BOK chief calls for structural reform of labor market

Bank of Korea Gov. Rhee Chang-yong said that the labor market must be reformed to facilitate growth, but warned that changes will impart challenges.

Job seekers look over job information at the Seoul Western Employment Welfare Plus Center in western Seoul on Feb. 16. [YONHAP]

Korea urgently needs structural reform in the labor market as the link between employment and inflation has become increasingly evident, enough to affect the country’s monetary policy and growth.

“There is no longer low-hanging fruit,” said Bank of Korea (BOK) Gov. Rhee Chang-yong in his opening speech of a seminar on the labor market hosted jointly with the state-run think tank, the Korea Development Institute (KDI), on Tuesday. “In order to harvest the high-hanging fruit, we need structural reform that entails challenges.”

Rhee said that the country has not been able to form a social consensus that enables changes, adding that short-term pain or sacrifices are inevitable.

Bank of Korea Gov. Rhee Chang-yong delivers a speech on Korea’s labor market in a joint seminar with the Korea Development Bank on Tuesday. [BOK]

The structural reform noted by the BOK includes recruiting retired baby boomers through the adoption of an elastic wage system and encouraging young women in their 20s and 30s to continue to stay in the job market after giving birth by improving the work environment and reducing the opportunity cost of staying employed.

Reform is necessary to overcome the structural changes facing the country’s labor market, including a reduction in the labor supply and working hours as well as the mismatch of supply and demand for highly-skilled services in information and communication, the BOK added.

“These structural changes in the labor market are putting downward pressure on growth,” said Suh Young-kyung, a member of the BOK’s Monetary Policy Board at the seminar. “Efforts to increase the labor supply and simultaneously improve labor productivity are important.”

Korea’s societal issues, including overheated education fever and the world’s lowest fertility rate, will be difficult to resolve unless there is reform in the labor market, according to the KDI, which cited a drastic drop in the working age population and the aging society as the reasons for the country’s slowing growth.

“Applying standardized working-hour regulations rooted from the early stage of the industrial era despite rapid changes in the industrial structure and the ongoing internet revolution deters labor efficiency and [the possibility of] holding down a job and running a household at the same time,” said the KDI President Cho Dong-chul.

“The fact that the labor market isn’t changing elastically along with the development and education on technological advancements, represented by artificial intelligence, demonstrates the contradiction caused by the rigidity of our society.”

The number of the newly employed in Asia’s fourth-largest economy is projected to shrink to 180,000 in 2025 after peaking at 820,000 in 2022, according to the BOK and Statistics Korea. The country’s unemployment rate hit a record low of 2.6 percent as of the fourth quarter, driven largely by the manufacturing sector.

BY JIN MIN-JI [jin.minji@joongang.co.kr]