Focus: The two crises and inequality in the labour market

Abstract

INTERNATIONAL union rights Page 3 Volume 22 Issue 1 2015 FOCUS ❐ SOUTH KOREA The two crises and inequality in the labour market Kwang-Yeong Shin describes how the employment situation for workers in Korea has been greatly changed in the wake of the financial crises of 1997 and 2008 KWANG-YEONG SHIN is Professor with the Department of Sociology at Chung-Ang University in Seoul of chaebol companies, aimed at dismantling the economic institutions, norms, and culture that had developed in the period of rapid economic growth under the authoritarian regime. The IMF’s bailout package resulted in demolishing almost half of the 50 largest chaebols and creating more than one million newly unemployed in 1998. It was, in short, an attempt to abolish an economic system that was associated with crony capitalism, in which state intervention played a key role in the management of firms in the private sector, and to reinvigorate market forces that would be open to global financial capital. Market liberalisation and deregulation of the labour market were introduced simultaneously, without consideration of their social effects on the distribution of income. The restructuring was accompanied by massive layoffs to downsize the companies. By 1998, there were more than 100 thousand newly unemployed each month, resulting in a total unemployed figure of almost two million. The rate of unemployment skyrocketed immediately following the financial crisis, rising from 2.1 percent in October 1997 to 8.8 percent in February 1998. The size of the labour force decreased by more than 2.5 million, from 21,373,000 in February 1997 to 18,873,000 in February 1999. Those who were not in the labour force, due to the failure to obtain a job, were not even included in the government’s unemployment rate calculations; if these people were to be included, the number of people who were out of work would exceed four million. Elderly workers and female workers were the main layoff targets. Under the seniority wage system, older workers with higher wages were most vulnerable to mass layoff as employers tried to reduce labour costs. Female workers were vulnerable because the male bread-winner model was strongly supported by employers. One result of restructuring the economy was a freeze on the recruitment of new employees in the entire business sector and the public sector, generating massive numbers of young adults who failed to get jobs, including university graduates from February 1998. Consequently, unemployment among young adults also drastically increased. The rate of unemployment among adults under 25 years of age doubled from 7.7 percent to 15.9 percent between 1997 and 1998, a 21.4 percent reduction in employment compared with the previous year. The high unemployment rate of young adults has not changed significantly since 1998, as structural adjustment and restructuring has continued to occur. Young adults have been unable to avoid being squeezed out of employment. The number of people aged 18 to 29 years who were in employment decreased from 5,301,000 in 1997 to 3,856,000 in 2011; the T he 1997 financial crisis exacerbated the rising trend in income inequality through neoliberal economic reforms, policy measures to resolve the financial-cum-economic crisis , being implemented by the Korean government under the guidance of the IMF. Another financial crisis in 2008, triggered by the subprime mortgage crisis in the US, made rolling back the increasing inequality more difficult. The Gini coefficients for household income inequality and individual wage inequality had both decreased steadily up until the early 1990s, but then rose rapidly from 1992 onward, five years before the financial crisis in 1997. Although South Korea has fully recovered from the economic crisis in terms of GDP per capita and dollar reserves, symptoms of social crisis such as the world’s highest rate of suicide and a rise in violent crime have been observed as aftermaths of the neoliberal economic reforms undertaken by both liberal and conservative governments. As a consequence, political discourses on inequality, called ‘discourses on social polarisation’ are now significant public issues. The rise in inequality is an outcome of the complex economic, political, and social changes occurring in contemporary South Korea. In the following...