South Korea’s labour unions should be careful what they wish for – a bigger slice of their employers’ profits and improved working hours. They ignore the slide this causes in the country’s competitiveness that its automotive industry is struggling to address. Hyundai Motorproduces more than half of its cars in plants overseas, compared to a third just five years ago. Deutsche Bank estimates that the group’s product lines at home are 30 per cent less competitive than its newest plants abroad. Yet the South Korean auto industry has been crippled by strikes this year. It is about time reality bit.
Hardening the unions’ stance is a national shift to contract workers – one-third of the workforce, says the Organisation for Economic Co-operation and Development. They earn 40 per cent less than permanent staff. That helps explain why the average manufacturing wage in South Korea of $3,000 a month is only a third of Japan’s. Yet it is still three times the level of Taiwan.
That South Korea already struggles to be competitive makes the strikes especially damaging. Yesterday Kia Motorsreached a tentative wage deal with unions following stoppages that cost the company Won1tn. Workers at General Motors’ Korean operations are still striking. Hyundai Motor has suffered Won1.7tn ($1.5bn) in production losses this year due to strikes. It has agreed with unions to cut working hours. Now it has to invest heavily at home just to stand still – it will spend Won300bn there on modernising equipment that will raise production by just 8 per cent.