What can the UK learn from Korea's perspective on the changing world of work? What are the differences in our productivity and employment levels? How are employment law reforms helping to solve issues such as the ageing population and the gender pay gap? This article by James Davies of Lewis Silkin offers an insight.
Often missed between its larger and more powerful neighbours China and Japan, the Republic of Korea (often referred to as South Korea and in this article as Korea) is perhaps best known in the UK for periodic news reports of military skirmishes with its Northern neighbour; K-pop through the global phenomenon of Psy’s ‘Gangnam style’ and global brands such as Samsung, LG and Kia Motors.
However, in the context of considering potential government responses to current and future workplace challenges, Korea provides an interesting comparison for the UK. Korea is slightly smaller, with a population of 51 million compared to the UK’s 65 million. Both countries are seeing modest GDP growth (2.2% per year in Korea and 2.6% in the UK). Korean unemployment stands at 3.7% compared to the UK’s 5.6%.
I recently had the privilege of sharing a panel with Dr Hanam Phang, president of the Korean Labour Institute at a conference in Seoul organised by the Korean Chamber of Commerce and Lewis Silkin’s Ius Laboris partner law firm in Korea, Yulchon, which looked at the workplace challenges in Korea and the legislative reforms being introduced by the Korean Government in response. I wondered if there was much the UK could learn.
Dr Phang served as Employment Minister in the government of Korea’s current President Park from March 2013 to July 2014 and before that was a senior research fellow at the institute he currently heads. By comparison, it is striking how rarely in the UK, whichever party is in power, a government minister is ever an expert in the field for which he or she is responsible.
As a research fellow, Dr Phang had written extensively on both of the two issues which he highlighted as being the top concerns of Korean policymakers in this field: low productivity and the ageing population.
Low productivity
Korea’s low productivity is striking. Of the 34 OECD countries (the World’s major economies), it ranks 31st (Norway is first). The UK (18th) has its own issues with productivity and ranks well behind neighbours such as Germany or France. However, Korea’s productivity is less than 60% of the UK’s.
The Korean Government is introducing two employment law reforms to tackle this. The first reform is to establish clearer guidelines for lawfully dismissing poorly performing employees, although this proposal has been interpreted by Korean labour organisations as a cynical attempt to help employers dismiss employees more easily. Anecdotally, dismissing under-performers does seem to be an issue in Korea for major corporates where jobs often equate to a job for life (or, in reality, to retirement). However, there is little evidence of any correlation between the ease by which a country’s employers can dismiss staff and productivity or GDP growth.
Despite the reported view of some UK business leaders, the UK is a comparatively easy place to hire and fire. It ranks third in the OECD for having the lowest individual employment protection rights. Korea is quite high (24th) but some Western European countries (eg France and Germany) have even higher levels of individual employment rights with amongst the highest productivity rates.
The second reform is to reduce Korea’s long hours culture by lowering the maximum working week (from 68 hours per week to 52 hours per week). Korea comes third in the OECD for having the highest number of workers regularly exceeding 50 hour weeks (the UK is also high at tenth in the OECD). Unlike individual employment protection rights, there does seem to be a correlation between long working hours and low productivity and perhaps the UK could take note here.
The Korean Government sees the benefits of reducing the long hours culture, not only to increase productivity but also to reduce unemployment. On the face of it Korea’s unemployment rates are low, although there is a particular issue with unemployment in the late 20s and early 30s. Youth (18 to 24 year olds) unemployment is relatively low in Korea (8.9% compared to the UK’s 16.1% and 24.1% in France). However, this masks the fact that Korea’s youth are in tertiary education and not at work. 67.1% of Koreans aged 25 to 34 have benefitted from tertiary education. This is one of the highest in the World and compares with 48.3% in the UK which is in turn higher than the US, France or Germany. Korea’s problem is the number of highly qualified people leaving education and unable to find the skilled work for which they have trained. This problem is also apparent in the UK.
Ageing population
Korea and the UK share a life expectancy of 81 and both predict this to rise quickly. In the UK modest steps have been taken which have seen the removal of mandatory retirement ages and a gradual increase in the State pension age (albeit at a much slower rate than life expectancy is increasing).
The work profile of the older generation in Korea is somewhat different to the UK. At first glance Korea has very high effective retirement ages (which, on the face of it, suggest that steps are being taken to tackle this time-bomb. At 71.1 years old, Korea has the second highest effective retirement age in the OECD (Mexico is highest and this compares with 63.7 years old in the UK and 59.7 years old in France).
However, the common working profile in Korea is of a single employer career where the employee works from qualification until retirement in his or her early to mid-50s. This is followed by a decade or more of low paid, less skilled work or self-employment.
The first of the two changes proposed to encourage longer productive working lives involves the setting of a minimum mandatory retirement age at 60. Dr Phang recognised that this was far too low to meet the nation’s long-term needs but saw it as a starting point on a journey to delay retirement to much older ages.
The second change confronts a particularly Korean issue. A feature of the ‘single-employer’ career is a pay scale where pay increases are seniority-based rather than performance-based. This results in the older longer serving employees being paid much more highly than younger employees. This makes it very difficult for older workers to move jobs as their increased cost outweighs the benefits of increased experience. It also acts as a disincentive on employers to retain older workers longer. The solution proposed in Korea is known as the “wage peak system” whereby an employee’s wage will decrease with age after a given age, say in their mid-50s. Initially possible through collective agreement, the current plan is for employers to be able to introduce this system unilaterally.
Even if it were considered desirable, any such system in the UK would fall foul of EU anti-discrimination laws.
Gender pay gap
Dr Phang also discussed other Korean employment law reforms including laws relating to the clarification of an “ordinary wage” (addressing similar issues to those the UK has faced with its recent surge in holiday pay cases) and laws making it easier to engage non-regular workers (eg agency workers) but increasing such workers’ rights.
However, one area which is at the forefront of concerns in the UK but which appears to be low down the list of priorities in Korea relates to the gender pay gap. Korea’s gender pay gap is the highest in the OECD at a whopping 36.6% (the UK’s is 17.8% - will mandatory gender pay gap reporting reduce it further?). Female labour participation is also low at 57% though rising.
As the World shrinks and cultural differences reduce, is it not difficult to predict that increased female labour participation will contribute to this issue rising up the political agenda in Korea in years to come.
By James Davies, Joint Head of Employment at Lewis Silkin LLP
This is the first in a series of articles looking at how different APAC countries are responding to the changing world of work.
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