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(EDITORIAL from the Korea Herald on Jan. 20)

2014/01/20 07:05

Low labor productivity

Measures needed to enhance service sector efficiency

Labor productivity growth has slowed across the globe in recent years. According to a report published last week by the Conference Board, worldwide productivity, as measured by output per person employed, grew by 1.7 percent last year, down from 1.8 percent in 2012 and 2.6 percent in 2011.

Korea's labor efficiency has improved at a far slower pace. Its annual growth rate averaged 1.26 percent in the past three years compared to the global average of 2.03 percent.

The New York-based nonprofit research group predicted worldwide productivity growth would pick up this year to about 2.3 percent, reflecting likely upturns in the U.S. and other advanced economies. Korea is still unlikely to catch up with or even approach the global outlook for 2014.

With a U.S. worker’s productivity at 100, the figure for a Korean laborer remained at 57.8 last year. Measured as the ratio of output to total hours worked, Korea's labor productivity stood at just 48 percent of the U.S. performance, ranking 30th among the 126 nations covered by the report. The comparable figures were 65 percent for Japan, 59.4 percent for Taiwan and 48.7 percent for Greece.

Korea's languid productivity growth was far from satisfactory, given its status as the world’s 15th-largest economy in terms of gross domestic product. Until the mid-2000s, the country had led other major economies in boosting productive efficiency. Between 1997 and 2006, its labor productivity grew by an annual average of 3.6 percent, far above the global average of 2.1 percent.

The relatively weak productivity indicates that the Korean economy is losing its competitive edge and growth potential. In the latest worrying case, a recent report compiled by Seoul’s Finance Ministry based on estimates by some global investment banks showed Korea’s economy grew at a slower pace than those of many other Asian countries last year. It was estimated to have expanded by 2.8 percent in 2013, the ninth highest among 10 major Asian nations. As many experts here note, boosting productive efficiency is a prerequisite for lifting the country out of its prolonged economic sluggishness.

Productivity growth, the most important ingredient for increasing per capita income in both rich and poor nations over the long term, is essential for raising the population’s living standards. It should be noted that only those countries that are leading the global economy in innovation can achieve high productivity and thus a superior standard of living.

Efforts should focus on boosting productivity in the service sector. While Korea’s manufacturing productivity has been relatively strong, ranking 12th among the 25 member states of the Organization for Economic Cooperation and Development cited in the report, the efficiency of its services industry has remained at rock bottom.

Complex regulations for the service sector should be lifted to open high value-added industries such as medicine, finance and legal advice to international competition. The current tax deduction system, which is focused on supporting manufacturing companies, needs to be revised to introduce measures tailored for services firms.

Making the labor market more flexible will also help increase productivity by facilitating the movement of workers from inefficient sectors to more productive fields. It may also be necessary to reduce Korean employees’ working hours, which are among the longest in the OECD.