LIST OF TABLES

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Chapter 1. Introduction 1

Chapter 2. Economic Development and the Labor Market 9

1. Take-off Phase (1961-1972) 2 1

2. Heavy-chemical Industry Promotion Phase (1973-1979) 8 1 3. Rationalization and Liberalization Phase (since 1980) 52

3-1. Early Stage of Globalization (1980-1986) 5 2

3-2. Democratization and the Korean Economy (1987-1997) 1 3 3-3. Asian Financial Crisis, IMF Bail-out Program and

the Korean Economy (since 1998) 34

Chapter 3. Economic Development and Vocational Education 61

1. Trends in Education-related Legal System: Overview 6 6 2. Development of Vocational Education (1960s-1970s) 2 7 3. Shrinking of High School VE and Restructuring and

Quality Improvement of Junior Colleges (1980s) 28 4. Revival of Vocational Education (The First Half of 1990s) 8 8 5. Deregulations of University Establishment and Shrinking of VE (1995-2008)7 9 6. Introduction of the Employment First-Advancement to

University Later Policy and Vocational Education (since 2009) 211

Chapter 4. Economic Development and Vocational Training 133

1. Trends in Legislation on Employment and Labor 138 2. Before Enactment of the Vocational Training Act (until 1967) 341 3. Introduction of a Comprehensive VT System: from the Enactment of the

Vocational Training Act until the Enactment of

the Act on Special Measures for Vocational Training (1967-1974) 541 4. Implementation of the Mandatory VT system: from the Enactment

of the Act on Special Measures for Vocational Training until the Introduction of the Employment Insurance Vocational

Training Promotion Project (1974-1998) 351

5. Changed Role of the Public Sector: Providing Support for Private VT

(from 1999) 167

Chapter 5. Conclusions 187

References 203

LIST OF TABLES

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<Table 2-28> Wage and Change Rate (1986-97) 2 4

<Table 2-29> Hours Worked (1987-97) 3 4

<Table 2-30> Unemployment and Unemployment Rate (1998-2013) 5 4

<Table 2-31> Economic Growth Rate by Industry (1998-2012) 6 4

<Table 2-32> Economically Active Population and Participation Rate (1998-2002) 7 4

<Table 2-33> Employment (1998-2012) 8 4

<Table 2-35> Employment by Occupation (1997-2012) 1 5

<Table 2-37> Wage and Change Rate (1998-2012) 4 5

<Table 2-38> Hours Worked (1998-2013) 5 5

<Table 2-39> Employment Creation Capacity (1971-2011) 7 5

<Table 3-1> Trends in Education-related Legal System by Economic Development Stages7 6

<Table 3-2> Ratio of Vocational Education Expenditure

to the Total Expenditure of the Ministry of Education (1965-69) 8 7

<Table 3-3> Number of High School Students by School Type (1965-80) 1 8

<Table 3-4> Number of Students Entering Institutes of Tertiary Education and Average Annual Growth Rate of New Students

by Gender and Period of Tertiary Education Quota Policy (1963-90) 6 8

<Table 3-5> Forecast for Supply of Skilled Workers and Manpower with University Education

(1990-96) 19

<Table 3-6> High School Education System Reform Plan in 1990 3 9

<Table 3-7> Number of Junior Colleges and Universities and Number of Students (1980-95) 95

<Table 3-8> Number of Students Entering Institutes of Tertiary Education

Compared to Number of High School Graduates (1990-95) 59

<Table 3-9> Employment Rates of Junior College Graduates (1985-95) 6 9

<Table 3-10> Vocational Education Policy of Kim Young-sam Administration 201

<Table 3-11> Tertiary Vocational Education Policy of Kim Dae-jung administration 6 01

<Table 3-12> Secondary Vocational Education Policy of Kim Dae-jung administration 801

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<Table 3-13> Tertiary Vocational Education Policy of Roh Moo-hyun Administration 9 0 1

<Table 3-14> Key Content of Vocational High School Development Strategy for

Fulfilling Hope by Roh Moo-hyun administration 111

<Table 3-15> Secondary Vocational Education Policy of the Lee Myung-bak Administration 16 1

<Table 3-16> Park Geun-hye Administration’s Major Policies on VE:

