Date: Sat, 21 Sep 1996 00:48:18 GMT
Sender: Activists Mailing List <ACTIV-L@MIZZOU1.MISSOURI.EDU>
Subject: Korean Downsizing & Wage Freezes
/** 280.0 **/
** Topic: Korean Downsizing & Wage Freezes **
** Written 3:47 PM Sep 18, 1996 by labornews in **
From: Institute for Global Communications <>

Winds of Corporate Downsizing, Wage Freeze Sweeping Nation

By Choi Sung-jin, in the Korea Herald 14 September 1996

J. H. Park, a 35-year-old section chief at Sunkyong Group's PR Department, has recently left the company. An M.A. in mass communications, Park will soon leave Korea to study abroad. Another Sunkyong section chief, known only by his family name of Hahm, also quit the nation's fifth-largest industrial conglomerate. He will instead focus on his erstwhile side job of running a franchise sushi restaurant.

For both Park and Hahm, the decisions to leave Sunkyong, one of the most coveted companies among Korean job hunters, were much harder than joining it 10 or 15 years ago. In fact, they are but two of the 820 employees of Sunkyong Industries (SKI, about one fourth of the synthetic fiber maker's total payroll of 3,200, who volunteered to quit under the company's early retirement program.

The incentives proposed by the management were enticing enough. In addition to regular severance payment, SKI offered 60 additional months of salaries plus two years' tuition fees for retirees' children and various other gifts, in cash or goods. Park received 60 million won ($75,000 in total, and Hahm, 110 million won. "Never will we be able to find a better chance than this to leave the company,'' one of the retirement volunteers said. "If one is to start over again, now is the time,'' said another.

Long based on the lifetime employment and seniority system, this centry's business community is being hit hard by corporate downsizing and mass layoffs. There still are only a few firms which translated the fervor into real action, like Sunkyong Industries. Wage freeze It all started with a seemingly ordinary meeting of the chief planning and coordinating officers of the nation's 30 leading conglomerates, or chaebol, Sept. 6.

What came out from the meeting, however, was far from ordinary: to freeze the total wages of each chaebol group for 1997 to this year's level. Given that wages should reflect minimum inflation rate, putting a ceiling on their aggregate total means the firms will have to slash their payrolls.

"We concluded that the nation's high wages are the main culprit behind the 'high-cost, low-efficiency,' industrial ailment,'' said Jeon Dae-joo, executive director of the Federation of Korean Industries (FKI, while explaining the decision of the meeting. With or without the chaebol groups' complaints, wages for Korean workers have risen steeply in recent years, a fact on which labor leaders here agree.

According to the U.S. Labor Department figures, an average Korean worker receives $7.40 an hour, higher than their counterparts in Singapore ($7.28, Taiwan ($5.82 and Hong Kong ($4.8. Jeon said that the nation's wages have risen an annual 15 percent, far in excess of productivity gains, for the past few years. "High wages and slow job growth, cause mass unemployment and hollow out the domestic industrial bases stemming from corporate exodus to countries with cheaper labor,'' the FKI official said.

He added that annual salary of a Korean worker at the three major auto makers has reached almost $35,000, approaching the British and U.S. levels. Trade Unions, which seemed to be at a loss about what to do with the unexpected move by the employing group, soon hit back, saying that the management is passing the buck of economic setback to only workers.

The labor circle firmly stated that management failed to accumulate technology and strengthen capital goods industries during the boom of the past few years, in their competition for capacity buildup in simple manufacturing sectors. Some labor leaders also point out that it is not fair to compare the wages of countries by their total sum or increasing pace, while there are social and economic differences among the countries.

Cho Han-chun, head of Policy Department at the Korea Federation of Trade Union, said that although Korean wages appear to be higher than some industrial countries with much larged gross domestic products than this country's, galloping inflation and excessive educational expenses for private tutoring here shald also be taken into accant. "How can the government, after failing to keep inflation at industrial countries' levels and provide sufficient public education that can replace private institutions, call for workers to refrain from wage increase demand?'' Cho said.

Academicians also appear to be split into two different camps surrounding the current dispute on the downsizing. Many economists affiliated with government- or chaebol-funded research institutes agree on the need for more flexibility at labor market, by providing the employers with greater discretion for layoff and flexible working hours.

An executive at an employers organization sums up the management's position on the latest corporate trend. "We are not unilaterally demanding that workers leave their job sites,'' said Kim Young-bae, executive director of the Korea Employers Federation. "What we are saying is that workers should choose between layoffs and job sharing among themselves by either reducing their work hours or receiving lower wages for the same labor,'' Kim said, adding that is what the management calls the "sharing the pain of economic slowdown.''

Critics of the government and chaebols, however, does not conceal their doubt behind the "real'' motivation behind the ongoing downsizing fervor as well as its effectiveness. No Cure-all "As well evidenced in industrial countries' experiences, downsizing has proved to be no 'cure-all' for economic slump,'' said Prof. Lee Phil-sang of Korea University.

Lee noted that employee layoff, unless preceded or accompanied by managerial renovation in daily operation, marketing and technology development, only threatens job security, thus hampering the morale and creativity of the remaining workers. Lee, one of the most vocal critics of the government's chaebol policy, also said, "I believe that at the core of the current economic crisis lies the collusion between the government and big businesses.'' He added that the wage portion out of the Korean companies' total turnover still remains at 13 percent.

The Korea University professor said that the key to breaking the current economic deadlock should be found in harmony and cooperation between the labor and management, which he said can be attained only through "more open corporate management on the part of employers,'' as is the case of Japanese companies. "Under the current secretive management system which alienates employees, we can hardly find real and long-term solutions,'' Lee added.

Still others are more dubious about what management aims at with the current debate about layoff and wage freeze. "The ongoing turmoil smacks of the preliminary round for a massive counterattack by management to get the upper hand in their relationship with labor,'' a business watcher said. The employers have been on the defensive in labor issues since the wind of democratization hit this country in June, 1987.