Korean Companies Should Dial Back Contract Labor, Minister Says

With one-third of South Korea’s workforce now employed on temporary contracts, it’s time for large companies to hire more permanent workers and boost pay to subcontractors, according to the government.

While it is reasonable for employers to turn to contract workers in times of exceptional uncertainty, it shouldn’t be common practice, Employment and Labor Minister Lee Ki Kweon said in an interview.

“Management at companies should stop this misuse -- hiring temporary workers just for cost-cutting purposes,” Lee, 58, said in Seoul on Feb. 25. “Profits should also be used to improve conditions at subcontractors, whose workers are paid much less.”

His priority for 2015 is to create a consensus for changing the wage system and cutting working hours, two goals that may help President Park Geun Hye deliver on her pledges to improve the lot of workers. The challenge for Korea is to maintain the export competitiveness of its manufacturers while raising earnings for more workers, which would stimulate consumption at home.

“This isn’t just about philanthropic capitalism,” said Lee. “Excessive imbalances need to be removed for the sake of companies in the long run.”

His comments applied to all big companies, and not specifically to the large conglomerates known as chaebol in Korean.

The one third of the nation’s workforce on temporary contracts earn an average 56 percent of what regular, full-time employees do, according to Statistics Korea, as at August last year.

Wider Trend

In neighboring Japan, employers are relying on part-time workers like never before, steering clear of full-time hires who are more costly.

Almost 38 percent of the Japanese labor force in the last three months of 2014 comprised non-regular employees, the highest level in comparable data, with that ratio at or near record highs in the construction and manufacturing industries in December.

Temporary workers in South Korea have less job security and often miss out on benefits including pension programs and insurance. About 38 percent of temporary jobs are registered in state-supported pension programs, compared with 82 percent for regular roles, statistics bureau data shows.

While they lack job security, workers on temporary contracts still fill the same position for an average period of 30 months, according to the bureau. Regular employees typically hold their jobs for 85 months.

Reform Plan

Lee said he will work with the Economic and Social Development Commission, a group that includes employer associations and labor unions, to develop a consensus on necessary changes in employment practices and laws.

“We aim to agree on a basic agenda by March and on a legislative reform plan within the first half of this year.”

Starting this year, some of South Korea’s biggest companies are subject to a 10 percent tax on what the government defined as excessive cash holdings that should either be spent on wages, investment or dividends.

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