Path-dependent trajectories of labor market and social protection reforms biased in favor of the interests of labor market insiders explain the rapid rise of dualism and inequality in the two countries.
Intro
VoC framework: does not provide a sufficient explanation of the variations in labor market dualism and inequality within CMEs.
Japan: conservative policymakers large firms core regular workers shielding labor market insiders from regulatory pressure + eroding regulations protecting outsiders for flexibility dualism and inequality
Korea: strength of large chaebol unions obstructing the implementation of state’s labor reforms at the firm level labor market dualism and inequality
Explaining labor market dualism and inequality in Japan and Korea
Both Japan & Korea: traditional absence of social-democratic parties weak explanatory power of “political” argument compared to EU
Japan:
- liberalized temporary employment for non-regulars;
- decentralized wage bargaining;
- consolidation of the dualistic welfare state
Korea:
policymakers & chaebol employers position: full-scale labor market reforms for insiders and outsiders + flexible labor markets;
large chaebol unions: fiercely opposed such reforms
Insider-outsider differences
Japan’s labor policy:
- representing interests of large firms and their core regular workers;
- deregulation of temporary employment – agency temps (haken shain) and contract workers;
- maintaining employment protection for insiders
Period of high growth: large Japanese firms promoted skilled non-regular workers to regular employment – tight job security, wages & welfare benefits solving the problem of labor shortage
1970s oil crises:
- layoffs for non-regular workers (mostly female part-time and temps workers);
- protecting core regular male workers;
- share of non-regular workers – 15-20% till the late 1980s;
- most non-regulars: middle-aged female part-timers, secondary-income earners in families
Worker Dispatch Law:
- 1986 legalized employers’ rights to hire agency temps (haken shain)
- 1990 and 1996 revisions: occupational categories expanded to 16 and then to 26, but they were restricted to professionals (e.g., interpreters and software engineers);
- 1999: “negative list system”;
- 2003: complete lifting of restrictions
Number of agency temps: 280,000 in 1999 1,400,000 in 2008
Global financial crisis:
- agency temps in the manufacturing sector – primary target of labor adjustment;
- 207,381 workers laid off between October 2008 and June 2009;
- > 60% of the laid-off workers: agency temps in the manufacturing sector
In-house subcontracting:
- Electronics – 53.9%
- Precision machinery – 34.9%
By 2010:
- > 50% of females and young workers – non-regulars;
- > 80% of middle-aged male workers – core regular workers
Korea:
- 1987 democratic transition labor reform initiative;
- chaebols & their unions: not accepting the state’s labor reform proposals for wage moderation;
- president Kim Dae-jung in 1998: reforms to allow employers to lay off redundant core regular workers improvement of workers’ basic rights;
- chaebol unions: blocked the initiative;
- 2000: Hyundai Motors union – pushed for regular workers’ protection guarantees;
- chaebols choice: increase in non-regular hiring + subcontracting;
- SMEs’ labor productivity vis-à-vis large firms: 40.3% in 1996 31.4% in 2004;
- automobile recovery no increase in the hiring of regular workers;
Firm-centered collective bargaining
In contrast to other CMEs, Japan and Korea: decentralized industrial relations based on enterprise unions
Union organization rates (1990-2008):
- Japan: 25.2% 18.1%;
- Korea: 17.2% 10.5%
Inter-firm discrepancies (unionization rates):
- Japan: 45.3% of firms with > 1,000 workers 1.1% of firms with < 99 workers;
- Korea: 45.4% firms with > 300 workers 3.1% of firms with < 99 workers
Japan:
1975 shuntō: business, labor, and government political compromise: employment protection wage restraints price stability
Number of labor strikes: peaked in 1974 dramatically subsided in late 1970s
Mid-1990s onward: SMEs not able to follow the guidelines for wage increases established by large labor unions wage increase differentials across firms became more salient
Most unions representing insiders: forced to accept a trade-off between employment protection and wage restraints
Increase in hiring non-regular workers weakened bargaining leverage for labor unions
Korea:
Democratization:
- industrial disputes: 276 in 1986 3,749 in 1987;
- union organization rates: 13.8% 17.8%;
- distributional conflicts between chaebols and their unions
In contrast to Japan: Korean state took the primary role of coordinator in wage bargaining
Chaebol firms:
- historically prioritized stabilization of industrial relations in their firms and workplaces buying industrial peace;
