Hyundai Steel's union members stage a protest in front of Hyundai Motor's headquarters in Seoul in this 2022 file photo. Yonhap

An analysis by a prominent conservative U.S. think tank has found that Korea's labor market remains "mostly unfree," calling for improvements to rigid labor market regulations, such as work hours and layoffs.

According to the Heritage Foundation's 2025 Index of Economic Freedom, cited by the Korea Enterprises Federation (KEF), Korea ranked 100th out of 184 countries in labor freedom, with a score of 56.4 out of 100, dropping 13 spots from the previous year. The country also received negative ratings in the taxation and finance categories. The assessment was based on 12 categories.

Compared to the G7 countries, Korea's labor market score was the lowest, except for Germany. The scores were 77.7 for the United States, 70.7 for Italy, 69.4 for Canada and 67.8 for Japan. Germany scored 53.3.

The presence of strong labor regulations influenced the label of "mostly unfree," as the Heritage Foundation sees these as restrictive to businesses. These regulations can include strict employment protection laws, high minimum wages and powerful unions.

In terms of tax burden and investment freedom, the country scored 59.6 points and 60 points.

"The top individual income tax rate is 49.5 percent, and the top corporate tax rate is 27.5 percent (in Korea as of 2022)," the foundation said in the report. "The tax burden equals 28.9 percent of GDP."

The weak labor rating raises growing calls for Korea to push for drastic deregulation in the labor market. The KEF has also urged the government and the National Assembly to take more practical administrative steps to improve stiff relations between management and labor.

The think tank also expressed concerns over Korea's ongoing leadership vacuum, triggered by the impeachment of President Yoon Suk Yeol for his Dec. 3 martial law declaration.

"Korea's dynamic economy has demonstrated notable resilience, driven by a competitive private sector, but its economic dynamism will inevitably be affected by the outcome of the current political turmoil," the report said.

The KEF also advised Korea's regulatory authorities to help local firms enhance their global competitiveness by easing relevant legal frameworks.

"We have been able to reaffirm that Korea's labor market undermines the competitiveness of the local economy," an official from the KEF said.

"The issue has long been considered a chronic problem the Korean economy faces. Korea should take relevant steps, so local firms enhance their competitiveness by attracting more investment on the global market."

Overall, Korea ranked 17th, down three spots from the previous year, and received a "Mostly Free" rating.