Korea isolated in job recovery

Korea seems to be one of the very few countries of the Organization for Economic Cooperation and Development (OECD) facing rising joblessness.  Developed countries such as the United States, Japan and Germany, on the other hand, have reached virtually full employment.

Korea’s unemployment rate stood at 4 percent in August, the highest in 18 years. It rose 0.4 percentage points from a year ago. The number of people without jobs reached over 1.1 million in August, up 134,000 from August 2017, according to Statistics Korea. The U.S., Germany and Japan saw their unemployment fall to record lows. The rate in the U.S. stood at 3.9 percent, according to the Bureau of Labor Statistics. The U.S. normally seeks to maintain the rate at 4 percent to slow inflation. Given the size of its economy, falling below that rate means it has reached full employment. The discrepancy over the rates is mostly because Korea is implementing policies unfavorable to businesses, while the U.S. and other developed economies have been pushing for tax cuts and regulatory reform to spur jobs and growth. “The country has been running the economy mostly with anti-business policies, while countries such as Germany, not to mention the U.S., are doing completely differently to revive their private sectors,” said Yun Chang-hyun, an economist at the University of Seoul.

For instance, Germany, which saw its unemployment fall to 3.4 percent in July, does not have a strict law on inheritance tax as long as the new generation keeps on running the business their parents started and built, Yun noted. This is why there are many family businesses there, and such a system enables them to further focus on building them, which in turn, creates more jobs for the next generation, he added. When German Chancellor Angela Merkel took office in 2005, the country’s unemployment was over 11 percent.  One of the policies she has aggressively pushed forward is Industrial 4.0, which aims to boost its manufacturing competitiveness by integrating with emerging technologies such as cloud computing, big data and internet of things. It is similar to the concept of the Fourth Industrial Revolution.

European countries such as Germany and Sweden have rigid labor markets, but their concept of rigidness is very different from that of Korea.  “They have this system in which workers and employers work very closely together to create a virtuous cycle that tries to benefit both sides in good or bad times,” said Kim Jung-ho, an economist at Ajou University. When real estate tycoon Donald Trump became U.S. president, one of the first things he did was cut corporate and income taxes to boost jobs and consumption as the world’s largest economy was just coming out of a decade-long economic downturn caused by the global financial crisis. The U.S. lowered its corporate tax rate from 35 percent to 21 percent, and income tax rate to 37 percent from 39.6 percent. Japan’s unemployment rate reached 2.5 percent in July, down from 4 percent in 2008, according to Japan’s Ministry of Internal Affairs and Communications.

Analysts say the number of people entering the workforce is falling due to its aged population. There is a high demand for young workers, and Japan has to rely on its own people given it does not support a worker immigration policy.  “That is creating a situation for full employment there. There are a lot of openings for young people, even though its growth rate is 1 percent. Demographics are the main reason. The demand is there, but it cannot be filled,” said Rajiv Biswas, IHS Markit Asia chief economist based in Singapore.

By Park Hyong-ki

(Korea Times)