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Caution urged on labor reforms that may deepen inequality

Published: 28 Jul. 2025, 00:04

Cho Joon-mo

The author is a professor of economics at Sungkyunkwan University and a member of Reset Korea's Employment and Labor Committee.

The Lee Jae Myung administration has placed the expansion of workers’ rights at the center of its labor agenda. Proposed initiatives include revising Articles 2 and 3 of the Trade Union Act — commonly referred to as the “Yellow Envelope Bill” — as well as introducing a four-and-a-half-day workweek and extending the mandatory retirement age. These ideas are framed as fair and progressive, and may be seen as natural steps forward. Yet the true test of any policy lies not in its intentions but in the structural outcomes it produces. Even policies rooted in goodwill must be reconsidered if they ultimately worsen inequality.

The key points of the proposed Trade Union Act revisions are reducing damage compensation liability for illegal strikes and extending the scope of collective bargaining to include parent companies. On the surface, these reforms appear to support subcontracted and nonstandard workers. But the reality is more complicated.

Progressive Party lawmakers and members of the Korean Confederation of Trade Unions hold a press conference at the National Assembly in Yeouido, western Seoul, as they begin a sit-in demanding the swift passage and implementation of the “Yellow Envelope Bill" on July 25. [YONHAP]

Outside of a few large conglomerates, most primary contractors are small- and mid-sized enterprises (SMEs) with limited financial capacity. Furthermore, most workplaces in Korea lack labor unions altogether. There are no formal channels for labor-management dialogue in many of these businesses. As of 2023, Korea’s overall unionization rate was just 13 percent, and for workplaces with fewer than 30 employees, that number was a mere 0.1 percent. In this context, expanding the scope of bargaining does little to guarantee real benefits for most workers.

Efforts to reduce working hours also come with complications. The proposed workweek reduction is largely being explored in the public sector and by large firms. Reducing working hours, however, does not simply mean cutting employee time on the job. To maintain output and meet deadlines, businesses must either hire more workers or raise productivity. While major companies may have the resources to invest in personnel and technology, small businesses often face rising labor costs and reduced productivity.

In Korea’s manufacturing sector, where productivity remains relatively low, shorter working hours could result in missed deadlines and decreased revenue. Although the government promotes AI and robotics as tools to support this transition, this reflects a reversal of cause and effect. Technological innovation must come first for shorter hours to be viable — not the other way around.

Current discussions about extending the retirement age center on a relatively small subset of the work force: the 13 percent of regular employees whose job security is already stable. In many private-sector firms, experienced workers past retirement age are already rehired on short-term contracts or used flexibly based on need.

Extending the retirement age by law would disproportionately benefit regular employees in the public sector and large corporations. From a corporate perspective, retaining older workers under the traditional seniority-based pay system could lead to a rigid structure of high wages and low productivity. In response, companies may reduce new hires, particularly among young job seekers, or increase reliance on subcontractors and irregular labor to cut costs.

Rather than viewing retirement reform as a straightforward expansion of worker rights, policymakers must weigh its impact on the flexibility and fairness of the entire labor market.

Policy is not an experiment. Some argue that policies should be implemented first and adjusted later. But once labor-related laws and systems are institutionalized, they are difficult to reverse. If reforms are not grounded in economic realities, they risk producing long-term harm, particularly in a labor market already under stress from AI-driven automation, protectionist trade policies and the climate crisis.

Now, more than ever, labor policies must be precisely tailored to real-world conditions. Rather than symbolic legislative changes, what Korea’s labor market needs are structural solutions that address deep-rooted inequalities.

Kwon Ki-seop, chair of the Economic, Social and Labor Council, speaks during a briefing titled “Public Interest Proposal on Mandatory Continued Employment for Older Workers” held at the council's office in Jongno District, central Seoul, on May 8. The council proposed a compromise that partially accepts labor unions’ calls to raise the mandatory retirement age from 60 to 65 by requiring continued employment, while also allowing companies to adjust working hours and job duties through labor-management negotiations. [YONHAP]

Before extending retirement age, the government should first ensure that robust safety nets are in place to support the majority of workers seeking jobs later in life. Rather than simply broadening employer obligations, the focus should be on helping companies build diverse internal communication channels to collectively navigate future uncertainties.

In the end, policies must be evaluated by their outcomes, not their slogans. Korea must take a hard look at whether current proposals are unintentionally reinforcing labor market dualism. True reform begins not with abstract ideals, but by designing systems that reach and uplift the most vulnerable workers.

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.