Plight of contract workers at heart of South Korea reform challenge

Fifteen years ago, Park Soon-bo joined South Korea's largest carmaker on a short-term contract. Now 42, he is still assembling transmissions at Hyundai but - in spite of legislation stipulating that he should become a staff worker after two years - he remains on contract.

"We all make the same transmissions on the same production line but we only get about 60 per cent of what regular workers are paid, with no welfare benefits," says Mr Park. "And we have to constantly worry about job security as the production lines become increasingly automated."

Hyundai has appealed against a September court ruling under which it was told to put about 1,200 contract workers at Hyundai, including Mr Park, on a regular payroll. The company says it is gradually converting contract workers into permanent staff.

"We want to resolve the problem of contract workers on a voluntary basis through discussion with the union, rather than exhausting legal wrangling," Hyundai said, noting that the company had put about 2,800 contract workers on a regular payroll since July 2012 and planned to expand the figure to 4,000 by the end of this year.

The plight of South Korea's 6m contract workers and the polarisation of the 18m-strong workforce goes to the heart of the country's reform challenge.

President Park Geun-hye has put the labour market at the core of structural reforms aimed at reviving economic growth. South Korea's economy grew just 0.4 per cent in the last three months of last year from the previous quarter - the slowest pace for two years.

"Our economy is at a crossroads," she said recently in a meeting with business leaders. "Job creation and economic revival will be possible only when we create a new employment-friendly labour market structure."

But workers and unions fear that this overhaul - which includes extending the contract period for people such as Mr Park from two years to four years - will only create more contract workers with fewer rights.

Already, South Korea has one of the highest rates of temporary employment - 32.4 per cent - in the OECD.

As many as 200,000 workers in the car and construction industries are expected to go on strike on April 24 to protest against the reforms.

"They have to create jobs by reducing working hours. They say regular workers are overprotected but we are also constantly laid off through various programmes," says Park Sung-shik, spokesman for the Korean Confederation of Trade Unions.

Employers argue that strong worker protection deters them from making staff permanent.

"Shedding staff is really difficult even if there are real laggards, unless the company is on the verge of going under," says Kim Dong-wook, director at the Korea Employers' Association. "So companies prefer hiring contract workers, who are paid less and are easier to sack."

Economists see South Korea's rigid labour market as a threat to its competitiveness.

"Sustained rapid growth has brought GDP per capita to within a quarter of the upper half of the OECD countries," the club of mainly rich nations said in a recent report. "However, productivity in Korea is only about half as high, while working hours are among the longest in the OECD."

The two-tier labour market contributes to poor productivity and income inequality, the OECD says. It suggests fewer rights for staff workers and a bigger social safety net for contract workers.

In an era of high wages, low productivity and a slowing economy, young people lose out, Mr Kim says, pushing the country's youth unemployment rate to a 15-year high of 11 per cent in February.

A flood of reforms are planned for this year. The government wants to make it easier to cut jobs and overhaul the seniority-based wage structure, while also strengthening protection for temporary workers.

This month's strike makes clear that the reform path will not be easy. "The government is keen to push through labour reforms but tackling such divisive issues will likely worsen the country's labour relations this year," says Byun Yang-gyu, researcher at Korea Economic Research Institute.

In a bad economy, even staff workers are worried about the future.

Hwang Ki-tae, a 53-year old staffer on Hyundai's transmission production line, has spent the last 30 years at Hyundai. "We also worry about job security, when cars are not selling well due to an external crisis or the exchange rate," he says. "We work 10 hours a day to get extra pay for overtime because our base pay is low. The government's proposals are just unacceptable as they will just make things worse by making lay-offs easier."

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