[Yu Kun-ha] Labor issues could make or break the economy

By Korea Herald
  • Published : Feb 23, 2014 - 19:33
  • Updated : Feb 23, 2014 - 19:33
Amid hopes for a much-needed grand bargain, a parliamentary subcommittee aimed at addressing a host of pending labor issues through social dialogue held its first meeting at the National Assembly on Friday. 

The panel was launched by the National Assembly’s Environment and Labor Committee to provide a forum for dialogue among the three social partners ― trade unions, employers and the government ― plus lawmakers from the two main political parties.

Social dialogue among the three partners has been stalled since the police raid in December on the offices of the Korean Confederation of Trade Unions to detain the striking union leaders of Korea Railroad Corp.

The raid shocked not just the KCTU but the entire labor world, as it was the first time the police had forced their way into the umbrella labor organization’s headquarters since its foundation in 1995.

So much so that the Federation of Korea Trade Unions, the larger but less militant of the nation’s two umbrella labor groups, withdrew from the Economic and Social Development Commission, Korea’s social dialogue body commonly known as the tripartite commission. The FKTU had been the sole representative of labor at the panel.

The FKTU’s withdrawal was a painful blow to the government as it faced a set of interrelated labor issues that could not be sorted out without full cooperation from trade unions.

The Environment and Labor Committee intervened to help the government and trade unions restart talks. Yet the Ministry of Employment and Labor and the Korean Employers Federation feel uncomfortable about this dialogue format as it involves politicians. But they have no choice but to accept it as it is the only dialogue channel available now.

Rep. Shin Gye-ryun, a lawmaker from the main opposition Democratic Party who heads the parliamentary committee, said the panel would run until April 15. Should it fail to resolve the pending issues by then, he said hopefully that the tripartite commission would be able to pick up where it left off.

The resumption of dialogue among the social partners is welcome as they face urgent issues that need to be addressed before the spring wage-bargaining season goes into full swing.

At the top of their agenda lies the continuing dispute over the scope of ordinary wages. Despite the Supreme Court’s landmark ruling in December, confusion lingers over the definition of ordinary wages.

In January, the Ministry of Employment and Labor attempted to tie up loose ends by releasing a detailed guideline. But it was of little help as trade unions rejected it as too employer-friendly.

Now employers are worried about the financial burden they face. If the court’s verdict is broadly interpreted, they would have to pay workers about 14 trillion won more this year alone and 9 trillion won each year thereafter. This is obviously beyond their capacity.

So the participants in the parliamentary panel should seek consensus on the scope of ordinary wages to alleviate the potential burden on employers. They also need to have the new definition of ordinary wages set out in the relevant law to avoid any further confusion.

Another urgent issue to tackle is holiday work. The current Labor Standard Act does not specifically state that weekend work is extended work. So the government’s long-standing interpretation excludes weekend work from overtime.

But the Supreme Court is expected to soon hand down a ruling to nullify this interpretation. This is cause for concern for employers as it would significantly increase their wage costs.

If holiday work is defined as extended work, employers have to pay, in addition to ordinary wages, both overtime allowance and holiday allowance to employees who work on the weekend. The law says each allowance must be at least 50 percent of ordinary wages.

The Korea Federation of Small and Medium Business says the court’s expected ruling would cost employers about 7.6 trillion won this year and 1.9 trillion won annually thereafter. So together with the Korea Employers Federation, it recently petitioned the court to be more prudent in ruling on the matter.

So when the participants in the parliamentary panel discuss the scope of ordinary wages, they will have to take into account the additional financial burden that the court’s decision on holiday work would have on employers.

The court’s verdict would also have implications for work hours. Currently the maximum weekly workload is 68 hours ― the normal 40 hour workweek, plus up to 12 hours of extended work on weekdays and 16 hours on the weekend.

Yet if weekend work is reclassified as extended work, the weekly workload cannot exceed 52 hours. This has prompted the government to push for a reduction of the maximum weekly work hours from 68 to 52.

The shortening of work hours has both pros and cons. On the plus side, it will help improve the work-life balance, create more part-time jobs, and ratchet up pressure on companies to improve productivity.

On the other hand, it could increase wage costs as workers’ resistance would prevent employers from cutting wages in proportion to the work hour reduction. They would also have to hire more employees unless their existing workforce improved productivity to offset the shortened work hours.

So companies small and large demand that the government either delay its scheme to cut work hours or implement it over a longer time frame than planned. The government plans to phase in the change from 2016, starting with large companies with more than 300 employees.

The task for the parliamentary panel is to find ways to minimize the impact on companies without delaying the government’s plan. Work hours need to be cut to help workers, especially female employees, harmonize work and family. This is a prerequisite for boosting Korea’s woefully low birthrate.

The panel should also explore ways to help companies extend the retirement age to 60 from 2016, as required by law. To curb labor costs, the relevant law states that companies should introduce a wage peak system before 2016.

Yet it is impossible to introduce a wage peak system without endorsement from workers. So the panel needs to strike a deal on this matter forcing trade unions to accept wage cuts during the prolonged work years.

There are other knotty issues on the panel’s agenda. But the participants would not be able to address all of them by April 15. So they are advised to focus on issues related to wages first as the wage-bargaining season is to start soon.

In tackling wage-related problems, they would do well to pursue a package deal instead of tackling each one individually. This approach is desirable given that employers’ capacity to increase wages is limited. If wages are raised too much, companies would lose competitiveness.

A package deal cannot be attained unless the labor organizations moderate their demands. It would be wise of them to compromise on the definition of ordinary wages and ensure that the court’s ruling on weekend work does not impose too much burden on employers.

The social partners also need to continue their dialogue even after the pending issues are sorted out. They are expected to pursue wage reform to transform the present seniority-based wage system into a competence-based one.

They also need to push for more fundamental labor market reform to create jobs and boost the nation’s employment rate. For this, a grand bargain is essential. Labor should be more willing to accept measures aimed at making the labor market more flexible, while the government should bolster social protection of the unemployed. Companies need to be more aggressive in investment to create jobs.

By Yu Kun-ha

Yu Kun-ha is chief editorial writer of The Korea Herald. He can be reached at khyu@heraldcorp.com. ― Ed.