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Korea’s labor productivity per hour was $26.20 in 2012, according to the Organization for Economic Cooperation and Development (OECD). That was 67 percent of the OECD average, placing Korea 28th among the 34 OECD members. The data has several implications.
First, the low ranking means that Korea’s national income is also in the bottom tier. That’s because labor productivity is calculated by dividing a country’s GDP by the total number of workers or aggregate labor hours. Accordingly, Korea ranked 23rd among OECD countries in both per capita national income and per capita labor productivity.
In 2011, Luxembourg ranked first in the OECD in both per capita labor productivity ($124,000) and per capita national income ($107,000). In 2012, Norway ranked first in labor productivity per hour ($62.70) and ranked second in per capita national income. In 2011, Korea ranked 23rd in per capita labor productivity and 29th in labor productivity per hour. That was due to the 2,090 working hours per person that year.
Korean politicians have frequently called for legislation to cut the nation’s maximum working hours and increase the number of official holidays, contending that Koreans work the most hours among the OECD members. Currently, Korea’s labor productivity is only half of the average of advanced countries. Domestic companies can hardly maintain their competitiveness and employment if shorter working hours increase the minimum hourly wage.
Second, Korea’s low labor productivity is attributed to the rock-bottom productivity of the service sector. In 2010, our manufacturing sector’s per capita labor productivity stood at $97,000, the second largest in the OECD, while the corresponding figure of our service industry reached just $45,000. Korea’s service sector, which consists mainly of restaurants, lodging facilities, wholesalers, retailers and other low value-added and privately owned businesses, has remained totally backward.
The backwardness has largely been caused by excessive regulations. The Korean manufacturing sector has steadily improved its global competitiveness through open competition. In contrast, authorities have stuck to a protectionist policy for high value-added service industries such as education, finance, law and medical treatment. The agricultural sector is no exception.
Like the manufacturing sector, a new ecosystem should be formed in the nation’s agricultural and service sectors. Market liberalization and free corporate activities should be permitted in those sectors, while investments and business foundation by domestic and foreign capitals should be encouraged. By doing so, our non-manufacturing sectors will also be able to achieve the highest levels of industrial competitiveness and labor productivity in the world.
Third, labor market inefficiency, which is the fundamental cause of low labor productivity, should be addressed. According to the “Economic Freedom of the World: 2013 Annual Report,” which was published jointly by the Seoul-based Center for Free Enterprise and 88 other research centers worldwide, Korea ranked 33rd in terms of economic freedom. Notably, Korea ranked 133rd in labor market flexibility.
For instance, the average annual salary of Hyundai Motor employees is said to be 100 million won, but the Hyundai workers go on strike nearly every year. Moreover, the Hyundai management cannot make independent decisions about reassigning union workers among assembly lines. Therefore, the labor hours per vehicle (HPV) for Hyundai Motor’s main domestic plant in Ulsan stands at 31.3 hours, compared with 14.6 hours for Hyundai Motor Manufacturing Alabama and 19.5 hours for Beijing Hyundai Motor.
Politicians, the Korean Confederation of Trade Unions, the more militant of the nation’s two labor umbrella groups, and other organizations are all preoccupied with protecting labor unions and creating labor-related regulations. How can we expect our labor productivity to improve under such circumstances?
Lastly, the labor productivity data creates a good opportunity for self-reflection by our politicians and general public. It offers reminders for suitable economic and welfare policies.
Korea still lingers near the bottom of OECD rankings on national income and labor productivity. Last year, Korea’s per capita national income stood at $22,590, which amounted to merely 60 percent of the OECD average of $37,488. The per capita national income of the United States, Japan and advanced European countries is more than twice that of Korea. It surely is deplorable that Koreans are demanding “OECD-level” welfare benefits simply because their country is a member of the organization. |
