Wednesday, April 12, 2006

Concerns Over Labor Costs and Productivity in Korea

I'm frequently quizzed on Korean labor and wages. Rising costs of labor in Korea are an issue. They have forced many Korean firms to move their manufacturing outside Korea. This article gives some stark insights in labor productivity and costs.

The cost of labor in Korea's manufacturing industries rose at the fastest pace in the world since 1990, according to U.S. government data. The report added to concerns about the Korean economy's sluggish labor productivity growth.

The hourly compensation, including wages, labor taxes and employers' social insurance expenditure nearly tripled in the 1990-2003 period, according to statistics released by the U.S. Department of Labor in March 2006.

The labor cost index of Asia's fourth largest economy stood at 279 as of 2003, compared to the benchmark level of 100 in 1990. This contrasts dramatically with other Asian peers such as Singapore which recorded a figure of 198.8.

Korea's hourly labor cost amounted to nearly half that of America, far above the 34 percent of Singapore and 27 percent of Taiwan, the survey noted.

Kim Sung-teak, research fellow with the Korea Labor Institute, stressed Korea's manufacturing labor cost growth far outpaced those of other economies, saying "Such a sharp rise could be quite a serious problem."

In Korea, anxieties come against a backdrop of local manufacturers increasingly moving their facilities abroad to tap low-cost work forces in developing economies such as China.

To fend off soaring labor expenses, many domestic companies have globalized their production, which in turn led to sluggish facility investment within the country.

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