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The Peninsula

Domestic Labor Market Faces Coronavirus Headwinds

Published February 18, 2020
Author: Korea View

This briefing comes from Korea View, a weekly newsletter published by the Korea Economic Institute. Korea View aims to cover developments that reveal trends on the Korean Peninsula but receive little attention in the United States. If you would like to sign up, please find the online form here.

What Happened

  • On February 12, Deputy Prime Minister and Finance Minister Hong Nam-ki warned that the coronavirus could enhance uncertainties in the domestic labor market. Report from the Korea Development Institute echoed these concerns.
  • Statistics Korea revealed that the number of jobs occupied by people in their 40s declined for 51 consecutive months.
  • Significant share of the new jobs added in 2019 went to workers who were above the prime working age (25-54).

Implications: Economic uncertainties created by the U.S.-China trade war and the coronavirus outbreak revealed that skilled workers in South Korea’s manufacturing sector are more vulnerable to shocks in the global market. There are two drivers that place skilled manufacturing workers in this precarious position. First, internal changes in the manufacturing sector led to increased automation in domestic plants while more labor-intensive production was outsourced to emerging markets. Second, companies are more likely to terminate skilled workers in their 40s – generally the highest paid workers in the sector – when looking to reduce overhead cost during downturns. Reflecting these vulnerabilities, preliminary data showed that much of the job creation in 2019 went to workers who are outside prime working age. Further shocks could come from work stoppages by Chinese manufacturers due to the coronavirus.

Context: Through expanded fiscal spending, the South Korean government has increased the overall number of jobs, but these new opportunities have gone largely to the elderly. Data from August 2019 showed that South Korea’s low unemployment rate obscures the fact that job seekers above the age of 60 accounted for 391,000 out of 452,000 new jobs created during the survey period, while employment declined among the 40-49 age group. The number of people who have reached retirement age but are staying in the workforce also hint at the gravity of elderly poverty in the country – the average age of households in the bottom 20% of income earners is 63.4.

Korea View was edited by Yong Kwon with the help of Gordon Henning, Soojin Hwang, Hyungim Jang, and Ingyeong Park.

Picture from LG Electronics flickr account

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