Specialized High Schools 120

<Table 3-17> Park Geun-hye Administration’s Major Policies on VE: Junior Colleges 121

<Appendix 3-1> Status of Elementary Schools (1945-2013) 4 2 1

<Appendix 3-2> Status of Middle Schools (1945-2013) 4 2 1

<Appendix 3-3> Status of High Schools (1945-2013) 5 21

<Appendix 3-4> Higher Education Institution Students by Ownership (1970-2013) 6 2 1

<Appendix 3-5> Advancement Rate by Education Level (1970-2013) 7 2 1

<Appendix 3-6> Students per Class in Primary and Secondary Schools (1965-2013) 8 2 1

<Appendix 3-7> Students per Teacher in Primary and Secondary Schools (1965-2013)8 2 1

<Appendix 3-8> Change in Educational Expenditure per Student (1970-2008) 9 2 1

<Appendix 3-9> Student Ratio of Higher Education Institutions by Type (1970-2013) 0 3 1

<Appendix 3-10> Number of Universities by Ownership (1970-2013) 1 3 1

<Table 4-1> Changes in VT System by Stage of Economic Development 831

<Table 4-2> Estimated Demand for Craftsmen during the 2nd

Five-Year Economic Development Plan (1967-71) 541

<Table 4-3> Number of Vocational Trainees by Type after Vocational Training Act (1967-70) 19 4

<Table 4-4> Number of Vocational Trainees by Type during the 3rd and

4th Five-Year Plans (1972-81) 551

<Table 4-5> Number of Trainees by Type (1992-98) 3 6 1

<Table 4-6> Number of Trainees by Type (1999-2002) 9 6 1

<Table 4-7> Vocational Ability Development Programs (2003~2013) 4 7 1

<Table 4-8> Labor-Management Joint Training (2006-2009) 8 7 1

<Table 4-9> Park Geun-hye Administration’s Major Policies on VT:

MOEL-initiated Skills Development Measures 281

LIST OF TABLES

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[Figure 1-1] Formal Education System of Korea

[Figure 1-2] Vocational Training and the Korean Government

[Figure 2-1] Comparison of Labor Markets between Korea and OECD Average (2008) 6 5 [Figure 2-2] Comparison of Elderly and Youth Employment Rates (2000-2012) 8 5 [Figure 2-3] Change in Size and Share of Non-regular Workers (2007-2014) 9 5 [Figure 3-1] Population with at least Upper Secondary Education in OECD nations (2010)3 6 [Figure 3-2] Advancement Rate for Higher Education Institution (1970-2013) 5 6

[Figure 3-3] Entrance Rate (1975-95) 3 8

[Figure 3-4] Ratio of Junior Colleges among Institutes of Tertiary Education (1970-95)7 8 [Figure 3-5] Students in Higher Education Institutions (1970-2013) 8 9 [Figure 3-6] University Entrance Rate by High School Type (1970-2002) 2 1 1 [Figure 3-7] Support System for Employment First-Advancement to University Later Policy 171 [Figure 3-8] Conceptual Model of National Competency Standards (NCS) 121 [Figure 3-9] Role and Dissemination of NCS Learning Modules 321 [Figure 4-1] Number of Trainees who Underwent VT (1967 to 2001) 731 [Figure 4-2] Correlation between National Competency Standards (NCS),

National Qualifications Framework (NQF), and Education and Training Criteria 148 [Figure 5-1] Number of Trainees Who Underwent VT (1967 to 2011) 002

LIST OF FIGURES

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Preface

Korea’s rapid economic development is the envy of many developing countries. As one of the few examples of successful industrialization from the ruins of war in such a short period of time and despite the lack of natural resources, Korea’s experience and methods are sought after by many developing nations.

As Korea has few natural resources, the efficient use of abundant human resources and unreserved investment in human resources represented by a high level of educational enthusiasm are thought to be the key factors behind Korean economic development and the current competitiveness of the Korean economy. In the 1960s when the foundation of industrialization was built through the focused nurturing of labor-intensive industries, and in the 1970s when major investments were made in the heavy chemical industry which serves as the backdrop of Korea’s economic power in today’s global economy, vocational education and training (VET) played a crucial role in national human resource development policies. Many developing nations in the early stages of industrialization are keen to learn about the roles and experiences of VET in the economic development of Korea in the 1960s and 1970s.

