South Korea adjusts to labor's assertiveness

In 25 years, South Korea has accomplished economically what Western nations took a century to achieve. Now economic planners and business managers here fear the miracle might be coming to a halt. They are anxiously watching the wave of industrial strikes, more than 1,000 in the last month, which is still spreading (See strike update, Page 2.). Demands for more wages and shorter working hours are being pressed.

Labor's assertiveness threatens some of the key foundations of South Korea's success. Like Japan, Korea has forged a combination of an efficient bureaucracy, a strong private sector, and a disciplined labor force willing to work long hours for relatively low pay. Those advantages have been applied to producing better quality exports which can be sold more cheaply than the competition's.

Can South Korea, economic managers are asking, afford to pay its workers more? And what will happen to export success, the engine of economic growth?

Most are relatively optimistic. Labor unrest and higher wages will only accelerate a process of change already under way. Korea is gradually shifting from an economy based on labor-intensive, low-skill industries to one based on higher technology industries.

The problem, pessimists contend, is that the process may be getting out of control already.

``It's just happening in such a short time and on such a massive scale,'' worries labor economist Park Koo Fun of the Korea Development Institute (KDI), a government-linked think tank.

``Export performance will be affected,'' predicts Mr. Park, ``especially of labor-intensive firms.'' Exports such as textiles, garments, footwear, and some consumer electronic products are made by very low-wage labor, often female workers paid as little as $125 a month. The competitiveness of such products depends in large part on labor costs.

Korean manufacturers are under pressure from even cheaper-cost producers in countries like China, India, and Malaysia. Still, Park says, such exports make up about half of Korean exports. In turn, ``export damage will immediately appear in gross national product performance,'' the economist says.

The KDI has released a relatively pessimistic prediction of the impact of higher wages on the economy. In their worst case scenario, an added 5 to 6 percent in wage increases would reduce GNP growth next year from 8.5 to 5 percent. Export growth would slow by half and South Korea's recent balance-of-payments surplus would drop from $6 billion to $3 billion.

The KDI economists also warn that if change comes too rapidly it will hurt labor by producing unemployment. Confronted with higher wages, they argue, businessmen will shift to automation. ``If they do so, businessmen can make a profit,'' says KDI president Koo Bon Ho, ``but it will accelerate unemployment, because capital will substitute for labor.''

But many consider this conclusion overdrawn. One well-informed executive said such dire forecasts are calculated to be used as arguments against wage increases.

The structural change ``is now inevitable,'' argues Koo Bon Young, an official of the government's Economic Planning Board. ``Owners must be responsive to workers' demands and we must be efficient to be competitive....'' Such change should ``come gradually'' he believes.

Even conservative South Korean planners recognize that labor has real grievances. During the 1980s, after rapid increase of wages in the 1970s, wage increases were kept low. The economy has been booming the last two years, with growth rates now at an incredible 15.3 percent. The increase in labor productivity in 1986 was more than double the wage increase. ``It is a really dynamic society, so labor wants their fair share,'' says KDI president Koo Bon Ho.

While income has risen, there is a strong feeling of disparity between workers and the newly rich. The redress, says Koo, ``is an unavoidable process we are going through.'' Hopefully, he adds, ``we will regain a new sense of cooperation between management and labor,'' and grow at a healthy rate of 7 to 8 percent. The key will be what kind of labor-management relations evolve.

Business and government circles promote the Japanese model of unions, which work closely with managers, displaying company loyalty in exchange for involvement in decisions and guarantees of lifetime employment. Even such a system will require a change of attitude by self-made millionaires, Korea's equivalents of Henry Ford and Andrew Carnegie, who built empires like Hyundai.

Such men, says Koo, grew up in poverty and see no basis for the complaints of their young workers. ``You can easily build a highway or a modern factory,'' says Koo, ``but people's consciousness cannot be modernized so fast.''

S. Korea labor profile

Average monthly wage of industrial workers: 350,000 won (about $435).

Average work week: 53.8 hours.

Unemployment in 1986: 3.8 percent.

Source: South Korean government