Korean workers are overworked, dissatisfied, and have the highest suicide rate in the OECD. and their productivity lags behind that of workers in other OECD countries.
Evidence suggests that Korean employers do not provide their workers with an environment conducive to productivity nor do they match workers to well-suited jobs.
Profiling in the Korean labour market
Korean employers hire workers based on outdated selection criteria with little bearing on healthy, productive labour relations. In their hiring decisions, employers consider applicants’ family background and personal lifestyle — characteristics that are at best weakly associated with productivity.
This selection process potentially violates equal opportunity laws and leads to employers matching applicants to jobs based on the wrong criteria, discouraging workers from investing in useful skills.
A core impediment to understanding the scope of this mismatch is the reluctance of human resource staff to discuss their organisation’s recruiting practices. To gauge the extent of hiring screening practices across Korean firms and the motivation and consequences of these practices, we can only rely on information from job application forms.
51 per cent of Korean firms screen applicant height and weight and 57 per cent screen for family background.
A large group of firms also screen for eyesight, birthplace, religion, marital status, blood type, family financials and achievements during military service. Some ask about relatives in North Korea, left-handedness, or shoe size to ensure that candidates will fit into company uniforms.
Industry groups argue that screening for personal characteristics helps firms better predict candidates’ soft skills, such as integrity, dedication, sociability or ability to work in a team. But personal characteristics have a limited predictive power over an applicant’s skill set. Firms practicing extensive screening have no more highly experienced workforces than other firms and appear to be less profitable.
The signals from screening are noisy and each additional question is less and less useful. Companies that use extensive screening processes also tend to hire fewer women than companies that screen less.
Intrusive screening is also costly. Beside the costs of collecting, managing and analysing vast databases of applicant information, there are also associated risks to factor in, such as potential legal challenges, tensions with labour unions, or backlash from international customers.
Some commonly asked questions are illegal per se, even if enforcement is lax. By forcing applicants to reveal uncomfortable details about their personal backgrounds employers also face the risk of alienating applicants with high ethical standards.
The majority of Korean employers ask an average of four questions about personal factors, these questions range from physical appearance to general health. But only some firms screen for ethical predisposition, family history, community ties or lifestyle choices. Intrusive questions that tease out an applicant’s peripheral skills are only asked after all other questions have been exhausted.
Only 13 out of the 189 Korean firms surveyed asked about eyesight without questioning applicants’ appearance. And only 4 out of 176 forms surveyed health without surveying appearance or eyesight. It seems that the content of one question informs the content of follow-up questions in a hierarchical fashion.
Korean firms’ screening processes appear related to conditions in relevant labour markets. In sectors with long working hours and high mandatory compensation and recruiting costs, firms undertake more rigorous screening as more is at stake during hiring. In contrast, firms in sectors with high discretionary and bonus pay are better able to mitigate potential losses from misdirected hiring and so screen less.
The degree of unionisation among existing workers also determines the extent of screening, with a high degree of unionisation leading to more extensive screening of newcomers. This suggests that unionised firms screen out workers who would be troublesome or difficult to fire. But another explanation could be that unions are propping up firm screening practices to protect their own membership numbers.
There is a complex relationship between firm reliance on applicant screening and their type or size. Korean chaebols (large business conglomerates) typically rely on less intrusive screening practices than small and medium size enterprises as they face tighter regulation and greater goodwill to protect. But once firms grow large enough to hire expensive regular workers (or to have a unionised workforce), they also start screening additional characteristics to determine a worker’s long-term loyalty or their interest in labour activism.
Regulators can intervene to help job applicants without adversely affecting firms. Stomping out the most intrusive screening questions — such as those about blood type, home town, family and financial situation — by introducing enforceable legislation may be straightforward if firms are already indifferent about practicing it.
Policymakers can also alleviate the need for excessive screening by instituting protections against worker transgressions. These could include traineeships for disadvantaged applicants, penalty or civil liability for worker-caused accidents, strict enforcement of non-compete clauses, or a worker warrantor system. Given the potential risks of asymmetric information and employer–employee mistrust, greater regulatory involvement can benefit all parties in Korea’s troubled labour market.
