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[Editorial] Labor Market Eroding Nat’l Competitiveness

Posted September. 09, 2009 08:24,   


In the Global Competitiveness Report released by the World Economic Forum, Korea ranked 19th among 133 nations, falling six notches from last year. The report defined national competitiveness as factors contributing to a country’s sustainable growth and economic prosperity. Korea ranked 19th in 2005 and 23rd in 2006 before rising to 11th in 2007. It fell to 13th place last year and further to 19th this year. Among the world’s top 50 nations in competitiveness, Korea recorded the biggest drop in this year’s rankings.

The Korean government has strived to boost its economy and make a more business-friendly economy over the past year, but in vain. Korea saw its rankings fall in 12 of 13 key indexes, with only that for market size rising from 13th to 12th. Considering that the country has the world’s 13th-largest GDP and 11th biggest trade volume, domestic competitiveness appears too weak.

A chronic reason for hampering national competitiveness is the inefficient labor market. Korea’s ranking fell to 84th from 41st. Out of nine sub indexes measuring labor market efficiency, the country’s rankings in eight of them fell, including cooperation in labor-management relations (131st), costs of dismissal (109th), hiring and firing practices (108th), rigidity of employment (92nd), and female participation in the labor force (89th). A government official said, “Korea-based employers might have given bad marks to the nation’s labor market efficiency since the survey was conducted in May, when Ssangyong Motor unionists launched protests. The survey was also conducted before the law on temporary workers took effect.” It is wrong to believe, however, that Korea’s indexes suffered a setback because of temporary deterioration in certain sectors. The main culprits are the government’s inability to pursue reform and the militancy of trade unions with the support of certain civic groups and politicians. Korea cannot become an advanced nation without improving its performance.

Korea’s international ranking for financial market sophistication also fell from 37th to 58th. The domestic financial market has recently been stabilized but was weaker late last year because it was more seriously affected than other economies, whose financial failures sparked the global financial crisis. Korea’s lower rankings in all nineteen indexes on quality of institutions show the failure of the Korean government in deregulatory reform. For example, the country was ranked 98th in state regulation burden and 100th in perceived opacity of policymaking.

Evaluation of an economy’s competitiveness differs depending on who releases the report. For example, the Switzerland-based International Institute for Management Development in May said Korea’s national competitiveness improved from 31st last year to 27th this year. Yet the inefficient labor market, government regulations and a weak financial market are often cited as chronic problems in doing business in Korea. International organizations such as the World Bank and the Organization for Economic Cooperation and Development have also complained of Korea’s rigid regulations on hiring and firing workers and labor laws. Korea cannot become an advanced economy if it merely struggles to increase the volume of its economy. The people and the country’s organizations must cooperate to resolve such chronic problems.