Chapter 2. Economic Development and the Labor Market
1. Take-off Phase (1961-1972)
The government of the Third Republic of Korea established an economic development plan and started state-driven economic development. The First 5-Year Economic Development Plan which ran from 1962 to 1966 aimed to ‘build a self-reliant economy’
by securing energy sources, fostering key industries, expanding social overhead capital, and nurturing labor-intensive light industries. During the period of the First Economic Development Plan, exports grew by 44% annually, raising the total export value from US$33 million in 1960 to US$250 million in 1966. The average economic growth rate for this period was 8.5% annually. Contrary to the government’s initial plan of securing over 70% of the capital required for growth from within the country, the situation proved unfavorable, especially with a failed currency reform. As a result, the government had to resort to foreign capital by enacting the Foreign Capital Inducement Act in 1966 and by joining the General Agreement on Tariffs and Trade (GATT) in 1967.
The Second 5-Year Economic Development Plan which ran from 1967 to 1971 was aimed at modernizing the industrial structure and promoting self-reliance within the economy through self-sufficiency of food, increased exports, and the nurturing of the steel, chemical and other industries. During this period, exports grew by an average of 33.7% annually and the economy grew by an average of 9.7% annually. Throughout the First and Second 5-year Economic Development Plans, GNP per capita increased twofold from $239 in 1962 to $437 in 1971 (see <Table 2-1>).
<Table 2-1> Performance of Korean Economy
during the Period of the First and Second Economic Development Plans (1962-71)
(Unit: US Dollar/base year=1975) Year
Performance 1962 1963 1964 1965 1966 1962-66
(Average)
GDP per capita (US dollar) 239 247 271 280 307
-Economic growth rate(%) 4.1 9.3 8.9 8.1 11.9 8.5
Net saving rate in household disposable income(%) 0.8 7.0 6.5 5.8 10.5 6.1 Current Account (US Dollar in 1,000) -2,920 -4,028 -2,210 -1,986 -2,505
-Export 548 868 1,191 1,751 2,537
-Import 4,218 5,603 4,050 4,500 6,732
-Industrial structure(%)
Agriculture, forestry and fishing 33.4 32.5 35.1 32.3 31.7 33.0
Mining, quarrying and manufacturing 22.7 23.0 22.3 24.8 25.7 23.5
SOC & other services 44.9 44.5 42.6 42.9 42.6 43.5
Year
Performance 1967 1968 1969 1970 1971 1967-71
(Average)
GDP per capita (US dollar) 320 3448 387 408 438
-Economic growth rate(%) 6.6 11.3 13.8 7.6 9.4 9.7
Current Account (US Dollar in 1,000) -1,919 -4,403 -5,486 -6,225 -8,475
-Export 3,350 4,860 6,580 8,820 11,320
-Import 9,090 13,220 16,500 18,040 21,780
-Industrial structure(%)
Agriculture, forestry and fishing 37.5 34.2 33.2 30.4 28.8
-Mining, quarrying and manufacturing 15.1 16.7 17.5 19.5 29.9
-SOC & other services 47.4 49.1 49.3 50.1 50.3
-Source: <Table VI-1> and <Table VI-2> in Lee (1998)
As a result of the government’s strong population control policy, the population growth rate dropped from 2.54% in 1960-1962 to around 1% in 1971. The surplus supply of labor in the 1960s was quickly absorbed due to rapid economic growth and the expansion of modernized industry. The unemployment rate in the 1970s fell to around 4% (see <Table 2-2>). The growth rate of the economically active population increased slowly but continuously from 2.74% in 1962-1967 to 3.2% in 1967-1971 as rapid
industrialization continued to absorb a significant number of the manpower moving from the country to the cities.
