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Prospects for Increasing Labor Market Flexibility in Korea
Region: Asia
Location: Korea, South
Published May 25, 2011
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The importance of having an efficient labor market is growing because of recent trends such as globalization, the development of information-communication technology (ICT), and the increasing need for foreign direct investment and job creation. The innovations of ICT can produce higher economic growth with less labor. Under these economic circumstances, labor markets should respond quickly to rapidly changing product markets.

All these trends emphasize the importance of retaining the flexibility of the labor market in a country’s economy. What is flexibility in the labor market? Bernard Brunhes in 1989 identified five main elements of labor market flexibility: external numerical flexibility, externalization, internal numerical flexibility, wage flexibility, and functional flexibility.

Generally speaking, though, it is obvious that firms and an economy need to increase their labor market flexibility to compete in the current economic situation. An increase in labor market flexibility might imply decrease in job security in terms of the typical oncept of labor flexibility. If so, the next question would be how to amend laws and collective agreements to increase labor market flexibility without causing large-scale conflict between management and labor unions or workers.

The Korean labor market has been criticized for its lack of the elements of flexibility mentioned above. Some argue that labor market inflexibility is one of the major factors that is obstructing the steady growth of the Korean economy. However, the financial crisis in 1997 changed the structure of the Korean labor market dramatically. As a result, employment protection regulations were partially eased in 1998, and firms tried to resolve all excessive labor and facilities disputes in order to survive and successfully carry out the restructuring process.

The Korean labor market has been criticized for its

lack of the elements of flexibility mentioned above.

Some argue that labor market inflexibility is one of

the major factors that is obstructing the steady growth

of the Korean economy. However, the financial crisis

in 1997 changed the structure of the Korean labor

market dramatically. As a result, employment protection

regulations were partially eased in 1998,2 and firms

tried to resolve all excessive labor and facilities disputes

in order to survive and successfully carry out

the restructuring process.

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