_5_ The average real wage for the aggregate public sector grew 1.5 percent in 1970-89 (see Table 6A, Appendix). The real wage grew 2.2 percent p.a. between 1970-80. But growth slowed down significantly to 0.9 percent p.a. between 1980-89. During the 1970s and most of the 1980s, price :,iflation was recorded below 1 percent p.a., but in 1989, inflation escalated to 2.3 pe-cent p.a. Moreover, in 1989-90 the real wage dropped by 3 percent, reaching almost 4 ipercent in the material sphere; inflation reached 10.9 percent during 1990. Similar wage fluctuations are observed across all sectors; the agricultural sector underwent the largest real wage increase between 1970-89, and it was the only sector in which real wages did not drop in 1989-90. The non-material sphere experienced a lower increase during 1970-89, but it also suffered a smaller decline in 1989-90.

Among industries, relative wages clearly show a trend towards equalization in the material sector (see Table 7A, Appendix); this has taken place primarily because of a relative increase in agricultural wages. The erosion of inter-industry wage differentials observed originally in 1970 has been notable, declining from a maximum of 20 percent in 1970 to approximately 6 percent in 1990. Moreover, compressing wage differentials in the material sphere have resulted in lower relative wages for the non-material sphere; relative wages between material and non-material spheres dropped significantly between 1970 and 1985.

Given the existence of a 50 percent payroll tax, the total cost of labor from the viewpoint of the employer amounts to 1.5 times the level of total wages. This includes bonuses, premiums, and overtime payments amounting to about 20 percent of basic wages. Therefore, it does not include family allowances and other health-related state subsidies. The average hourly labor cost for the manufacturing employer is about Kcs 28 or about US$ 1.1, using the prevailing commercial exchange rate; this is still lower than the labor costs in market economies<sup>9</sup> . From the employee's point of view, there is in effect a wage tax amounting on average to 17 percent of total wages. This would be changed in the future to a tax system based upon declared income.

# C. Policies Adopted for the Inar sition

## 1. Emploentand U1nemploMent

The government has adopted policies to avert likely pressure arising from increases in the labor supply. Vacation periods and maternity leaves will be extended, and women will be allowed to work part-time. In addition, the government plans to proscribe employment of retired persons. Nonetheless, the most fundamental pressure on the market in the short term will arise from the labor spillover between contracting and expanding economic activities. This spillover will necessitate emphasis on policies oriented to fostering efficient labor mobility. For this purpose, the government has implemented an 9 The hourly compensation cost of manufacturing in 1989 amounted to, respectively: USS 13.6; 9.1; 12.7 and 17.6 in Austria, Spain, France and Germany. In the USA, this figure reached USS 143, and in Hong Kong,Singapore, Korea and Taiwan, this figure reached respectively US$ 2.8; 3.1; 3.6 and 3.5. (Source: BLS, US. Department of Labor: Intemadionl Comoarisons of Hourl Comnnation Coss