EABC Report:

The One Million Jobs Report

Korea
           Associates

Contents

Executive Summary

Foreword

  1. Introduction
  2. Korean Economy

    3. Introduction
    Economic Model
    Growth Dynamics
    Analysis of GDP Value-Added
    Profit Failure
    Capital Markets
    Exports and FX Rates
    Conclusions

  3. Focus on Employment
  4. Focus on Small and Medium-Sized Companies
  5. Factors of the Economy
  6. Factor Markets
  7. Crippled Markets
  8. Actions Needed
  9. Implementation
  10. Potential Results

APPENDIX

Appendix 1 : About the Authors and Sponsors

Appendix 2 : Actions Needed by Economic Category

Appendix 3 : The Factor Matrix for Labour

Appendix 4 : Starting Phase II
Background to the Report We started work on the One Million Jobs Report in April 1998 to focus policy attention on value-added employment as the single most important issue in the economy. There were five main reasons:
  • Government attention was focused on the immediate crises and addressing the symptoms, but not looking at fundamental causes and long-term issues :
  • FX crisis
  • Financial Sector Restructuring
  • Chaebol Restructuring
  • Social Safety Net
  • Restructuring would inevitably generate unemployment, but no initiatives were being undertaken to pursue new job creation.
  • True recovery of the economy could not occur if high unemployment levels persisted, but new job creation had to focus on value-added jobs, not on make-work jobs or artificial job protection.
  • Value-added employment creation is the single most important task for the Korean economy in the 21st century
  • There was a need for breakthrough thinking that would re-evaluate the past performance of the economy and suggest policies to correct structural errors that have been built into the economy.

We recognize that not all the ideas in this report are new. There have been many valuable critiques of the Korean economy over the last few years, particularly including those by Booz-Allen & Hamilton and McKinsey in the last twelve months.

The Booz-Allen & Hamilton report identified strategic issues related to competitiveness and the dangers of being caught in an economic vise between Japan and China. The McKinsey report identified low productivity in Korea and argued that the service sector should take up the majority of future employment.
This One Million Jobs Report focuses on value-added job creation. The report identifies that value-added employment creation, whether in agriculture, manufacturing or services, is what the economy urgently needs.

It identifies that small and medium businesses in services, manufacturing and agriculture are the engine of growth for employment, and therefore the engine of growth for the economy in the 21st century.

The report emphasizes that small and medium industry do not receive sufficient government attention in Korea today, unlike in the past before the era of dominant chaebols.

And the report recognizes that regulations in Korea are endemic like a disease, not only obstructing the full efficiency of the economy but also destroying capital.

Historical Perspective

Learn from History The study starts with an analysis of the course of Korean economic development since 1970. Studying these long time-series data provides a fresh perspective on the issues that have been gradually building up in the economy.
Sources of Value Added This chart represents the sources of GDP by industry sector, from 1970 to the present, and shows that agriculture and manufacturing have declined in importance to the economy, while the service sector has long been the most important component of GDP:

Diagram EX-1
Rewards of Value-Added Analyzing the rewards of GDP provides significant insight into the long-term health of the economy:

Diagram EX-2

 

  • Depreciation and indirect taxation have remained relatively constant.
  • Compensation for labour has grown dramatically since 1987.
  • And the operating surplus has shrunk equally dramatically over the last fifteen years.
Profit Failure If we look at GDP for the Korean economy and its two primary components, Compensation (wages) and Operating Surplus (profits) on an index basis since 1970, we see that a clear imbalance has emerged, particularly since 1988:

Diagram EX-3

  • Wages have been growing too fast
  • Profits have been growing too slowly

Operating Surplus (profit) is clearly underperforming the economy. And as a consequence, is holding back overall economic growth.
Lost Opportunity If profit growth had been achieved in line with compensation growth the potential of growth rate of Korean GDP would have been 9.4% per annum instead of 8.1%.

Diagram EX-4

Past GDP Growth Potential ?

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