OECD advises Korea to boost competition in professional services sector

The Organization for Economic Cooperation and Development said yesterday Korea needs to boost competition in professional services sector to narrow its productivity gap with richer OECD members.

"Korea`s GDP per capita has converged steadily toward the best performing countries and the rate of labor utilization remains the highest in the OECD," the club of developed nations said in a report. The annual "Going for Growth" report checks OECD members` structural policy changes and offers recommendations.

"Nevertheless, the income gap remains large due to shortfalls in productivity, which are the largest in the service sector," it said.

The GDP per capita percentage gap between Korea and the average of the upper half of OECD countries has continued to narrow to slightly over 30 percent in 2009 from 40 percent in 2003, it said.

However, Korea`s productivity, gauged by GDP per hour worked, still lags more than 50 percent behind that of the average of the upper half of OECD countries in 2009, although the nation has been reducing the gap from 60 percent in 2003.



"The Korea-U.S. free trade agreement will foster a competitive environment in a number of professional services once it is implemented," it said.

The OECD pointed out that regulatory barriers to competition in network sectors such as transport and electricity still remain high, despite the recent structural policy measures to spur competition in services.

Korea`s index in terms of regulatory barriers to competition in network sectors was over 3, while the OECD average was 2, with the index scale set at 0-6 from least to most restrictive, the OECD said.

However, the establishment of the Korea Communications Commission in 2008 was "an important step toward an independent regulatory body for telecommunications and broadcasting," the OECD said.

The organization also recommended Korea reduce government support for agriculture and curb market distortion.

While an average percent of farm receipts supported by the government among the OECD was less than 20 percent in 2008, that of Korea was "very high" at nearly 50 percent, the OECD said.

Relatively rigid employment protection legislation was also cited as a major problem that hinders Korea from becoming an advanced country, according to the report.

The OECD advised Korea to reduce incentives to hire non-regular workers rather than regular workers by easing protection for the latter and expand the coverage of the social insurance system for the former.

(yoonmi@heraldm.com)



By Kim Yoon-mi