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Overview of Korea’s development experience

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Development Overview
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Employment

Second turning point

The second turning point for the Korean labor market happened in the late 1980s. Taking advantage of the“three lows”1) and the wave of trade liberalism sweeping across global markets, the Korean economy expanded quite rapidly in size. The labor market also experienced unprecedented changes. Employment jumped in the manufacturing and service sectors, pushing unemployment rates down to 2.5 percent in 1988 (Figure 6-13).


Figure 6-13. Unemployment rate



Price stability and wage hikes significantly increased the purchasing power of the working class. In 1988-1989, wage growth exceeded productivity growth (Figure 6-15).


Figure 6-15. Growth of wages and output per work


This was also when the mismatch between labor supply and demand among different sectors became an issue. Measures were discussed to attract the elderly and women into the labor market, and importing labor from abroad was considered for the first time.

During this period, political democratization gave vent to the oppressed voice of workers. The labor movement started to grow rapidly in July and August of 1987 after the formation of the Hyundai Motor Labor Union in Ulsan, one of the major industrial cities in the nation. The demands of the unions were two-fold; better wages and the guarantee of freedom for union activities. The demands for wage increase were mostly accommodated and resulted in a two-digit growth rate in wages as the government refrained from intervening with police forces or arresting union leaders.

This led to a surge in unionization and wage strikes in almost all industrial complexes in the nation (Figure 6-16). Company-controlled unions were ousted as democracy extended its reach to trade unions as well.


Figure 6-16. Number of labor disputes


The number of unions rose from 2,700 in June 1987 to 7,800 in 1989, while union membership increased from 1.05 million to 1.93 million. Labor union participation rate rose from 12 percent in 1986 to 19 percent in 1989 (Figure 6-17).


Figure 6-17. Labor union participation rate




Table 6-3. Workers by status


Entering the 1990s, wage growth slowed and came in line with productivity growth by 1993 as the nation suffered a recession following the end of the “three-low” period (Figure 6-15). But working conditions kept improving as indicated by the rising share of salaried workers and regular employees among all workers (Table 6-3, Figure 6-18). The employment rate continued to rise in this period for both male and female workers (Figure 6-19).


Figure 6-18. Share of salaried workers and regular employees




Figure 6-19. Employment rate



Production workers in manufacturing were placed in a particularly favorable position.

Thanks to the educational reform of 1981 that doubled university capacity, the supply of highly-educated workers increased greatly from the second half of the 1980s. In contrast, the supply of production workers in manufacturing decreased, causing aserious labor shortage and steep wage growth for these workers. This is reflected in the falling premium on education through the mid-1990s (Figure 6-20).


Figure 6-20. Wage by worker’s educational attainment


Source : SaKong, Il and Koh, Youngsun, 2010. The Korean Economy Six Decades of Growth and Development. Seoul: Korea Development Institute.

NOTE


1)“Three lows” refer to the low energy prices, low international interest rates, and the low value of Korean won against Japanese yen. The “three-low period” usually refers to 1986-1988.

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