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Labor law revision undermines Korea’s investment appeal

Published: 17 Apr. 2026, 00:00

Unionized workers of the Korean Confederation of Trade Unions shout slogans during a rally in central Seoul on March 10, the first day the so-called yellow envelope law went into effect.[YONHAP]

Korea’s standing as a key investment hub in Asia is showing signs of weakening. In a 2026 business environment survey conducted by the American Chamber of Commerce in Korea, Korea fell to third place as a preferred location for Asia-Pacific regional headquarters among global firms operating in the country. It ranked behind Hong Kong, despite the territory’s proximity to mainland China, which adds to concerns about Korea’s relative competitiveness. More concerning is that respondents identified labor policy and labor market flexibility as the biggest challenges to doing business in Korea. The share of such negative assessments surged from 9.4 percent a year earlier to 71 percent, indicating a sharp deterioration in perceptions among global investors.

At the center of these concerns is the so-called yellow envelope law, a revision to the Trade Union and Labor Relations Adjustment Act. The intent of the law — to ease structural inequalities between primary contractors and subcontracted workers — is widely understood. It seeks to address a system in which the main contractors capture most of the profits while subcontracted workers remain disadvantaged. The issue lies in how the law has been implemented in practice.

The revised framework broadens the definition of employers and expands the scope of collective bargaining in ways that many companies say are overly vague. Some interpretations suggest that even managerial decisions could become subject to negotiation. The law also allows subcontracted unions to demand separate bargaining with primary contractors. Businesses warn that such provisions could result in continuous negotiations throughout the year, undermining operational stability and long-term planning.

Signs of disruption are already emerging. Within a month of the law’s implementation, more than 1,000 subcontracted unions requested negotiations with over 300 primary contractor workplaces. Major companies including Hyundai Motor and Posco are facing pressure from multiple unions seeking parallel talks. The European Chamber of Commerce in Korea has criticized the law as one that risks treating business leaders as potential criminals, even raising the possibility of companies withdrawing from the Korean market. Such concerns appear to conflict with the policy direction of President Lee Jae Myung, who has emphasized regulatory reform and economic rationalization.

Preserving the intent of the law while reducing unintended consequences is essential. Bargaining between subcontracted unions and primary contractors should be permitted only when employer responsibility is clearly established. The scope of negotiations should also be limited to essential matters rather than broadly defined possibilities.

Protecting labor rights and maintaining industrial competitiveness are not mutually exclusive goals. Countries that lose businesses cannot sustain quality jobs. If even Korean firms look abroad while foreign companies turn away from Korea, the purpose of such policies comes into question. With young people already facing a shrinking job market, addressing these issues has become increasingly urgent.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.