Employment Relations in South Korea

Work and labor provide people with not only the means to make a living but also a sense of belonging, identity, dignity, and social recognition. Next to the time we spend sleeping, work takes up the most time in our lives. Work (labor) therefore is a very large and significant aspect of our lives and of society. Unfortunately, despite the significance of work, Korean society often seems to pay more attention to the outcomes and the perceived influence of work than to the actual reality of the work people face in daily life.

Because the workplace is the basic unit in which production activities are carried out, many decisions about employment and industrial relations are also made at workplace level. Workplace surveys are carried out to also provide information on workplace that forms the basis of what is necessary for formulation and evaluation of employment and labor policies. To this end, Statistics Korea and the Ministry of Employment and Labor conduct numerous workplace surveys, but most of them are limited in scope and examine only those issues related to workplace employment and finances. However, it is plain that employment and finances are also closely intertwined with the structure of corporate governance, employment management practices, and industrial relations. Accordingly, it is essential that these latter topics should also be surveyed at the workplace level.

Korean firms have traditionally leaned toward HR decisions based on seniority and on policies of compensation and job assignment that emphasize the role of the person more than the job itself. This traditional model of HR management changed dramatically with the imposition of “global standards” in the form of western HR management practices on Korean society in the aftermath of the financial crisis that hit the country in 1998. This led to the introduction of profit-sharing plans, promotions, and evaluations that increased motivation by encouraging competition between individuals. This trend can be clearly seen in the example (see Figure 3.1) of an annual Ministry of Labor survey of workplaces with 100 or more employees that reveal a sharp increase in the proportion of workplaces that introduced a system of compensation based on an annual salary or a merit-based pay system after the 1998 financial crisis. Subsequent surveys do not tell us, however, whether this trend continued or whether there has been a fundamental paradigm change in HR management areas other than merit-based pay. As the figure shows, the increase in the number of workplaces adopting the annual salary system has slowed since 2005, and the proportion of workplaces adopting a profit-sharing plan has decreased after peaking in 2005.

The structure of wages in Korea has traditionally been based on compensation for seniority. This seniority-based wage structure was born of Korea’s industrialization process and, in some ways, seemed to be a stable and reasonable wage structure during periods of high growth (Park and Lee, 1999). After the 1998 financial crisis, however, the country slipped into low growth in a rapidly changing management environment fraught with uncertainties in which the spotlight fell on the negative effects of the existing structure’s rigidity. Against this backdrop, efforts were made to align base salaries with the level of contribution a worker made to the organization through a more flexible wage structure (Kim, Park, Park, and Lee, 2005). Included in these efforts were attempts to explore such base salary schemes as skill-based pay and job-based pay in addition to seniority-based pay steps, as well as to explore approaches to reduce the proportion of the fixed base salary in favor of expanding the proportion of performance-related variable pay that fluctuates in accordance with productivity.

Policy discussions on welfare have only recently started to focus on corporate welfare. From the very beginning, welfare states were created through compromise between the rising power of labor and the capitalists, based on the core principle of income redistribution that alleviates inequalities and lessens subordination to the market. Corporate welfare is a bit different in that the attributes of capitalism are recognized for what they are, while companies seek to increase the level of satisfaction experienced by their workers in order ultimately to improve performance. Because much of corporate welfare as such is guided by self-interest, scant attention was paid to this topic in the realm of welfare. Corporate welfare in the current world is, however, not just an issue that affects only the firm in question but one that we cannot afford to overlook when researching inequality and redistribution.

Among the top issues surrounding non-regular workers discussed during the past decade is their management. This chapter provides a focused examination of this issue. In 2007, a turning point in management of non-regular workers, workplaces were forced to depart both formally and informally from their existing ways of managing these workers, as legislation on their protection² went into effect. Before 2007, the ultimate goal of HR managers concerning non-regular work was to cut staffing costs to increase employment efficiency and secure workforce flexibility. While a major trend related to the management of non-regular workers did end up converging with this goal, by examining changes derived over time from various relationships within the workplace (between regular and non-regular workers, employers and non-regular workers, etc.), we believe this study can open up even more avenues for analysis.

