





Employment policies limiting creation of new, quality jobs



By Kim Jae-kyoung



South Korea has been trapped in a paradox of employment.



Domestically, the more effort the government makes, the more difficult it is for young people to find decent jobs.



In other words, President Moon Jae-in's job policies are limiting the creation of new, quality jobs in the private sector.



Last year, Moon implemented a supplementary budget of 11.2 trillion won ($10.5 billion) to create jobs and formulated another extra budget plan of 3.9 trillion won early this month. However, the job market situation has taken a turn for the worse.



The jobless rate reached 4.5 percent in March, the highest level in 17 years. The number of jobs created came to 112,000 from the same month a year ago, sharply down from January's 334,000.



Internationally, Korea is isolated in its job market recovery.



Many big economies, including the U.S. and Japan, are showing handsome figures in employment, while Korea's labor market has stayed in the doldrums.



The jobless rate for the U.S. stood at 4.1 percent in March, the lowest level in 17 years. Japan's unemployment rate was at 2.5 percent in the same month, similar to 2.4 percent in February, the lowest in nearly 25 years.



The employment fiasco for Asia's fourth-largest economy is the outcome of a toxic mixture of three forces ― Moon's contradictory policies, market uncertainties and technology.



First, a surge in the unemployment rate is paradoxically associated with Moon's job policies.



The Moon administration has been trying to take the initiative in job creation rather than encouraging the private sector to hire new employees.



Moon has focused on creating jobs in the public sector by hiring more civil servants and turning irregular workers into regular ones.



But he introduced a series of measures, including tax increases and minimum wage hikes, increasing uncertainties and discouraging firms from recruiting new workers.



"Over time, businesses in the private sector create jobs, not the government," Sohn Sung-won, an economics professor at California State University-Channel Islands, told The Korea Times.



"In deciding to add to employment, the private sector bases its decisions on the current and future economic prospects. Apparently, there are too many economic uncertainties ahead to add to capacity."





Minimum wage hike shock



Among many measures, hiking the minimum wage is dealing a blow to the job market.



"Hiking the minimum wage can often depress employment growth and, in turn lift unemployment because firms suddenly face higher costs without a parallel lift in productivity," said Katrina Ell, economist at Moody's Analytics.



"This is likely at play in South Korea, particularly for smaller to medium-size firms which can be more sensitive to changes in minimum wage rates," she added.



She pointed out that the government is trying to specifically target the labor market without necessarily improving overall economic health.



"This is problematic because the labor market is really a lagged indicator of overall economic health," she said.



Secondly, uncertainties both at home and abroad are making Korea travel a different path from other countries.



"Political uncertainties including North Korea, the upcoming local elections and the proposal to revise the Constitution are some of the examples," Sohn said.



"Externally, the uncertainties emanating from the Trump economic policies and China have added to uncertainties. Unfortunately, it will take time for these uncertainties to diminish and dissipate."



Thirdly, rapid technology development is adding to the Korea's job market fiasco.



In line with the minimum wage hike, a growing number of self-employed businesses are replacing their employees with machines both in manufacturing and services.



"I think much of the problem lies with technology, which is creating new opportunities for some, but also reducing the need for labor in large segments of the manufacturing and service sectors," said Mauro Guillen, director of the Lauder Institute at the University of Pennsylvania's Wharton School.



"The other issue is the loss in competitiveness, with some jobs being shifted to other lower-wage locations in Asia," he added. "It is scary to see that there is full employment in Japan and the U.S., but that unemployment in Korea is growing."



Analysts said that in order to escape from the employment paradox, Moon and his administration should realize that only when the economy remains resilient; it will be able to start producing new quality jobs.



In this regard, Moon should consider reforming regulations in a more business friendly way so that companies engage more actively in investment and hiring.



The U.S. is a case in point.



"The U.S. economy is doing extremely well. Unemployment is at an historic low and the stock market at an historic high as a result of the policies of lowering taxes and releasing the shackles of regulations on businesses," said Jeffrey Jones, an international lawyer at Kim & Chang.



"Trump understands that when you decrease the tax and regulatory burden on business, the economy improves and ultimately the government's tax revenues improve because of increased profits, increased consumption and increasing wages."



The analysts also called for the government to overhaul the nation's education and training system to improve the employment situation in a sustainable way.



"Some useful strategies would be reducing the skills mismatch between what is taught in higher education institutions and what is required in the private and public sector," Ell said.



She pointed out that this could be addressed via direct liaison with institutions, questioning why young, well-educated Koreans are generally not desirable employment candidates.



"Government incentives to firms for hiring young people and providing a useful training program so they are of long-term value to the labor market is another policy. This could involve tax incentives or subsidizing the graduates' wages."



Guillen echoed the view, saying, "Creating jobs in the public sector is more of a short-run effect."

"I think the best response to technological change and its effect on the labor market is to rethink education and training programs," he said.

