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South Korea's New Labor Regulations Protect Big Businesses

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South Korea's New Labor Regulations Protect Big Businesses

March 15, 2018

South Korea recently reduced the maximum workweek for most industries from 68 hours to 52 hours in an attempt to promote worker health and productivity. The reduction, and the work-week cap initiative, are spurred in part by South Korea’s third-highest annual average of working hours in 2016 among OECD countries. At the same time, South Korea increased its minimum wage by 16% in 2018 from $6.08 per hour to $7.08.

South Korea should reconsider these new policies and look to the United States, which does not have a federal limit on overtime hours.

The number of hours Americans work per year has been declining since 1950 without federal action. For example, in 1953 Americans worked an average of 1,986 hours (part- and full-time work), while they worked an average of 1,783 hours in 2016. Overtime caps are one excessive labor regulation that the United States has avoided, helping it achieve a higher GDP per capita than competitors operating under the European Union’s Working Time Directive of 2003. The EU Time Directive limits workers to an average of 48 hours per week, including overtime.

In 2016 South Koreans worked an average of 2,069 hours, compared to the average of 1,763 for OECD countries. South Koreans averaged 40 hours per week, and Americans averaged 34 hours per week. The OECD data count both dependent and self-employed individuals, and every country has a different rate of self-employment, making exact comparisons of working hours difficult.

Different cultures have different preferences for work-life balance. The phenomenon of working to death in South Korea, known as ‘kwarosa,’ is well-documented, while the United States does not have this problem. But while South Korea does face a serious problem, and worker productivity does decrease over the course of a day, there are other solutions.

For example, South Koreans can be encouraged to use more of the vacation days that they are voluntarily foregoing or stockpiling. They could be encouraged to take everyday steps to reduce work-related stress such as unplugging on the weekends, and keeping work separated from home life. Health and productivity problems can be mitigated with personal action and negotiations over work hours, without the negative consequences that federal intervention creates.

Some employers have limited working hours without a government mandate. South Korea’s 10th-largest conglomerate, Shinsegae, cut its workweek from 40 to 35 hours without a pay cut. This limit might lead its workers to get the same amount of work done in less time, but that is just another reason for the government to shy away from this new overtime cap. It is in businesses’ own interest to find the right balance between work and rest to maximize productivity.

South Korea’s federal actions reduce workplace flexibility. The Korean Federation of Micro Enterprise said that small and medium-sized business owners who cannot afford to hire new employees would be forced to take on more hours themselves as a result of the overtime cap. The new workweek cap exempts businesses with fewer than 50 employees, discouraging small firms from expanding.

Companies with a thinner profit margin in South Korea are also being squeezed by the increased minimum wage. The new minimum wage is leading small restaurants and self-employed franchisees to either automate much of their workforce or raise prices.

Moreover, bigger businesses are protected by workweek caps because they limit start-up companies from putting in the kind of hours it often takes to get established. Many jobs also fluctuate in intensity, and companies’ abilities to adjust their work schedules would be affected.

Another problem is that the flow of available labor could be reallocated because people, especially those still in school, might shift their career choices. Job-seekers weigh many factors: pay, benefits, effort and hours required, prestige, fulfillment, opportunities for growth, and more. Altering the relative benefits of a type of job restricts employers’ ability to attract new workers. 

This kind of labor reallocation slows a nation’s move toward its natural comparative advantage.  Additionally, a worker can get around the new regulations by taking a second job and surpassing the workweek cap—unless the government wants to waste taxpayer dollars with a new surveillance prerogative, all in the name of saving employees from themselves.

In short, the magic wand of South Korea’s government—any government, for that matter—cannot be expected to bestow blessings in this way without also delivering some curses. Ambitious individuals that see their work as their own “Everest” can judge for themselves whether their productivity is decreasing as they work more hours. The government should target any employers that unjustly coerce workers, rather than blanketing all businesses with a burdensome regulation.

The government is not the best institution to determine how employers and employees should maintain health and productivity, especially considering the evolving nature of work. South Korea might find its new law is more trouble than it is worth.

Joshua Hardman is a contributor to Economics 21. 

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