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South Korea adjusts to labor's assertiveness

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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.


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