Labour market duality in Korea: Overview of a complex phenomenon

Non-regular work

The clearest manifestation of labour market dualism in Korea is non-regular workers who account for a little more than one-third of all employees - according to the definition adopted by the Economic and Social Development Commission (formerly the Tripartite Commission) in 2001 - and whose pay and other terms of employment are considerably less attractive than those for regular workers (Table 3.1).¹ Non-regular work takes a number of different forms which involve one or more of the following characteristics:

• • Temporary or contingent workers who account for 57% of non-regular employment in 2011 and the large majority of which have fixed-term contracts;
• • Part-time workers who account for 28% of non-regular employment in 2011;²
• • Atypical workers who have a number of different employment statuses (e.g. independent contractors, dispatched workers, daily and on-call workers) who account for 41% of non-regular employment in 2011.³

Table 3.1. The incidence and relative pay of different types of non-regular employment, 2003-11

• a) Thousands of workers and percentages (shown in italics).
• b) The sum of the categories of non-regular workers exceeds 100% due to double-counting.
• c) Workers’ whose term is not fixed and can be renewed regularly.
• d) An employee could be dismissed, for example, due to seasonal factors, completion of a project or the return of an employee that they were replacing.
• e) “Others” corresponds to three underlying types of atypical employment: independent contractors, daily/on-call workers and in-house workers. The hourly wage index for “Others” in Panel B is an employment-weighted average for these three employment types.

Source: Statistics Korea, Economically Active Population Survey (EAPS), Supplementary results of the EAPS by employment

type (August) for Panel A; and Korea Labor Institute (2011), “2011 KLI Labor Statistics of NRWs” for relative earnings and

OECD calculations based on the MOEL Survey on Labor Conditions by Type of Employment for Panel B.

The share of employees who are non-regular workers rose sharply in the years following the 1997 economic crisis, reaching a peak of 37% in 2004. Since then the incidence of non-regular work has declined modestly to 34% in 2011. Temporary forms of employment have accounted for most of the overall evolution in non-regular employment, suggesting that one of the main impulses driving the strong secular increase in non-regular work has been employers’ demand for greater flexibility in adjusting the size and composition of their workforces. The modest decline in temporary forms employment since 2007 may reflect the regulatory changes intended to discourage overuse of these types of jobs by employers that are discussed in Section 3.4 below.⁴

The hourly wages of non-regular workers are far lower than those of regular workers and this pay penalty appears to be increasing. On average, the hourly wage penalty for non-regular workers was 28% in 2003 but it rose to 35% in 2011 (Table 3.1, Panel B). While all types of non-regular employment pay less well than regular employment, the pay penalty varies somewhat, with daily workers receiving a particularly low hourly wage (less than one-half the average wage for regular workers in the most recent years). Non-regular workers are also much less likely than regular workers to receive other forms of compensation, such as bonuses and allowances. Beginning with Ahn (2006), a number of researchers have argued that a significant part of the overall wage gap for non-regular workers can be attributable to differences in the quality of these workers. However, a considerable share of the total pay difference remains, even after taking into account individual characteristics, such as education and job tenure, confirming that non-regular workers are subject to discriminatory treatment.

Kim (2010) argues that a considerable share of regular workers under the definition used in Table 3.1 (38% in 2008), might plausibly be reclassified as a type of non-regular workers (“disadvantaged workers”) because they have little job security and face a pay penalty similar to that associated with workers who are classified as being in non-regular employment in Table 3.1. Expanding the concept of non-regular workers to include disadvantages workers would bring their total share employment to 52% in 2008.⁵ Even in the absence of a consensus about the best definition of non-regular work, there appears to be general agent that a substantial share of workers in Korea hold jobs that provide substantially less job security and lower compensation than is available to core workers in large corporations.

Certain workforce groups are particularly likely to hold non-regular jobs, while other groups have a low incidence of non-regular work (Table 3.2). In particular, older workers are strongly over-represented among non-regular workers. The share of non-regular workers who are 60 or older is nearly 5 times as high as the corresponding share for regular workers (16 versus 3.5%). As is discussed in Section 3.5, this reflects the common pattern under which regular workers retire at relatively young ages from their career jobs and then commence “second careers” in non-regular jobs. By contrast, workers under age 30 are not over-represented among non-regular workers in Korea. These age patterns differ sharply from those seen in many European countries, where youth account for a large share of temporary workers. Korean women are more likely than men to hold non-regular jobs, as is also the case in most other OECD countries. Korea also conforms to the common pattern that the least-educated workers have the highest incidence of non-regular employment.

