Downsizing Korea?: The Difficult Demise of Lifetime Employment and the Prospects for Further Reform

I. INTRODUCTION The issue of worker dismissals remains a controversial and contentious topic within the Republic of Korea ("Korea"). For much of its modern history, Korea's workers benefited from implicit guarantees of lifetime employment, buttressed by legislative protections against dismissal, that served to compensate workers for sacrifices made to further the government's plans for economic development. Indeed, the galloping pace of industrialization and economic expansion for many years provided an ample cushion upon which Korean businesses could absorb the costs of lifetime employment. In time, however, a competitive shift in the international economic environment slowed the advance of the Korean economy and subsequently eroded the capacity of its businesses to bear the burden of this social bargain. By the mid 1990s, Korean management found itself threatened by deteriorating financial conditions and the lack of legal means to cut rising labor costs and remedy widespread workforce redundancies. Alert to the economic dangers wrought by this situation, the Korean government launched several efforts to facilitate managements' efforts at worker dismissals by amending Korea's Labor Standards Act ("LSA"). While these amendments formally dismantled the lifetime employment regime, vociferous resistance from organized labor blunted the reach of reforms and has since prevented the establishment of a truly flexible employment system. Even where tangible progress has been made towards liberalizing the system, the threat of costly strikes and violent worker protests often renders management effectively unable to implement its downsizing plans. Despite entrenched opposition, the need for further reform is now greater than ever. As late as 1999, the OECD ranked Korea 26th out of 27 nations with respect to the strictness of its employment protection regime. (1) Such figures highlight an alarming disconnect between Korea's aging economic infrastructure and the needs of emerging industries that operate in increasingly competitive and dynamic global markets. Korean businesses, some of which are still languishing in the depths of financial crisis, are prevented from reshaping their workforces by vague and onerous legal obstacles. Seeking to avoid the rigors of the law, many of these businesses now opt to pursue their objectives through costly and socially dubious alternatives to dismissal. The following discussion endeavors to track the origins, evolution, and current status of Korean law regarding dismissals. It also presents the problems, inherent both within and without the law, which hinder the dismissal process, obstruct its utilization by employers, and threaten the overall economy. Finally, it explores the prerequisites and conceptual possibilities for further change, while making a case for specific reforms aimed at creating a freer, cheaper, clearer, and safer regime for dismissing workers. II. HISTORY OF KOREAN LABOR REFORMS A. Modern Foundations of Korean Labor Law: 1945-1995 The end of World War II saw the departure of Japanese colonialists from Korea and the arrival of U.S. military forces. After years of war and economic exploitation left Korea without a functioning industrial base, (2) the new U.S. military government saw fit to introduce new labor ordinances to provide a framework for future reconstruction and development. (3) Modeled directly on U.S. labor laws, (4) these new provisions guaranteed the right to organize trade unions, restricted the use of child labor, established a formal mechanism for dispute resolution, and ensured compensation in the form of regular and overtime wages. (5) Even after the departure of the U.S. military and the establishment of the First Republic of Korea in 1948, U.S. ideals endured in the new Korean constitution6 and provided a basis for the enactment of Korea's first indigenous labor laws in 1953. (7) Early Korean labor law was a product not only of U. …