An unsustainable gap
Discrepancy between rising exports, worsening unemployment strengthens case for policy shift
Data released last week showed that the country’s unemployment problem had worsened despite a steep rise in exports.
South Korea saw its exports jump 45.6 percent on-year to US$50.7 billion in May, extending its winning streak to a seventh consecutive month, according to figures from the Ministry of Trade, Industry and Energy. Outbound shipments from Asia’s fourth-largest economy grew more than 40 percent for two straight months in April and May on the back of a global economic rebound from the pandemic-caused slump.
The solid recovery of exports was the main factor in the Bank of Korea’s recent upward revision of its 2021 growth outlook for the country’s economy to 4 percent from its previous estimate of 3 percent in February.
Soaring exports should lead to an improvement in employment indicators. But what is actually happening is the opposite.
According to last week’s report from the Ministry of Employment and Labor, the number of employees at local businesses grew 2.1 percent on-year to 18.6 million in April, but most of the added jobs were low-paid, temporary positions created by government-funded employment programs.
The number of regular, full-time jobs held by people in their 30s and 40s fell, deepening concerns that the backbone of the workforce is increasingly becoming alienated from the labor market.
Large companies cut their payrolls nearly 1 percent from three months earlier in the first quarter of this year. According to a recent survey by CEO Score, a corporate tracker, 309 of Korea’s top 500 corporations employed 1,203,835 workers as of the end of March, down 9,756 from end-December 2020.
The jobless rate for young people aged between 15 and 29, which hovers around 10 percent, has shown no signs of improvement.
In recent years, a growing number of local companies have moved abroad not only for business opportunities, but to avoid deteriorating conditions at home. According to a report from the National Assembly Budget Office, Korean firms have set up more than 22,000 subsidiaries and joint ventures with foreign partners abroad over the past seven years, with only 84 of them having reshored during that time. A separate survey by the Federation of Korean Industries showed that just 3 percent of the top 1,000 Korean companies operating overseas were interested in returning home.
In 2014, the government enacted a law aimed at encouraging corporate reshoring. But support measures offered under the law have failed to entice companies to move overseas production back to the country. The stricter regulations imposed by the Moon administration since President Moon Jae-in assumed office in 2017 have instead pushed firms in the opposite direction.
The country’s employment insurance fund is expected to record a deficit of 19 trillion won (US$17.1 billion) over the coming five years, making it harder to pay unemployment benefits.
Adding temporary jobs with taxpayers’ money is no solution to the worsening unemployment problem. What is urgently needed are across-the-board measures to forge business-friendly conditions to encourage companies to increase investment and employment.
Moon held a luncheon last week with the heads of the country’s four major conglomerates to thank them for helping bring about the success of his summit talks with U.S. President Joe Biden at the White House in May. In time for the meeting, the conglomerates announced plans to invest nearly $40 billion in high-tech sectors in the U.S. such as semiconductors, batteries and electric vehicles.
The president dismissed worries that increased investment in the U.S. by the country’s biggest businesses could mean fewer jobs here, saying it would instead create jobs in Korea because subcontractors would benefit from significant increases in shipments of parts, materials and equipment.
That may be partly true. But Moon should be more determined to lift labor, environmental and other regulatory restrictions if he really values the role of businesses in enhancing the nation’s interests.
Measures to strengthen corporate competitiveness and promote the domestic service sector are all the more necessary as the country’s exports are expected to turn downward in the second half of the year due to higher prices for raw materials and a sharp appreciation of the Korean won against the U.S. dollar.