Korea’s VET system has a dual structure, whereby vocational education (VE) is administered by the Ministry of Education and vocational training (VET) is administered by the Ministry of Employment and Labor. With the rapid growth of university education since the 1980s, Korea’s VE saw some decline prior to the Myung-bak Lee government’s introduction of the ‘Employment First-Advancement to university Later’

policy. In contrast, VT underwent significant development throughout the financial crisis

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which started in late 1997, the introduction of the employment insurance system in 1995, and the enactment of the Vocational Training Promotion Act in 1999.

Perhaps for the fact that different government ministries are in charge of VE and VT and despite the growing global interest in Korea’s VE, there are very few up-to-date resources that talk about the systems and experiences in Korea’s VET, especially ones in English to which foreign scholars and policymakers can refer. This book was written to inform the reader of the development and the experiences of Korea’s VET system from the 1960s to recent years according to the different stages of economic development.

The publication of this book would not have been possible without the foregoing efforts of Seong-jung Kim and Je-hwan Sung in “Employment Policy of Korea (2005)”, Na et al.’s “Vocational Training System for Cultivating Technical Manpower (2011)”, Ministry of Labor’s “History of Labor Administration (2006)”, and Yeong-hwa Kim’s

“Vocational Education and Economic Development of Korea (2004)”. To the earnest student of the Korean VET, I wholeheartedly recommend the aforementioned books.

(They are written in Korean.)

Finally, special thanks go to Mr. Se-bin Chang and Ms. Eun-jin Kim who toiled for the creation of this book, as well as to Dr. Myeong-hee Chang, Dr. Cheon-su Park, and Dr. Yeong-ryeol Choi who read parts of the book and gave invaluable advice to the author.

October 2014

Il Gue Kang

Acting President

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Chapter 1

Introduction

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Chapter 1. Introduction

Korea’s GDP ranked 14th in the world with US$1.3045 trillion in 2013, and Korea’s export and import volumes in 2012 were US$549.7 billion and US$519.6 billion respectively, ranking 7th in the world in terms of export volume. Korea’s GDP per capita stands at US$25,977 (28th in the world), which is a 167-fold growth over a period of 50 years from US$156 in 1960¹⁾.

As US President Barack Obama has mentioned many times, the source of Korea’s rapid economic development and the competitiveness of the Korean economy is in education. The enrollment ratio from elementary school to middle school reached 99%

1985, and the enrollment ratio from middle school to high school reached 99% in 1995.

The enrollment ratio for institutes of higher education exceeded 50% in 2000, making higher education universally available in Korea²⁾. Korean students’ educational competitiveness is globally recognized as excellent. Korean students’ PISA rankings are very high for reading, mathematics and science³⁾.

Korea’s Vocational Education and Training (VET) system and experience in the initial stages of industrialization are being benchmarked by many developing countries.

Efficient systems were designed and utilized to train the technical manpower required

1) In constant prices (based on the 1995 US dollar), Korea’s GDP per capita is US$23,893 (27th in the world), 21.6 times more than 50 years ago (US$1,107 in 1960).

2) Korea has the highest ratio of university graduates in the 25-34 age group among OECD countries. However, there is a serious social problem of unemployment among new university graduates.

3) However, due to the high dependency on private education, lack of autonomous learning ability, and long hours put into education, the academic achievement of Korean students is thought to be inefficient when compared to the input.

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for industrialization, supply them to the industries, and provide job opportunities to crowds of unskilled workers migrating from rural areas into cities.

One thing that sets Korea’s Vocational Education and Training system apart from those of other countries is that Vocational Education (VE) and Vocational Training (VT) are administrated by different government ministries (see <Table 1-1>. VE is administered by the Ministry of Education (renamed from Ministry of Education to Ministry of Education & Human Resource Development, Ministry of Education and Science Technology, and then to Ministry of Education) and VT is managed by the Ministry of Employment and Labor (renamed from Labor Office to Ministry of Labor and then to Ministry of Employment and Labor. Considering the Korean economy’s high dependency on the government in terms of development and management, having different ministries share the workload sometimes means better performance through mutual competition and can also be a cause of inefficiency due to barriers between the ministries.

