Third turning point

The Korean labor market encountered its third turning point in the mid-1990s. The advance of ICT since the 1980s reduced the demand for low-skilled workers carrying out simple, repetitive functions and placed them at adisadvantage vis-a-vis highly-skilled workers. In addition, globalization further aggravated the weakening status of low-skilled workers as imports from low-wage countries (especially China) increased and as domestic firms moved their plants to these countries to reduce production costs. Globalization also intensified competition between firms and increased their need for flexible labor management in response to constantly changing business conditions.

As aresult, overall job security declined and wage distribution deteriorated. The share of temporary employees among salaried workers started to rise in 1994 (Figure 6-21). The wage premium on education rose again in the latter half of the 1990s despite the increasing supply of university graduates (Figure 6-20). The wage gap between young and prime-age workers also widened in the midst of the falling supply of young workers. The gap between workers within the same educational or age group also increased (Won Duck Lee, 2004). These changes indicate arising premium on skill, experience and individual adaptability to changing labor demands.

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




Figure 6-21. Share of temporary employees and day laborers

The economic crisis at the end of 1997 served to increase uncertainties in job security and exacerbated the income inequality. The crisis propelled the corporate labor-management paradigm into abrupt and profound changes. Firms turned more careful in their investment and recruiting decisions, and began to rely more on outsourcing and non-regular employment. Employment adjustment became an ongoing process, and wage disparity rose as firm’s compensation and training systems were adjusted in favor of the highly-skilled workers.

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