Korea

Going for Growth 2016: Korea

 

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‌The productivity level in services relative to manufacturing is particularly low in Korea, dragging down economy-wide labour productivity, which is significantly below the average of the upper-half of OECD countries. Therefore, reducing regulatory barriers to competition and innovation in network industries as well as professional services and retail distribution remains a key reform priority. Another notable challenge is rapid population ageing. In a context where labour force shortages may increase, boosting the full-time labour participation of women has been high on the policy agenda. However, this requires comprehensive reforms that not only remove institutional disincentives for full-time labour participation but also promote a working environment that helps reconcile work and family responsibilities.

1. Business sector services cover distributive trade, repair, accommodation, food and transport services; information and communication; financial and insurance; professional, scientific and support activities. Data refer to 2013 for Belgium, Denmark, France, Israel, Italy, Japan, Korea, Poland, Portugal, Slovak Republic, Spain, Switzerland, the United States; 2012 for Australia and the United Kingdom. The observation on business sector services in Japan is an estimate based on National Accounts for 2013 and the 2014 JIP Database. The data on manufacturing sector for Israel include mining and quarrying while the data on business sector service include real estate activity.

Source: OECD National Accounts Database, Cabinet Office (Japan) 2013 National Accounts, Central Bureau of Statistics (Israel) "Product, Productivity, Compensation of Employed Persons and Capital Return 2005-2013".

Previous Going for Growth recommendations include:

  • Reducing the regulatory burden on economic activity by lowering barriers to foreign direct investment and improving the business climate, in part by enhancing the transparency of tax and regulatory policies, to attract foreign investors; and by phasing out entry barriers for large firms from business lines reserved for SMEs, which are primarily in the service sector.
  • Supporting female labour force participation by breaking down labour market duality, encouraging the use of parental leave and flexible working arrangements, including more part-time jobs, and by expanding the supply of affordable, high-quality childcare.
  • Reforming employment protection by reducing effective employment protection for regular workers, in particular by simplifying and accelerating the remedy procedure for unfair dismissal, while expanding the social protection coverage of non-regular workers and upgrading training programmes for them.
  • Improving the efficiency of the tax system by relying primarily on indirect taxes, notably the VAT, as well as environmental taxes and property-holding taxes, while keeping taxes on labour income low.
  • Reducing producer support to agriculture by further lowering barriers to agricultural imports and scaling back the high level of support, while shifting its composition away from market price measures toward direct support.

 

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Recent policy actions in these areas include:

  • Nearly a third of the more than 10 000 regulatory reform suggestions made through the Shinmungo system (which allows citizens to suggest reforms directly to the government) since March 2014 have been accepted for consideration, leading to the amendment of laws underpinning 2 377 regulations. In addition, the Thorn under the Nails, Regulatory Guillotine, and Regulatory Reform Ministerial Meeting (along with other meetings chaired by the president) have examined 796 regulations.
  • Korea introduced the provision of free childcare for up to 12 hours per day for all children under five, regardless of the employment status of the mother and family income. From 2016, priority will be given to families where both parents work.
  • The 2015 Tripartite Agreement between management, labour and the government lays the groundwork for reforms aimed at alleviating labour market dualism, although the labour union confederation that participated in the talks withdrew from the Agreement in January 2016. In particular, the importance of “clarifying the standards and procedures for terminating employment contracts” was acknowledged. Measures to promote the take-up of parental leave have been introduced.
  • After 20 years of waivers, Korea liberalised its rice market in January 2015. Imports above the minimum market access quota (which is set at about 9% of Korea’s rice demand) will be subject to a 513% tariff. 

The report also discusses the possible impact of structural reforms on other policy objectives (fiscal consolidation, narrowing current account imbalances and reducing income inequality). In the case of Korea, tackling labour market duality would boost productivity growth and encourage female employment, while reducing income inequality.

Economic Policy Reforms 2016 

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