<Table 1-1> Korea’s VET: Dual Scheme

Vocational education Vocational training Ministry concerned Ministry of Education Ministry of Employment and Labor

Implementing institutions

Vocational high schools Junior colleges

Open colleges

Public vocational training institutes In-plant vocational training institutes Authorized vocational training institutes Authorized vocational training courses

Life-long education institutes Authorized vocational courses offered by life-long education institutes

The Korean educational system has a ‘6-3-3-4’ pattern (see [Figure 1-1]). Upon graduation from the middle school, the student enrolls either in a general high school or in a vocational high school (schools in this category include industrial high schools,

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term of ‘vocational high school’ is used in this book). Upon graduation from high school, the student can enroll in an institute of higher education. (Junior colleges in Korea can also call themselves universities, and so the term ‘universities’ includes both 4-year universities and all colleges. In this book, the term ‘institutes of higher education’

refers to both 4-year universities and all types of colleges.) Students graduating from general high schools can enroll in junior colleges, and students graduating from vocational high schools can also enroll in general universities.

[Figure 1-1] Formal Education System of Korea Graduate school

University (4 years) Junior college (2-4 years)

General high school (3 years) Vocational (Special, Mesiter) school Middle school (3 years)

Elementary school ( 6 years) Kindergarten (3 years)

Since the vocational education within the school system alone could not produce all the technical manpower required in the early stages of industrialization, the Korean government directly intervened with the labor market and took the lead in training manpower. The Vocational Training Act of 1967 provided a basis for the government to take a direct leadership in cultivating manpower through public training, the Act on Special Measures for Vocational Training of 1976 made it mandatory for businesses of certain employment capacities to undertake in plant VT (those who did not perform VT were required to pay a share of expenses), and with the introduction of the Employment Insurance Act in 1995, VT was included in the framework of the employment insurance system (see [Figure 1-2]). When the Vocational Training Promotion Act was adopted in 1999, the government’s role changed from regulation authorities to support business to train manpower.

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[Figure 1-2] Vocational Training and the Korean Government

Regarding human resource development, the stages of Korea’s economic development could be divided into three phases; the 1960s when the large-scale development of a low-skilled manpower was required for the early stages of industrialization with labor-intensive industries, the 1970s when a more skilled workforce was required for the government-driven heavy and chemical industries and the unlimited manpower supply from rural areas ended, and after 1980s when the Korean economy opened up to the rest of the world and Korean companies and human resources began to venture abroad more actively (see <Table 1-2>).

<Table 1-2> Role of Vocational Education and Training by Economic Development Stage: Comparison by Period Economic development and

labor market Vocational education Vocational training

Take-off phase (1961-72)

Development of VE (1960s-70s)

Before enactment of the Vocational Training Act (until 1967)

Introduction of the VT system:

since the enactment of the Vocational Training Act until the enactment of the Act on Special Measures for Vocational Training (1967-74)

Heavy-chemical industry promotion phase

(1972-79)

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VE is closely related to university education. Throughout the 1960s and 1970s, VE developed rapidly and played a crucial role in economic development. However, in the 1980s when the university graduation quota system was introduced and in the 1990s when university establishment was deregulated, VE had little impact on economic development except for short periods of time. When Myung-bak Lee’s government introduced the Employment First-Advancement to university Later policy in 2009, VE became the center of attention again. Here, the roles of VE are examined according to the different stages of economic development.

Both VT and VE played a significant role in national HRD up until the development of the heavy and chemical industries in the 1970s, but since the opening up of the Korean economy in the 1980s, VT took a different approach from VE. In the 1980s, VT performed poorly but was soon improved through systemic efforts. In particular, VT played an important role in overcoming the financial crisis which occurred in late 1997.

After the introduction of the Vocational Training Promotion Act in 1999, VT performance improved greatly. The roles of VT are examined in relation to periods characterized by the enactment of relevant laws as the nation’s economic development progressed.