The prevalence of non-regular employment also varies across occupations, sectors and firm size. Assembly and elementary workers have an above-average incidence of non-regular employment, while the opposite is true of administrators and managers, and clerks. Non-regular employment is particularly common in the construction sector, while it is relatively rare in manufacturing. Non-regular workers are also over-represented in smaller firms. Indeed, more than two-thirds of all non-regular workers are employed by firms with less than 30 employees. Not surprisingly, non-regular jobs are much less stable than standard jobs; the average job tenure for non-regular workers is only about one-third that for regular workers (two years and two months versus six years and seven months). Although the situation has been improving, it is still the case that the majority of non-regular workers are not enrolled in job-related social insurance schemes (Section 3.4).

Percentages

Table 3.2. A comparison of regular and non-regular workers, 2011

a) For the top three occupations for regular workers. The administrators and managers category includes engineers.

Source: Statistics Korea, Economically Active Population Survey (EAPS), Supplementary results of the EAPS by employment type (August).

The two most common reasons employers give for hiring non-regular work are to reduce labour costs and increase employment flexibility (Table 3.3). Whereas these two reasons are cited by nearly a third of employers, considerably smaller numbers cite task- specific reasons such as hiring non-regular workers to perform peripheral tasks (18.5%) or short-term tasks (13.9%). The emphasis employers place on broad concerns about labour costs and flexibility suggests that one of the keys to limiting the use of non-regular workers is to reduce the cost and flexibility advantage they offer to employers, by comparison with employing regular workers.⁶ The steep increase in non-regular employment following the 1997 economic crisis also suggests that human resources management and industrial relations practices for regular workers may not offer employers sufficient flexibility and control over their labour costs to compete successfully in the global economy, except when they combine their core workers with a sizeable buffer of non-regular workers.

Table 3.3. Reasons given by firms for hiring non-regular workers

Percentages based on a government survey of firms

Source: Cited from Ahn, J., D.B. Kim and S.K. Lee (2003), Non-regular Workers and Policy Agenda III (in Korean), Korea Labor Institute, Seoul, previously published in OECD (2007, Table 5.14), OECD Economic Survey: Korea 2007, OECD Publishing, Paris, http://dx.doi/org/10.1787/eco_surveys-kor-2007-en.

Different types of employers tend to hire non-regular workers for somewhat different reasons. Manufacturing firms are particularly attracted by the flexibility advantage offered by non-regular employment, while employers in other sectors (predominantly, service sector employers) emphasise lower labour costs. One-half of firms with more than 500 workers cited increased employment flexibility as a reason for hiring non-regular workers compared with less than a third of smaller firms. Larger firms were also more likely to make use of non-regular workers to perform peripheral tasks. These patterns suggest that policies intended to avoid the overuse of non-regular employment or to improve employment conditions for non-regular workers need to take account of the different reasons that different types of firms have for hiring non-regular workers. Similarly, different measures to limit the use of non-regular work or to improve their pay and job security may need to be combined with measures to reduce the labour costs or rigidities associated with regular employment.

Why do so many workers accept non-regular employment when it typically offers lower pay and than regular employment and is also associated with less job security? While some of the lower average pay of non-regular workers reflects differences in characteristics such as their educational qualifications and age, much of the pay penalty appears to reflect differential treatment of workers with equivalent productive potentials.⁷ In fact, a little over one-half of non-regular workers indicate that they would prefer regular employment (Table 3.4). The most common reasons for accepting their job that are cited by involuntary non-regular workers are to obtain immediate income (77%) or their inability to find a more desirable job (13%).

Table 3.4. Reasons given by non-regular workers for accepting non-regular employment

In 2011, percentages

• a) Includes balancing work with family responsibilities and educational and vocational training, as well as to accumulate job experience.
• b) This category includes obtaining performance-based pay.

Source: Statistics Korea.

Nearly one-half of non-regular workers cite a positive reason for accepting their job, most often that they are satisfied with the working conditions (44%).⁸ Workers’ preference and needs are diverse and some benefit from certain characteristics of non-regular jobs, especially the greater working-hours flexibility and lower stress associated with some of these jobs. Part-time workers are particularly likely to say that their job helps them to balance work with other activities, such as family responsibilities. As will be discussed in Section 3.5, greater working time flexibility can help to increase female participation rates, especially when their children are young. However, it would also be desirable to improve the pay and other conditions attached to part-time work in Korea, which are often less advantageous than in other OECD countries and this discourages its uptake. OECD (2010a) shows that the pay penalty associated with part-time employment in Korea is the second largest out of 28 OECD countries for which data are available.