Korea’s rigid work regulations hamper chip industry’s growth: Experts

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South Korea’s rigid labor regulations, such as the 52-hour workweek system, slow growth in the chip sector, experts said on Sunday.

According to sources from the conglomerate circle and related research institutions, Korean semiconductor companies face excessive constraints on working hours compared to advanced countries such as the United States and Taiwan.

Experts propose that Korea should introduce its own white-collar exemption program that does not apply working hour regulations to high-income professionals, in an effort to strengthen competitiveness.

The program, which is already in place in countries like the U.S. and Japan, allows certain high-income employees, such as senior managers, administrators, professionals, computer workers, and salespeople, to be exempt from working hour restrictions.

Under the current 52-hour rule, core semiconductor researchers often have to leave their posts, making it difficult to maintain teamwork and continuity.

In the U.S., employees earning over $684 per week or high-income workers earning over $107,432 annually are exempt from work hour-related regulations.

Many advanced countries have adopted flexible working policies tailored to their national circumstances.

The U.S. has no cap on maximum weekly working hours but allows workers to receive at least 1.5 times their regular pay for hours worked beyond 40 hours a week.

Bloomberg reported in August that Nvidia Corp. employees often work until 2 a.m., with some working seven days a week.

Japan implemented a “highly qualified professional” system in 2018 to exempt high-income professionals from working hour regulations, while China’s information technology (IT) sector has a practice of working from 9 a.m. to 9 p.m., six days a week.

The Korea Chamber of Commerce and Industry (KCCI)‘s Sustainable Growth Initiative (SGI) said in a report in August that Korean export companies had about 30 percent higher productivity than overall manufacturing firms between 2000 and 2009, but they were only 0.8 percent higher between 2020 and 2022.

“Flexible labor management is essential for companies to respond quickly to rapidly changing market conditions and to improve productivity,” the SGI said. “It is necessary to overhaul the regulatory framework around labor laws to make it more employment-friendly, improve uniform regulations on working hours, and reorganize the wage system to focus on job and performance.”

This is particularly urgent for the semiconductor industry, a key pillar of Korea’s economic growth and exports which is losing competitiveness, experts say.

According to the Korea International Trade Association, semiconductors accounted for 20.3 percent of Korea’s entire exports as of the second quarter of 2024, the highest among all export items.

The Korea Development Institute (KDI) estimates that a 10 percent drop in semiconductor exports would result in a 0.78 percent decrease in the country’s gross domestic product (GDP), illustrating the sector‘s substantial impact on the economy.

However, the outlook for the Korean semiconductor industry is far from rosy.

Government data indicates that Korea’s share of global semiconductor production fell from 24 percent in 2018 to 13.2 percent in 2023.

The government and ruling People Power Party, in the meantime, designated the passage of a special semiconductor act as a top priority during a policy coordination meeting on October 29.

The act aims to comprehensively support the Korean semiconductor industry in response to intensifying global semiconductor competition.

The National Assembly is expected to pass the law in November.

However, the ruling party‘s proposal is known to not include provisions for “flexible work” nor specific stipulations on direct subsidies, with final coordination with the government still pending.

The legislation will likely allow broad financial support without specifying direct subsidies.