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Moon’s catch-all employment policy leaves economists flummoxed

Wanted: More jobs, less work
Oct 23,2017
Kim, a 28-year-old graduate of Yonsei University, was filled with hope when the Moon Jae-in administration promised to convert all contract workers in the public sector to salaried employees in May.

However, her excitement soon turned to anxiousness as her institution’s management committee took longer than expected to notify her of a change of status and colleagues said she would be better off applying in the next round of recruitment than waiting for her current job to be converted.

“Colleagues say the chance of my job actually being upgraded to a full salaried position is small anyway,” Kim said. “I heard the institution lacks budget.”

Kim hasn’t given up, but is unsure what to do as the end of her contract is drawing nearer.

Five months after President Moon’s pledge to create 810,000 jobs in the public sector and convert all contract workers to salaried positions, job seekers, contract workers and public and private institutions are still struggling to work out the best approach to relieve employment instability and narrow the social gap in the labor market.

Labor unions and contract workers welcome the policy, but are still stuck in limbo as public institutions and private companies struggle to find financing to cover increased labor costs.

Economists also worry that Moon’s policies will increase the burden on taxpayers while negatively impacting the number of new jobs available for young people as corporations lose the freedom to engage in innovation and investment.

“The government hopes to create ‘more and better’ jobs,” said Cho Joon-mo, an economics professor at Sungkyunkwan University. “But converting all contract workers to salaried employees has the risk of ultimately reducing the number of jobs for better working conditions.”

Jobs bought with taxes

Moon promised to create roughly 200,000 jobs by converting contract workers into salaried employees.

Moon’s intention is to jump start the sluggish job market by creating work in the public sector in the hope that private companies will then follow suit.

However, there are concerns over how much of the budget will actually need to be used to make that happen.

Considering the nature of salaried positions in the public sector, which are secure until the legal retirement age and have generous pensions, there is a hefty cost attached to increasing the number of roles, and that burden will end up on taxpayers’ shoulders.

According to the National Assembly Budget Office, adding one salaried worker could eventually incur costs of as much as 2.15 billion won ($1.9 million) including wages and pension.

Converting contract workers to salaried positions isn’t expected to be much cheaper either.

According to a report on public servant wages released by the budget office in January, the average annual income of a salaried employee in 2015 was 67.06 million won. A worker on an “unlimited contract,” which is essentially a contract worker with job security until retirement, however, received only 38.33 million won annually.

A regular contract worker without an unlimited contract earns much less.

Experts also worry that creating more jobs in the public sector could have a negative impact on the economy.

According to a research paper released by Hyundai Economic Research Institute in April, the number of entrants for the civil service examination increased from 185,000 in 2011 to 257,000 last year. This increase could cost the economy about 17 trillion won a year considering the economic activities that these applicants could have done had they been working rather than studying.

Working less, hiring more

Another controversial policy is to reduce the maximum number of hours one can work in a week from 68 hours to 52 hours. By making companies comply with a 52-hour workweek, Moon hopes to create an extra 100,000 jobs.

If the bill passes, business owners that violate the rule could face up to two years in prison or a maximum fine of 10 million won.

“There are no other countries in the world with an employment rate above 70 percent where the annual working hours exceed 1,800 hours,” Moon said. “By sharing the work through reduced hours, we can significantly improve the employment rate and the overall quality of people’s lives.”

According to research by the Korea Economic Research Institute, such a policy is expected to cost companies roughly 12.3 trillion won, as they would have to pay overtime pay for any additional hours worked. Small firms with less than 300 employees account for about 8.7 trillion won of the cost.

Private sector follows suit

Companies started to fall in line with the government’s policy direction after Moon visited the Incheon International Airport Corporation just two days after his election and CEO Chung Il-young vowed to convert all contract workers’ to salaried employees within the year.
It wasn’t long before private companies began to take notice as well.

In May, Citi Bank announced a plan to convert nearly 300 contract workers to salaried status this year.

Later, conglomerates such as Lotte, Hanwha, CJ and Doosan also followed suit and released similar plans.

Hanwha Group, for example, decided to turn 850 contract workers into salaried employees by the first half of next year.

Despite a series of companies following suit, experts are concerned about the impact that the push may have on the private job market.

“The government cannot regulate companies’ freedom to design a labor structure that enables firms to offer quality service at cheaper prices continuously,” said Professor Cho from Sungkyunkwan University.

Confused job seekers

In a recent survey by the Economic Reform Research Institute, 53.3 percent of respondents did not think the government’s policy on jobs would increase hiring. Small business owners and the unemployed were particularly negative.

According to Statistics Korea, the youth unemployment rate in August hit 9.4 percent this year, the highest August figure since 1999. The rate fell slightly last month to 9.2 percent, but the figure is yet to change substantially during Moon’s presidency.

A major policy that is causing confusion among job seekers is blind recruitment, which means that employers can no longer see a candidate’s photo, graduated school, GPA, status of family members, hometown or certain test certificates.

While most students welcomed the change, those that graduated from top- tier universities feel that the policy undermines their academic achievements.

Long way to go

Amid heated debate over the administration’s key policies, the government revealed a more detailed five-year road map for job creation on Oct. 18.

Moon remains confident that the percentage of contract workers in the public sector will drop from the current 19.5 percent to 9.1 percent by the end of his term in 2022.

To boost the private sector the government also announced plans to step up support by making loans easier for start-up founders by eliminating a loan guarantee requirement.

However, critics remain skeptical of Moon’s plans as it is still unclear how companies are expected to finance job creation.

“It seems like the government only picked up policies that suit the labor unions and left out all response measures to possible market changes like the development of technologies and the birth of completely new jobs,” an executive from a major conglomerate’s human resources team told the JoongAng Ilbo. “The current plans could greatly reduce flexibility in the market, which could negatively affect new hires.”

BY KIM JEE-HEE, SONG KYOUNG-SON [kim.jeehee@joongang.co.kr]