How Korea helped create ‘monster unions’

Audio report: written by reporters, read by AI

Lee Sang-ryeol

The author is a senior editorial writer at the JoongAng Ilbo. 

“We are fortunate that the United States is checking China, giving Korean companies more time.”

The comment came from Kwon Oh-hyun, a former Samsung Electronics chair who led the company’s semiconductor rise. His point was clear: Korea’s current semiconductor boom is not solely the result of domestic competitiveness, nor is there any guarantee it will last.

He is not wrong. China has already caught up with Korea in many key industries including home appliances, electric vehicles, batteries, steel and petrochemicals. Semiconductors remain one of the few sectors where Korea still holds an advantage. Yet even in that industry, Samsung Electronics and SK hynix recently faced controversy over enormous performance bonuses linked to soaring profits from the global AI boom.

The issue extends far beyond the companies themselves. Bonus systems tied to a fixed percentage of operating profit are rapidly spreading across the industry. More importantly, the situation raises broader questions about whether the Korean economy remains structurally healthy.

The first issue concerns the future. In highly competitive advanced industries, it is difficult to find examples of companies promising workers a long-term share of operating profits while fighting for technological survival. Samsung reportedly agreed to maintain such a system for a decade. According to securities industry estimates, if Samsung continues generating the expected profits, the company could pay more than 120 trillion won ($80 billion) in bonuses over the next three years under a formula allocating 10.5 percent of business performance to employees. For some memory chip division workers, payouts could exceed 2 billion won per person.

That amount is comparable to Samsung's total research and development (R&D) spending over the past four years. The question is whether the company can continue maintaining its technological lead while distributing such a large share of profits internally. Global technology firms such as Google and Meta, along with Chinese competitors, are aggressively increasing investment even through external financing. History offers few examples of companies maintaining top-tier competitiveness after prioritizing the distribution of boom-time profits over future investment.

The second issue involves shareholders. In principle, the owners of a corporation are its shareholders. Yet little attention appears to have been paid to their interests during negotiations that institutionalized massive employee bonuses tied to operating profits. Shareholders could argue that dividend returns have effectively been reduced, while resources available for future R&D and facility investment have also declined.

The debate expanded further when Kim Young-hoon, minister of employment and labor, publicly referred to the idea of “sharing excess profits.” Even the term “excess profits” is controversial. More fundamentally, the notion that the government should intervene in determining how corporate profits are distributed raises questions about compatibility with market principles.

The third issue concerns the balance of power between labor and management. The decisive leverage in Samsung’s negotiations was the threat of a strike. The possibility that a union could halt semiconductor production shocked not only management but also the public. Reports suggested direct and indirect losses from a strike could exceed 100 trillion won, yet the union appeared undeterred.

Management clearly bears responsibility for failing to establish a compensation system that employees considered fair. Yet from the beginning, the company faced a negotiation it could hardly afford to lose because any strike had to be avoided at all costs.

When unions are unconcerned about financial damage, reputational harm or broader economic consequences, negotiations naturally tilt in their favor. For that reason, labor laws traditionally limit the conditions under which strikes may occur and impose liability for damages caused by illegal strikes.

In Korea, however, that balance has shifted sharply toward organized labor under the Lee Jae Myung administration. A revision to the Trade Union and Labor Relations Adjustment Act, commonly known as the "Yellow Envelope" law, is frequently cited as evidence. The revision expanded the range of management decisions subject to bargaining and strikes while significantly limiting the circumstances under which companies can seek damages from unions. Strike rights became stronger while safeguards weakened.

Critics, therefore, argue that it is not unreasonable to see the revised law as creating conditions for the moral hazard displayed during Samsung’s labor dispute. The government itself appeared reluctant to intervene. Authorities declined to invoke emergency mediation powers to stop the strike threat, while Minister Kim justified mediation efforts by describing semiconductors as “a public good.” If the government truly believes semiconductors are essential public assets, critics ask whether strikes at semiconductor companies should be legally restricted in the same way as strikes in defense industries.

There is a saying that badly behaved children often reflect bad parenting. Behind unions accused of ignoring social responsibility and corporate competitiveness lies a labor policy that many believe has tilted the field too far in one direction. The question now is whether policymakers understood the consequences such changes could bring.

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.