- gave up the demand for high wages and generous corporate welfare benefits;
- hiring of more non-regulars + subcontracting of production lines to SMEs controlling labor costs;
Post-1997 (Asian financial crisis):
- few large competitive chaebols still capable of offering high wages to core regular workers under the protection of strong unions;
- smaller chaebols and SMEs struggled to survive;
- industry federations (e.g., the financial and metal industries) attempt to lead industry-wide wage bargaining during the 2000s;
- however, enterprise unions in large competitive chaebol firms refused to join opted for more decentralized collective bargaining at the firm level
Expansion and retrenchment of social protections
Japan & Korea: unable to effectively enhance social protections for labor market outsiders:
- expansion of social protections for SME and non-regulars;
- however, limited impact on the economic gap between insiders and outsiders
Some social welfare reforms:
- protections and benefits for core regular workers in large firms;
- persistence (or even widening) of gaps between insiders and outsiders;
- intentionally reinforced the dualistic welfare regime
Japan:
1974 (immediately after the first oil crisis) – Employment Insurance Program:
- steady economic growth and low unemployment rates did not cause worries about unemployment and the sustainability of the program;
- however, in 1990s: financial deficits of the Employment Insurance Program (especially in 1994) + rise of non-regulars concerns about the fiscal stability and extent of the program;
- voluntarily unemployed: duration of insurance benefits shortened from 90-300 days to 90-180 days. Mostly outsiders;
- laid-off workers (because of corporate bankruptcy and/or industrial restructuring): extended from 90-300 days to 90-330 days. Mostly insiders
Pensions:
- 1985 pension reform: first retrenchment of pension benefits since the establishment in 1961;
- increased contribution premiums of the Employee’s Pension Insurance (Kosei Nenkin Hoken) for private sector workers from 10.6% to 12.4% tackling financial instability of the public pension system confronting pressure of an aging society;
- reduced earning-related benefits by 5%, raised contribution premiums for the Employee’s Pension Insurance;
- began to shift the minimum age for pension insurance benefits from 60 to 65 years old;
- firms’ introduction of “the wage peak system” restraining annual wage increases for older workers
Non-regular employment:
- part-time workers: 25% of the labor force by early 2000s, more than 2/3 of the non-regular workforce;
- business and organized labor: strongly opposed government’s reform proposal to extend the Employees’ Pension Insurance to part-timers;
- middle-aged women (part-timers’ majority): also opposed the extension of the program coverage. Reason: already covered by their husbands’ public pension programs preferred to keep the amount of the take-home pay without paying additional welfare contributions
Korea:
From 1987 onward: expansion of social welfare programs.
Roh Tae-woo administration (1988-1992) launched the National Pension Program (Kukmin Younkeum) for firms with more than 10 workers in 1988 and expanded the National Health Insurance Program
1995 – Employment Insurance Program:
- for firms with > 30 workers, SMEs and non-regulars;
- insurance benefits: from 30-210 days to 90-240 days;
- however, as of 2005, only 2/3 of the regulars and 1/3 of non-regulars covered
Kim Dae-jung administration (1998-2002): rapidly extended the coverage of the National Pension Program to the urban self-employed, informal urban workers, and SME workers.
However, pension reforms in 1998 retrenched insurance benefits, raised insurance premiums, and increased the age of pension.
2007 pension reform:
- reduced the level of replacement ratio from 60% to 40%;
- failed to alleviate insider–outsider gaps. Non-regulars not qualified as “waged workers” employers not required to pay half of the premiums non-regulars would have to pay the entire contribution premiums non-regulars discouraged from enrolling in the National Pension Program;
- discouraging or even blocking non-regulars from enrolling in the program favored core regular workers by protecting financial stability of the National Pension Program
After the 1997 financial crisis: economic gaps between regulars non-regulars exacerbated the expansion of the Employment Insurance Program and the National Pension Program
Conclusions
labor market insiders: continued to enjoy strong employment protection, high wages, and generous welfare benefits even after labor market and social protection reforms;
labor market outsiders: forced to absorb the costs of the business cycle and economic distress due to a high risk of job insecurity, low wages, and poor benefits