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President Moon should focus on creating vibrant private sector
By Kim Jae-kyoung
The government is fighting a "losing battle" in creating jobs with wrong policies based on a series of stop-gap measures, analysts said, Sunday.
This means that unless President Moon shifts the current job policies, the situation will get worse no matter how big an extra budget is formulated.
The Moon Jae-in administration has already splurged on improving the job market but it has not come to fruition as its policies have focused on producing jobs in the short term without proper measures to bolster hiring in the private sector.
According to Statistics Korea, Friday, the number of new jobs stood at 5,000 in July, the lowest in eight-and-a-half years since the aftermath of the global financial crisis
The government has spent more than 30 trillion won to create more jobs in the public sector and turn irregular workers into regular ones, but it has killed more jobs by making businesses reluctant to make new investments and hire new employees through multiple anti-business policies.
It has increased minimum wages and reduced work hours, which has forced many self-employed or small firms to either shut down or reduce their workforce. In short, Moon's job policies have, ironically, limited creating jobs in the private sector.
"Hiking the minimum wage can often depress employment growth and, in turn lift unemployment because firms suddenly face higher costs without a parallel lift in productivity," said Katrina Ell, an economist at Moody's Analytics.
"This is likely at play in South Korea, particularly for small- to medium-size firms which can be more sensitive to changes in minimum wage rates," she added.
Without a major shift in job policies, injecting more money will be just a stop-gap measure. The government must realize that what Korea needs is to minimize state intervention and build a vibrant private sector by allowing more flexibility in the labor market.
Antonio Fatas, professor of economics at INSEAD, said that the problem is Korea has the most dual labor market among OECD economies.
This means is that the country protects heavily the jobs of full-time workers but then it creates a large share of "non-regular" jobs for more marginal workers that are not protected.
"Those who are protected enjoy strong benefits and stability but those who are not, including young workers, have difficulty finding jobs," he added. "This has a negative effect on productivity in addition to the obvious social consequences."
Fatas stressed that it is impossible to fix this model by making everyone as protected as those fully employed because companies cannot afford the cost and they need flexibility.
"I feel that some of the policies currently implemented, though they have good intentions, are not properly addressing the duality in the labor market," he said.
"It is more wishful thinking that one day all workers could be regular and fully protected. That's not realistic."
Stop-gap measures
Another example of the government's stop-gap measure is the recent decision by the Ministry of SMEs and Startups to prevent small Korean firms from selling products manufactured overseas through IM Shopping, the state-run home shopping channel.
The ministry has defended its decision claiming that the move is aimed at keeping more factories at home and creating more jobs here by discouraging them from relocating plants abroad.
However, the experts said that such a move won't help resolve worsening unemployment problems.
"The government is fighting a losing battle trying to reduce the already entrenched trend of manufacturing shifting overseas to places where operating costs are cheaper," said Ell of Moody's.
"This latest measure is only a Band-Aid solution," she added.
Alicia Garcia-Herrero, Asia-Pacific chief economist at Natixis, said that it is a clear protectionist measure to keep jobs in Korea, which can only harm the Korean economy.
"It makes much more sense for Koreans to produce where it is cheaper which does not necessarily mean losing job opportunism but rather specializing," she said.
IM Shopping recently announced that it won't introduce products manufactured by Korean firms abroad as part of efforts to reduce job losses caused by factory relocations overseas and to minimize the hollowing-out of manufacturing here.
Under the move, new products manufactured overseas by Korean small companies under the original equipment manufacturer (OEM) method won't be allowed to go on sale at the state-run channel, which will affect up to 40 percent of goods.
Troy Stangarone, senior director at the Korea Economic Institute (KEI),?said that what the government is doing will likely hinder rather than help job creation.
"SME's that have moved production abroad have done so for competitive reasons," he said.
Ell stressed that an alternative strategy would be for greater public investment in industries where Korea has a competitive advantage, so is not primarily competing against lower overseas labor costs.
"Investing in tech industries, for example, that are higher up the value chain would also translate to stronger employment growth, eventually addressing the weak labor market," she said.
Experts stressed that the government should avoid playing a leading role but instead come up with policies to encourage businesses in the private sector to create more jobs over time through various incentives.
"What Korea needs is to build a vibrant private sector that can innovate and create jobs no matter the consequences of robotization and AI on job creation not only in Korea but globally," said Garcia-Herrero.
