Wed, Jul 02, 2003 - Page 9 News List

Labor's bark worse than its bite in South Korea

By Yoo Choonsik  /  REUTERS , SEOUL

South Korea's latest wave of strike action appears to reinforce its reputation for having some of the world's most militant trade unions who are able to hold Asia's fourth-largest economy at ransom.

But appearances can be deceiving.

Korea has one of the lowest trade union membership ratios in the world and large swathes of the economy are unaffected by the latest strikes.

While assembly lines at the country's top automaker may be stopped and trains disrupted by strikes involving a combined 60,000 workers, most other sectors will probably remain unaffected by a recent rash of disputes, analysts say.

"There are two common myths with respect to Korea's labor union issues," said Lee Seung-hoon, an analyst at JP Morgan in Seoul.

Limited risk

The first is that labor strike threats are extensive enough to represent a systemic risk to the nation's economy and the second is that labor unions represent the majority of Korean workers.

Only one worker in eight is in a union, government data show.

Analysts point out that well-organized trade unions are good at mobilizing industrial action that attracts heavy media coverage.

They draw parallels with France, which is also perceived as having frequent union-led labor disputes, but where only one in 12 workers belongs to a union.

By comparison, union membership in Japan stands at more than 20 percent, Taiwan at nearly 40 percent and Britain at about 29 percent, according to South Korea's commerce ministry.

Currently, strike threats are limited to Hyundai Motor Co, the national railway network and some relatively small firms.

Not a single member company from South Korea's top two conglomerates, Samsung and LG, were disrupted by strikes this year. Their combined annual sales account for more than 40 percent of GDP.

The Seoul stock market is still a third higher than its 52-week low reached in March. Spreads on South Korea's sovereign bonds, which rose recently on increased supply, are now stable at around 113 basis points over US Treasuries.

"By my understanding, they [unions] stage protests from time to time. So far, the labor actions have not reflected on the spread of Korean corporates and banks," said Carl Wong, regional credit analyst at Bank of America in Hong Kong.

Of course, foreign investors could be forced to rethink investment plans if labor unrest spreads and results in higher labor costs and lost production.

Wage growth

Government data showed last week labor costs per hour rose an average of 4.7 percent over the past four years and wage growth was almost double that of productivity growth.

The slowdown in the economy and a perceived softer line on labor by the new government of President Roh Moo-hyun, a former labor lawyer, has helped put the spotlight on labor issues like never before, analysts say.

"People will naturally become more sensitive on labor disputes in a recession period compared with a booming period," said Oh Suk-tae, an economist at Citibank in Seoul.

South Korea's economy is on the brink of its first recession in five years as indebted consumers stop spending and companies remain reluctant to invest.

The government has said that so far this year the losses incurred from industrial action have been minimal.

Last year, South Korean companies suffered 1.72 trillion won (US$1.45 billion) in lost production due to labor stoppages. Work stoppages amounted to 1.58 million man days -- the number of workers multiplied by the number of days lost.

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