Author: Vladimir Hlasny, Ewha Womans University
Vladimir Hlasny is an Associate Professor in the Department of Economics at Ewha Womans University in Seoul, Korea.
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Is Myanmar ready to end its discrete relationship to North Korea?
An extensive but discrete relationship emerged over the next two decades as Myanmar exported rice, timber and rubber in exchange for North Korean arms, missile technology and tunnelling support
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South Korea’s economic reform agenda takes flight
The key concept that governs the economic reforms of Moon’s administration is income-led growth to create a virtuous circle among wage, consumption, investment, productivity and employment
In the aftermath of former president Park Geun-hye’s impeachment, a presidential election was held in May 2017 — much earlier than originally planned. This election saw the key economic priorities of the former government (deregulation and innovation) give way to a new regime focused on values of fairness and mutual prosperity.
It is true that South Korea has tended to close its eyes to fairness and social values in its striving for economic growth. But fairness is a necessary value for providing the right incentives, social stability and harmony for economic prosperity. The pursuit of social value eases failures in coordination and leads to a better equilibrium for society.
These values are reflected in the slogans ‘fair economy’ and ‘social economy’ that have been promulgated by new President Moon Jae-in’s administration. The new government has focused on income-led growth strategies as well as intensified checks on unfair trade practices and chaebols. But these policies are not without risk.
The key concept that governs the economic reforms of Moon’s administration is income-led growth. This strategy seeks to create a virtuous circle among wage, consumption, investment, productivity and employment by boosting wages and in turn boosting domestic demand. The key driver of income-led growth is increased consumption that is backed by wage growth.
A major focus in implementing Moon’s income-led growth agenda has been increasing the minimum wage. The South Korean government has mandated the minimum wage since 1989 and reviews its appropriateness every year. But this year’s raise reached historic levels — an increase of 16.4 per cent from 6470 won (US$6) to 7530 won (US$7) an hour. The Moon administration aims to increase the minimum wage further to at least 10,000 won (US$9.20) by 2020.
Although the minimum wage affects only around 10 per cent of workers directly, advocates believe that it will have a spillover effect, shifting the overall wage distribution upwards.
But with the minimum wage set to soar over the next year, the complaints and fears of small business owners who are directly exposed to minimum wage and near-minimum wage employees are emerging. They argue that it will severely harm their profitability. Classical economic theory predicts that employment will shrink as the minimum wage rises, as those who are relatively less productive will be ousted from the labour market.
Empirical evidence on the effect of the minimum wage rise on employment is mixed. Admittedly, increasing the minimum wage is a relatively easy and cheap policy, as it transfers most of the accompanying costs to companies. But some experts suggest that there are more direct and potentially better measures to address poverty and a skewed income distribution, such as the Earned Income Tax Credit (EITC).
In addition, the government is set to increase spending substantially to expand welfare, to create public jobs and to enhance job security. Examples include widening the coverage of health insurance, significantly increasing public employment — such as firefighters and police — and converting non-regular workers into regular workers in public institutions.
The intentions of the Moon administration are good, but the financial burden they will create is a significant problem. Currently, South Korea is in a healthy economic situation in terms of tax revenue. But South Korea should watch out for expanding national debt. A recent Korea Development Institute study warned that — given the aging population and sluggish growth trends — if the current fiscal spending and economic growth rate continue, the tax burden will rise significantly to meet the growing national debt ratio. Balancing the current boost in welfare and employment against the financial burden on future generations will be a challenge.
Moon has also appointed Kim Sang-jo as the new chairman of the Korea Fair Trade Commission. Kim is pushing hard to eradicate prevalent unfair trade practices, particularly in franchises, agents, distributors and subcontractors. The unbalanced relationship between small and large companies has been pointed out as a chronic problem. Kim, a corporate governance expert, is also strengthening regulations on large business groups. For example, he has established the Business Group Bureau dedicated to chaebol investigation and monitoring internal transactions.
In his inaugural speech, Kim declared that he would wipe away the tears of the ‘weak’. By the ‘weak’, he was referring to small and medium businesses rather than consumers. This seems to offset the…
Author: Hwa Ryung Lee, Korea Development Institute
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