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Source: www.asiaecon.org |

SOUTH KOREA: PAY CUTS OVER JOB LOSS


  Perhaps major international conglomerates can take a page out of their South Korean counterparts. Thirty South Korean conglomerates have all recently agreed to salary cuts in order to protect jobs, includingSamsung, Hyundai Motor and LG. The salary cuts are said to not only apply to employees at the lower end of the corporate spectrum, but also executives. South Korea's government's biggest goal is job preservation in response to the potential onset of recession.


Perhaps major international conglomerates can take a page out of their South Korean counterparts. Thirty South Korean conglomerates have all recently agreed to salary cuts in order to protect jobs, includingSamsung, Hyundai Motor and LG. The salary cuts are said to not only apply to employees at the lower end of the corporate spectrum, but also executives. South Korea’s government’s biggest goal is job preservation in response to the potential onset of recession.

The pay cuts affect all employees and has meant an implementation of a job-sharing strategy. The Ministry of Strategy and Finance in Seoul is permitting state-owned and public companies to cut up to 30 percent of wages of first-year workers that earn more than 20 million won ($13,600) per annum. The state-owned companies affected by the announcement include Korea Electric Power Corp., Korea National Housing Corp., Korea Land Corp. and Korea Development Bank. A vice-chairman of the Federation of Korean Industries says that money saved from wage cuts will go towards creating more job opportunities in the forms of internships and part-time posts.

Unions have also been perceptive to these changes. Under the non-legally binding agreement, employers shall not lay off workers, unions will accept wage freezes or cuts, and the government will provide tax breaks to companies that strive to preserve jobs.

South Korea is on the onset of recession. However, South Korea tends to have an aversion towards massive layoffs. The nation embraces the old notion of putting community ahead of individual achievement, partly due to government-led developments during the Asian financial crisis of 1997.

During the Asian financial crisis, South Korea made it illegal to layoff workers in order to instill and preserve a deep sense of community. The only time layoffs were legal was when a company collapsed. The law eventually became void. An estimated $60 billion loan was granted to South Korea from the International Monetary Fund and members from the global community. However, the conditions of the loan required the country to open its stock markets and banks to foreign investors, lift constraints on currency trading and reduce corporate debts.

After the loan came into effect and South Korea complied, foreign investors soon took over  poorly performing Korean companies and restructured them as they saw fit. This meant that companies were eventually laying off hundreds of workers. Companies operated by South Koreans tried not to layoff any workers because of union pressure. But some companies could not weather the economy and had to lay off workers. The reaction from  unions was to shut down and occupy entire factories for months, further impacting the struggling economy. The Asian financial crisis reportedly cost one million people their jobs. The Asian financial crisis reportedly cost one million people their jobs, and it has taken South Korea two years to return to the pre-crisis job employment rate.

Despite the current global economic crisis, South Korea has fared better than other nations due to the low exposure to property investments in the United States. But South Korea has been heavily impacted by the loss of jobs and lower consumer spending in the United States and Europe, since the United States and Europe are South Korea’s primary export target.

South Korea’s economy is driven by exports, accounting for two-thirds of the country’s gross domestic product . Sharp drops in exports have analysts wondering how much the global recession will impact the economy. Some believe that the global crisis is more likely to hit South Korea harder and longer due to the disintegration of the export market. If markets continue its downward trend, then South Korean companies will either have to face taking a loss or layoff a large number of employees. At the moment, companies are standing firm on a centuries-old tradition; community before the individual.

Presently, South Korea’s unemployment rate hit 3.6 percent in January in comparison to 7.6% in the United States and 4.1% in Japan.

The nation has faced many obstacles, but during the recent economic boom, South Korea has embraced global trade and built local firms into world-class competitors in sectors such as electronics, cars and steel. The belief is that if South Korea can survive this period of time, then perhaps other countries will embrace the notion of a community over individual achievement. 

Source: www.AsiaEcon.org
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Source: www.asiaecon.org |


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