After years of pent-up frustration, Korean unionism exploded back into motion in 1987, whereupon the traditional functions of industrial relations — wage bargaining and collective bargaining — were activated. As a characteristic of an emerging stage of unionism, union members as well as their leaders focused more on improving wages and working conditions that had a direct impact on the lives of workers than on the institutional development of collective industrial relations. This led to frequent labor disputes and very high wage increase rates. Moreover, because most of the bargaining units were at enterprise level, this in turn led to the problematic widening of interfirm wage differentials.

Many empirical studies have examined unionized workplaces in order to assess union density, union types, union leadership, union activities, and the nature of industrial relations. This chapter provides an analysis of union activities and industrial relations in unionized workplaces in comparison with the results of previous empirical studies, so as to provide a clearer picture of changes in union activities and industrial relations from 2005 to 2009.

This chapter looks at the establishment and operation of labor-management councils (LMCs) in non-unionized workplaces. Since the 1980s, researchers in the West have engaged in theoretical and empirical studies on a new paradigm for employment relations that replaces traditional collective industrial relations;¹ however, systematic research on this topic has been conducted only recently in Korea (Bae, Nho, and Shim, 2007). Realizing that a discussion on labor-management councils is not enough to describe the whole picture of employment relationships in non-unionized workplaces, it should be noted that the analysis in this chapter is limited only to the employment relationship in the non-unionized workplaces that is manifested in the operations of labormanagement councils. LMCs are supposed to exist in both unionized and non-unionized workplaces and are central to Korea’s institutional mechanisms for workers’ participation. The institutional framework for LMCs has been changed numerous times over the years and is currently regulated by the Act on the Promotion of Workers’ Participation and Cooperation (hereafter the Workers’ Participation Act) legislated in 1997 (Kim, 2007). This legislation requires the establishment of LMCs at establishments (workplaces) with 30 or more full-time employees where working conditions of employees are decided.

With the rapid spread of globalization and the advances in knowledge and information made possible through the acceleration of technological innovations, the importance of worker skills and education/training have gradually been increasing. Intense competition among businesses has pushed growth based on the input of material elements to its limits whilst the quality of human resources has emerged as the determinant of productivity and competitiveness.

When the employment relationship is formed collectively, wages and working hours are determined through collective bargaining or through labor-management consultations. However, when employment relations are formed only on an individual basis, the greater framework of the employment relationship is determined through employment rules within the workplace and through the processes of recruitment and worker turnover. How then does work actually take place once an agreement on the price of labor and the number of working hours has been reached? Whether they seek to hire 10 or 100 workers, employers always consider the manner in which work is organized before recruiting the appropriate number of workers, whereas individual workers are very interested in exactly what kind of work they will be given. What are the different jobs that exist in each workplace, and how does the employer seek to achieve a horizontal division of labor through these jobs How is vertical control imposed on the work process? Do workers with autonomy, as a result, only have to take ex post facto responsibility for their performance?

Possibly the most important working condition, apart from wages, concerns working hours; however, little attention has been paid to this topic in Korea by the government, the general public, firms, or unions. In advanced economies, meanwhile, legislation to reduce working hours was introduced well before national income per capita reached the US$ 20,000 mark and even amidst some dire economic conditions. Moreover, guidelines for working hours were adopted in 1919 as the first of the ILO’s core conventions.¹ In Korea, however, social norms and customary practices in support of the long working hours that had been institutionalized during the years of Korea’s industrialization have remained intact, leading to the very loose regulation and management of working hours and to compensation for overtime being based on these loose measurements and calculations (Bae et al., 2011).

The previous chapters on individual employment relationships, collective industrial relations, and work organization used data from the first to third waves of the Korea Labor Institute’s Workplace Panel Survey (WPS) to describe Korean employment relationships in the latter half of the 2000s and to examine changes in the employment relationship from 2005 to 2009. We found, among the many dimensions of the employment relationship, that collective industrial relations changed not according to fluctuations in the economic cycle but in line with gradual and consistent trends. By contrast, changes to other dimensions of the employment relationship such as proportion of non-regular workers, education and training, working hours, and workplace innovation could neither be definitively labeled a consistent trend nor a temporary jolt induced by the 2008 global economic crisis. However, it is clear that some of these aspects had undergone temporary changes as is evidenced in the analysis of data on working hours reported in the WPS Supplementary Survey.