By Nam Hyun-woo
Mass layoffs are hitting Korea Inc. hard as companies are rushing to downsize their workforce to cope with falling sales and rising costs amid deteriorating economic conditions, according to industry officials Wednesday.
They said restructuring was limited to several industries hurt by issues directly affecting them, but it is now spreading across all the country's industries, regardless of specific sectors. This is because Asia's fourth-largest economy has been unsuccessful in building its own ability to weather through external difficulties, as the government's industrial policies have remained a patchwork of remedies, such as the statutory minimum wage hikes.
According to LG Display, Tuesday, it is receiving applications for voluntary retirement from employees with longer than five years of work in manufacturing jobs. The company said it is considering expanding the program to office workers.
The company attributed the restructuring to excessive supply of Chinese LCDs and intense competition between global players, which has led to aggravated earnings. LG Display logged a 369 billion won ($310 million) operating loss in the second quarter of the year, which grew from a 132 billion won loss in the previous quarter.
"The company is facing the urgent need to build an OLED-centric business portfolio and reallocating the idling LCD workforce to the OLED business," the company said in a statement. "However, we believe there is a limit in embracing all of this manpower."
This followed Hyundai Electric & Energy Systems' announcement on cutting its payroll a day earlier. The Hyundai Heavy Industries Group unit said it will receive retirement letters from all of its executives and accept 40 percent of them.
The company, which makes transformers and other electrical equipment, attributed the job cuts to declining orders from its main client, the Korea Electric Power Corp.
"We have made many efforts to overcome the current crisis while keeping the current workforce, but decided to launch a restructuring plan as both domestic and overseas markets continue to slow down," Hyundai Electric CEO Jung Myung-rim said.
Carmakers and parts suppliers are already under an industry-wise restructuring, as they were hit hard from faltering car sales.
Renault Samsung is carrying out a voluntary retirement program and SsangYong Motor has already slashed executive jobs by 20 percent, while considering sending employees on rotational long-term leave. Auto parts maker Mando has axed 20 senior executives and accepted more than 100 employees' voluntary retirements in July.
Job cuts are not confined to the manufacturing sector. Asiana Airlines, which is up for sale after hitting a liquidity crisis, carried out a voluntary retirement program in May; while game firm Nexon is rumored to be slashing its workforce to 60 percent of the current level.
"When faced with an economic slowdown, companies in the past tended to cut other costs first and then tapped into labor costs as a last resort," said Lee Tae-kyu, a research fellow at the Korea Economic Research Institute (KERI). "However, companies' priority is labor costs these days, because its portion in their total expenditure has grown significantly."
Along with the job cuts, companies are lowering the number of new recruitments. A KERI survey showed that 33.6 percent of domestic conglomerate said they will hire a smaller number of employees this year compared to last. Only 18 percent of 131 companies surveyed said they would hire more.
"A proper means to a wage hike is corporate competitiveness leading to a better salary," Lee said. However, the current administration's policy of the state jacking up the minimum wage with regulations gave no room for companies to withstand the impact, because their competitiveness remains the same."
Lee stressed this led Korea to be vulnerable to external uncertainties such as the trade war between the U.S. and China.
"Since Korean industries have been failing to address this issue for years, they are vulnerable to not only slow economic growth but also external impacts," he said. "When the U.S.-China trade war has its full impact, Korean industries will suffer greater damage."