets in South Korea and Japan,” contained a detailed analysis of these points.

○ Eight times greater outsourcing production in 2004 compared to 1990

The report showed that outsourced production to China comprised 1.6 percent of South Korea’s GDP in 2004, an eight-fold increase from 1990 (0.2 percent). This is because labor-intense production of home appliance parts and fabrics had moved to China.

The transfer of low-paying jobs to China is aggravating the wage gap based on educational levels in the Korean labor market. In the service sector, for instance, middle school graduates received 58 percent of what their university graduate colleagues received in 2004 compared to 65 percent in 1993. High school graduates also saw their relative wages to university graduates fall by 2 percentage points to 68 percent, over the same period. As demand for lower-educated positions decrease, so do their real wages.

This trend is not confined to South Korea. This is a general trend among developed countries as companies in the developed world have outsourced their labor-based production to China since the mid-1990s. Simply put, increased trade between the developed and developing countries gives comparative advantage to a technologically advanced workforce versus those less technologically skilled.

China became South Korea’s top export and import trade partner last year. This brought about changes not only to South Korea’s industrial structure but to its labor market, as well, deepening income disparity within the country.

○ Chinese outsourcing threatens high-skilled jobs in South Korea

University graduates are not immune to this “China storm.” Chinese companies and their technological advancements have pushed domestic entrepreneurs to consider outsourcing high-skilled jobs, narrowing job opportunities for university graduates in South Korea.

America has already been outsourcing computer programming and other high-skilled jobs to India.

Ahn Sang-hoon, a researcher at the Korean Development Institute who participated in the OECD project, said, “To cushion the impact of Chinese outsourcing, the portion of the domestic workforce holding lower-level education needs to be further trained to develop their work-related skills, while the higher-skilled workforce should be nurtured to be able to produce key components currently imported from Japan.”

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