Linking growth to jobs

Korea needs to restructure job market to drive growth beyond chip sector

A country can have a record current-account surplus and still have too few jobs. South Korea is providing a fresh example of this awkward contradiction.

Semiconductor exports are lifting growth forecasts toward 3 percent, while the labor market is losing momentum. The economy is accelerating on paper while slowing where people look for work.

The state-run Korea Labor Institute cut its forecast for this year's increase in employment from 210,000 to 103,000 in a report released Thursday. It expects the employment rate to fall to 62.7 percent and the unemployment rate to rise to 2.9 percent.

If those projections materialize, the employment rate will decline for the first time since the pandemic-stricken year of 2020. Falling employment and rising unemployment have coincided only four times since 2000.

The weakness is especially troubling among young Koreans. Employment among people in their 20s has fallen for 44 consecutive months, while their employment rate dropped 1.3 percentage points in the first half from a year earlier.

The decline is concentrated at the point of entry. The number of young people with three months or less on the job has fallen sharply, while new graduates have been hit harder than the broader age group.

Demographics offer only part of the explanation. If population decline were the main culprit, the deterioration would be less concentrated among new entrants. Instead, a growing number of young job seekers are delaying graduation or remaining outside the job market as companies tend to favor experienced workers.

The broader figures point to another imbalance. By industry, manufacturing shed 62,000 jobs in the first half. Services added 300,000 jobs, yet most of the increase came from health and social welfare, while professional, scientific and technical services lost 88,000.

Meanwhile, regular employment grew at only one-third of last year's pace, and nonwage workers accounted for two-thirds of total employment growth. This is hardly the profile of a broad-based private-sector recovery.

The Korea Labor Institute attributes the weak employment picture to the economy's heavy reliance on semiconductors, even as growth forecasts are being raised toward 3 percent.

Chipmaking, after all, is highly capital-intensive and generates less than half as many jobs per unit of output as manufacturing overall. Since the increase in exports is largely driven by rising memory prices, the corresponding gain in physical output, which is more closely tied to employment, has been limited.

Whether Korea's job market can improve in the second half, therefore, depends on the recovery of domestic demand and sectors beyond semiconductors.

State-led cash assistance and short-term public jobs can cushion a downturn, but they cannot create a healthy labor market. Policies should put greater weight on expanding the supply of quality jobs that can absorb workers over time.

Services could be a good place to start. They account for more than 70 percent of employment and about 60 percent of GDP, yet Korea's service-sector labor productivity remains near the bottom of the OECD. The long-delayed service industry development bill deserves renewed attention, alongside regulatory reform that allows productive service businesses to expand.

Artificial intelligence adds another dimension to the job-creation challenge. Korea has abundant technological capability, but technology becomes economically useful only when firms can turn it into products and services.

Universities and research institutes need clearer routes to commercialization, while startups and smaller companies should have greater access to AI infrastructure.

Semiconductors can remain Korea's main growth engine, at least for a while. They cannot, however, serve as the country's sole job provider. A healthy economy needs a transmission belt from productivity and exports to domestic demand and employment. Policymakers should repair that loop before another strong growth headline masks how little of the growth reaches workers' paychecks.

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