<Table 2-2> Economically Active Population (1963-75)
(Unit: person in thousands)
Year
Population 15 years old and over
Labor force participation rate(%)
Unemployment rate(%) Total
Economically active population Economically non-active
population Sub-total Employed Unemployed
1963 14,551 8,230 7,563 667 6,321 56.6 8.1
1964 14,967 8,341 7,698 643 6,627 55.7 7.7
1965 15,367 8,754 8,112 642 6,613 57.0 7.3
1966 15,753 8,957 8,325 632 6,796 56.9 7.1
1967 16,121 9,180 8,624 556 6,941 56.9 6.1
1968 16,456 9,541 9,061 480 6,915 58.0 5.0
1969 16,852 9,747 9,285 462 7,105 57.8 4.7
1970 17,468 10,062 9,617 445 7,407 57.6 4.4
1971 18,118 10,407 9,946 461 7,711 57.4 4.4
1972 18,819 10,865 10,379 486 7,954 57.7 4.5
1973 19,490 11,389 10,942 447 8,101 58.4 3.9
1974 20,187 11,900 11,421 479 8,287 58.9 4.0
1975 20,918 12,193 11,692 501 8,726 58.3 4.1
Source: <Table 4-2> in Kim and Sung (2005)
Prior to 1970, an average of around 300,000 jobs were created annually. The unemployment rate fell steadily, from 8.4% in 1963 to 4.7% in 1969 and 4.3% in 1973 (see <Table 2-3>). The unemployment rate for non-farming households was remarkably lower than the unemployment rate for farming households, because family workers in the country would become employed in the farming season and be regarded as economically inactive in the non-farming season. The unemployment rate was always higher for males than for females. However, if underemployed workers were included, the unemployment rate would be higher for females than for males, considering the
difference in job seeking activities between unemployed males and females. The unemployed population was concentrated around young people under 30 years of age.
<Table 2-3> Unemployment and Unemployment Rate (1963-73)
(Unit: person in thousands, %)
1963 1965 1967 1969 1971 1973
Unemployment rate 8.1 7.3 6.1 4.7 4.4 3.9
Unemployed person 667 642 556 462 461 447
Gender Male 465 479 388 319 341 357
Female 202 163 168 143 120 90
Source: <Table 4-9> in Kim and Sung (2005)
As the industrialization of the Korean economy continued, the proportion of agricultural and fishing workers dropped from 63.0% in 1963 to below 50% (48.2%) in 1971 (see
<Table 2-4>). In contrast, the proportion of workers employed in the mining and manufacturing industries almost doubled from 8.7% to 14.2% in the same period.
<Table 2-4> Employment and Change Rate by Industry (1963-72)
(Unit: person in thousands, %)
Year
Employment Employment change rate
All
1963 7,563 4,763(63.0) 657(8.7) 2,144(28.3) - - -
-1964 7,698 4,747(61.6) 682(8.9) 2,269(29.5) 1.8 -0.3 3.8 5.8
1965 8,112 4,742(58.5) 840(10.3) 2,530(31.2) 5.4 -0.1 23.2 11.5
1966 8,325 4,811(57.8) 899(10.8) 2,616(31.4) 2.6 1.5 7.0 3.4
1967 8,624 4,756(55.1) 1,094(12.7) 2,775(32.2) 3.6 -1.1 21.7 6.1
1968 9,061 4,748(52.4) 1,263(14.4) 3,050(33.7) 5.1 -0.2 15.4 9.9
1969 9,285 4,744(51.1) 1,333(14.4) 3,208(34.5) 2.5 -0.1 5.5 5.2
1970 9,617 4,846(50.4) 1,377(14.3) 3,395(35.3) 3.6 2.2 3.3 5.8
1971 9,946 4,797(48.2) 1,413(14.2) 3,737(37.6) 3.4 -1.0 2.6 10.1
1972 10,379 5,238(50.5) 1,468(14.1) 3,674(35.4) 4.4 9.2 3.9 -1.7
Note: ( ) is ratio to all industries.
Source: <Table 4-6> in Kim and Sung (2005)
The employment structure by occupation also reflected the changes in industry composition (see <Table 2-5>). The proportion of agriculture and fishing jobs decreased from 62.9% in 1963 to under 50% in 1971, while the proportion of production workers, drivers, equipment operators and unskilled laborers increased by 4.6 percentage points.
