New Labor Policy to Undergo Test in 6 Months
Now that the National Assembly elections are over, South Koreans can start considering what this year's business will bring in addition to the introduction of a more business-friendly government. We can look forward to better times ahead ― at least so we hope. But there are some troubling, legacy issues that must be faced.
For example, while the central Bank of Korea is forecasting that the Korean economy will likely expand 4.7 percent this year, in real terms, it seems to be running in place. The reason for this appears to be that there is a similar-sized deficit of unreported/unrecognized operational costs that nonetheless sap overall national economic well-being. Consequently, the average Korean does not sense the nation is moving forward ― and that can lead to labor demands.
Also, we are living with the results from some of the major labor events of last year. The most critical labor issues in 2007 included the National Assembly's enactment of new regulations, particularly those intended to protect non-regular workers. As a result of Korea's ``for cause'' employment doctrine (in contrast to the ``at will'' employment model practiced in the United States and elsewhere), employers in Korea are required to meet a number of stringent requirements ― including demonstration of an ``urgent business necessity'' ― in order to lay off workers, even when the economy and the company's profits and income are down. Many employers have been forced to outsource many of their jobs so that their worker numbers could reflect the ups and downs of business cycles. As a result, a problem surfaced, caused by two classes of workers often working side-by-side, earning significantly disparate wages and benefits.
To address this matter, National Assembly reformers passed the Non-Regular Workers Action (NWA) that went into effect July 1, 2007. This law prohibited employers from keeping irregular employees on ``temporary'' status for more than two years, even if they were being pay rolled by a third party company. That is, upon completion of two years service, employers were required to convert irregular employees to regular employees. As well intended as that legislation may have been, any competent business manager could have anticipated the result. The new law created an artificial churning of employees as employers laid off irregular employees as they approached their 24th month.
Soon after the law went into effect, corporations that have significant business seasonality, such as E.Land and Koscom, started laying off several temporary workers through outsourcing. Unsurprisingly, recently laid off, long-term irregular employees have staged dramatic demonstrations. Even today, demonstrations at these two companies remain active and occasionally earn mass media attention.
But returning to last year, we witnessed changes in the general public and even union attitudes as the overall nation sensed that change was necessary. For example, to the surprise of some Koreans, the Korean Federation of Trade Unions (KFTU) came out and officially endorsed Lee Myung-bak for president. The more aggressive Korean Confederation of Trade Unions (KCTU) refused Lee's condition that they investigate illegal striker activities, including violent KCTU-led strikes against the Korea-U.S. free trade agreement (FTA). Ultimately, the KCTU declared them to be hostile to the presidential candidate ― and remain so to this day.
Also in 2007, the general public became more concerned and aware of industrial safety when Kookmin Tire was highlighted in last year's press for having 13 people die in its Daejeon plant over a two-year period. Local papers published that the company had been previously caught for violating Industrial Safety and Health Laws 1,394 times and trying to cover up 183 industrial accidents.
Even more sensational, last June 11 illegal workers died in the Yeosu Foreign Workers' Protection [sic: detention] Center. The tragedy illustrated the nation's dependency ― and often exploitation ― of illegal workers, not to mention the general lack of fire safety.
So, with all of the above as a foundation for 2008, what may we look forward to?
First, let's consider President Lee Administration's Labor Policy. It stresses the rule of law and order, the creation of 3 million jobs, and deregulation of the economy ― including creating greater labor flexibility, ideally through better and more cooperative labor relations.
Second, the new national administration realizes greater labor flexibility needs to accommodate the needs of non-regular workers. At the same time, the new government has stated that they wish to remove employment obstacles for women and the elderly who wish to continue to work.
Given these policies, the new government and the labor market face the following challenges.
After ten years of government leniency towards union violations of labor and civil laws, the unions may test the government's law & order orientation. Both the KCTU and even the more conciliatory KFTU have come out strongly against the KorUS and the KorEU FTA. Given such, we may anticipate ``test'' illegal street demonstrations in the coming months.
Also, given the industry's abysmal safety records, we should expect expansion of industrial negotiation. In addition, the new government will need to make changes in labor laws and policies to better deal with irregular, subcontracted and specially engaged workers. Furthermore, with the KFTU working closer with the new administration, we may see increased friction between the KFTU and KCTU as both union groups compete for the decreasing number of unionized workers. Finally, given the advent of various FTAs and globalization's increasing influence on the Korean economy, employers may be seeing job security issues becoming more important in collective bargaining agreements ― as well as continued worker expectations of wage increases that outpace inflation and productivity rises.
From a more optimistic perspective, however, employers can look forward to a national government that will be more consistent in applying the rule of law to public labor disputes with the public opinion turning against radical labor actions. Indeed, many employers are counting on the new government to enforce ``principle''-oriented labor policies. As such, many observers expect Korean workers will continue to have more passive attitudes toward centrally organized general strikes than what we have experienced during the past decade.
At the same time, employers should note that the Ministry of Labor has augmented its staff of labor inspectors assigned to check on employment practices and policies regarding compliance issues, such as non-regular workers and other forms of employment discrimination violations. In addition, converting severance into employee retirement pensions ― either defined benefit or defined contribution ― will continue to be an important issue.
So, once again, Korean labor relations appear to be at a tipping point. This time things overall look a bit more promising than previous years. We may even see labor relations evolving closer to the ideal of Kim Dae-jung of a joint partnership among government, labor and management. With more intelligently considered laws and policies together with a more consistent enforcement of laws and rules, this may indeed be the case.
What is still unclear is how well or poorly will South Korea's new government be able to effectively govern between management and labor. The good news is the country's new chief executive has both corporate and public sector management experience. That is about as good of a start as we may hope from any new president anywhere. But whatever our hopes and expectations may be, we should get a good idea of the coming medium-term future as the new administration is tested in the coming six months.
Tom Coyner is president of Soft Landing Korea, a consulting group focusing on sales and human resources issues. He is co-author of Mastering Business in Korea: A Practical Guide.