Labour productivity growth in the service sector has been low relative to manufacturing. This is
explained in part by weak competition in services resulting from strict product market regulation and the
low level of import penetration and inflows of foreign direct investment (FDI). Increasing productivity
growth in the service sector, which accounts for 67% of employment and 58% of value added in Korea, is
essential to sustain high potential growth. The priority is to strengthen competition by eliminating domestic
entry barriers, accelerating regulatory reform, upgrading competition policy and reducing barriers to trade
and inflows of FDI. Another challenge is to enhance the performance and accelerate the restructuring of
small and medium-sized enterprises, which account for over 90% of service-sector employment.
Furthermore, it is essential to boost productivity in service industries with high growth potential, such as
telecommunications and financial and business.