<Table 2-5> Employment and Change Rate by Occupation (1963-72)
(Unit: person in thousands, %)
Year Total
Managers &
professionals and related workers
Service & sales workers
Agricultural, forestry
& fishing workers
Craft, machine operators &
elementary occupations
1963 7,563 513(6.8) 1,158(15.3) 4,760(62.9) 1,131(15.0)
1964 7,698 513(6.6) 1,299(16.9) 4,741(61.6) 1,145(14.9)
1965 8,112 562(6.9) 1,491(18.4) 4,739(58.4) 1,319(16.3)
1966 8,325 653(7.8) 1,447(17.4) 4,833(58.1) 1,391(16.7)
1967 8,624 720(8.4) 1,559(18.1) 4,739(54.9) 1,606(18.6)
1968 9,061 763(8.4) 1,762(19.5) 4,732(52.2) 1,804(19.9)
1969 9,285 909(9.8) 1,740(18.7) 4,708(50.7) 1,929(20.8)
1970 9,617 1,037(10.8) 1,809(18.8) 4,827(50.2) 1,944(20.2)
1971 9,946 1,183(11.9) 2,042(20.5) 4,778(48.0) 1,945(19.6)
1972 10,379 1,068(10.3) 1,912(18.4) 5,257(50.6) 2,145(20.7)
Note: ( ) is ratio to all industries.
Source: <Table 4-7> in Kim and Sung (2005)
In terms of employment by worker status, the proportion of self-employed and unpaid family workers decreased and the proportion of full-time workers and temporary workers increased rapidly between 1963 and 1972, resulting in better job stability for employed workers and quality improvements in the employment structure (see <Table 2-6>).
<Table 2-6> Employment and Change Rate by Worker Status (1963-72)
(Unit: person in thousands, %) Year Total Self-employed Unpaid family
workers
Regular &
temporary Employees
Daily workers
1963 7,563 2,817(37.3) 2,361(31.2) 1,420(18.8) 963(12.7)
1964 7,698 2,848(37.0) 2,486(32.3) 1,502(19.5) 861(11.2)
1965 8,112 2,984(36.8) 2,516(31.0) 1,765(21.8) 844(10.4)
1966 8,325 3,009(36.2) 2,534(30.4) 1,872(22.5) 908(10.9)
1967 8,624 3,124(36.2) 2,458(28.5) 2,097(24.3) 943(11.0)
1968 9,061 3,184(35.2) 2,475(27.3) 2,363(26.1) 1,037(11.4)
1969 9,285 3,238(34.9) 2,498(26.9) 2,532(27.3) 1,015(10.9)
1970 9,617 3,286(34.2) 2,586(26.9) 2,728(28.3) 1,018(10.6)
1971 9,946 3,396(34.2) 2,628(26.4) 2,877(28.9) 1,046(10.5)
1972 10,379 3,554(34.2) 2,823(27.2) 2,852(27.5) 1,153(11.1)
Note: ( ) is ratio
Source: <Table 4-8> in Kim and Sung (2005)
The average annual real wage growth rate for the 1962-1967 period was 1.3% (see
<Table 2-7>). Although the wage growth rate for the manufacturing industry in 1963 and 1964 was 10.0% and 8.8% respectively, the inflation rate was 19.7% in 1963 and 27.9% in 1964, meaning that the real wage growth rate was -7.9% and -6.5%
respectively. Wages increased rapidly from the first half of 1967, and the adoption of a productivity-based wage system was considered. Although the real wage growth rate increased steadily from 1965, it could not catch up with the growth rate of labor productivity. Such improvement in productivity enabled export growth based on low wages.
<Table 2-7> Real Wage, Productivity and Labor Cost in Manufacturing (1962-76)
(Unit: %)
Year Real wage Productivity Labor cost
(current price)
1962 -1.2 2.4
-1963 -7.9 10.0
-1964 -6.5 8.8
-1965 0.8 17.5
-1966 10.9 4.0
-Average -0.8 8.5
-1967 10.9 17.7 -5.1
1968 14.1 19.9 -16.2
1969 19.3 26.5 -8.2
1970 9.3 12.6 3.3
1971 2.4 9.7 -2.9
Average 11.2 17.3 -5.8
1972 2.1 8.7 -8.2
1973 14.3 8.8 22.5
1974 8.8 11.4 -28.9
1975 1.5 11.6 -10.0
1976 16.8 7.5 7.4
Average 8.7 9.6 -3.4
Note: 1) Real wage growth rate was calculated based on the consumer price index of 1970 (1970=100.0).
2) Consumer price index between 1966~1979 indicates the average consumer price for all cities 3) Consumer price index between 1961~1965 indicates the average consumer price for Seoul.
Source: P. 290 in Choi and Lim (1987)
Ordinary workers had little interest in labor unions because employment itself was more important, and labor unions had no influence on wage determination because union activities were strongly suppressed by the government.