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Volume 9, Number 12 (December 3, 2009)

NEW REGULATIONS COULD LIMIT UNION POWER IN KOREA

In December 2009 a moratorium on a law limiting union influence in South Korea is set to expire. This labor market reform law was originally passed in 1997, but has never been enforced due primarily to the strong lobbying power of trade unions in Korea. If enforced, the regulations would make it illegal for full time union representatives to demand salaries from companies. Instead, they would have to rely upon the dues paid by their member constituents. The law would also allow for more competition between unions in Korea, which is currently dominated by two major umbrella organizations – the Korean Confederation of Trade Unions (KCTU) and the Federation of Korean Trade Unions (FKTU).

South Korean president, Lee Myung-bak, has come out in favor of implementing the law, thus reducing the financial burden on both foreign and domestic businesses operating in Korea. In the past, the generally pro-business Mr. Lee also proposed legislation that would extend the validity of Korea’s unique “temporary employment” system – a system that allows companies in Korea to hire workers as contractors without paying full social benefits – to four years from the current two years. Although this proposal was ultimately rejected by the National Assembly, it seems that enforcement of the labor market reform law will go into effect as scheduled on January 1, 2010.

Despite heavy unionization in Korea, unit labor costs have surprisingly continued to fall due to a reduction of wages during the economic slowdown. In fact, Korea was the only country in Asia where labor costs fell during the second quarter of 2009 – labor costs in Korea fell by 0.5%, while the OECD average was an increase of 3.6%. However, there are positive signs that Korea is now beginning to emerge from the depths of the global recession – while 2009 growth will be negligible, President Lee recently announced that he expects 5% GDP growth in 2010.