Economic development and

labor market Vocational education Vocational training

Early stage of globalization (1980-86)

Stagnation of VE at high schools, and restructuring and quality improvement of junior colleges (1980s)

Implementation of the

mandatory VT system: since the enactment of the Act on Special Measures for Vocational Training until the introduction of the Employment Insurance Act and the Vocational Training Promotion Act (1975-98) Democratization and the Korean

Economy (1987-1997)

Revival of VE (early 1990s) Deregulation of university

establishment and stagnation of VE (1995-2008)

Asian Financial Crisis, IMF Bail-out program and the Korean economy (since 1998)

After the introduction of the Vocational Training Promotion Act: Changed role of the public sector-providing support for private VT (since 1999) Introduction of the Employment

First-Advancement to university Later policy and VE (since 2009)

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Chapter 2

Economic Development

and the Labor Market

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Chapter 2. Economic Development and the Labor Market

In terms of human resources, Korea’s economic development can be divided into three main stages: the 1960s when the large-scale development of low-skilled manpower was required for the early stages of industrialization based on labor-intensive industries, the 1970s when a more skilled manpower was required for the government-driven promotion of heavy and chemical industries and the unlimited manpower supply from rural areas ended, and the 1980s when the Korean economy opened up to the rest of the world and Korean companies and human resources began to expand abroad more actively.

After the 1980s, economic development can be divided into three periods: the period of the Fifth Republic of Korea when the Korean market opened up to the rest of the world; the period from 1987, when government-driven economic control became difficult due to democratization, to 1997, when Korea was hit by the Asian financial crisis; and the period after 1998, when the paradigms of economy and employment policy were transformed dramatically. Hit hard by the financial crisis, the Korean economy’s myth of life-long employment faded away, and Korea’s economy remained overwhelmed with chronic problems such as youth unemployment and the increase in and persistence of temporary employment.

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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>).

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<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

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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

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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

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)

Year

Employment Employment change rate

All industries

Agriculture, forestry and fishing

Mining &

manufacturing

SOC &

other services

All industries

Agriculture, forestry and

fishing

Mining &

manufac -turing

SOC &

other services

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.

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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)

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.

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>).

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<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

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.

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<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.

2. Heavy-chemical Industry Promotion Phase (1973-1979)

The government maintained the export-driven growth policy in the 1970s. However, the export growth of the 1960s based on light industries was no longer valid as a policy

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due to deteriorating international competitiveness as Korean workers became more resistant toward low wages and developing countries began to catch up with Korea.

In 1973, the government established the Heavy and Chemical Industry Promotion Council and adopted various policies to enhance the industrial structure, such as providing financial and tax benefits and support and by establishing clusters of industrial complexes. With the completion of Pohang Iron and Steel Company in 1973 and the Kori Nuclear Power Plant in 1978, Korea secured the materials and energy sources required for its industrialization. The National Investment Fund Act was enacted in 1974, stipulating that heavy and chemical industries be supported with 68% of the national investment fund and 14 major industries be waived from inland duties.

The Third 5-Year Economic Development Plan which ran from 1972 to 1976 aimed to enhance the industrial structure, correct the imbalance of international trade, achieve self-sufficiency in food, and promote balanced regional development. Machinery, electronics, steel, nonferrous metal, petro chemistry, and shipbuilding were designated as six strategic industries and their industrial structure was highly enhanced during this period. The Fourth 5-Year Economic Development Plan which ran from 1977 to 1981 sought to actively develop the heavy chemical industry under the catchphrase ‘Improving efficiency through innovation of technology.’ To supply the required manpower, a mandatory vocational training system was introduced in 1976. Due to the rapid expansion of the scale of the economy and enhancement in the production structure, demand for manpower continued to grow, both in greater quantities and of better quality. As a result, the primary goal of employment policy for the 1976-1978 period was to correct the supply-demand imbalance for skilled manpower.

During the Second and Third Economic Development Plans, the heavy chemical industry recorded a high growth rate of 20.9% annually. At the end of the Third Plan,

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shipbuilding had grown by 13 times, along with 2.3 times for cement, 1.5 times for plywood, 1.4 times for fertilizer, and 1.6 times for oil refining. Of the total value added in the manufacturing sector, the proportion of heavy industries rose from 36.4% in 1972 to 48.5% in 1977 (see <Table 2-8>).

<Table 2-8> Ratio of Heavy and Chemical Industries (1962-77)

(Unit: %) Category

Year

Production Value-added

Light industry Heavy industry Light industry Heavy industry

1962 73.2 26.8 71.4 28.6

1967 66.8 33.2 65.3 34.7

1972 62.9 37.1 63.6 36.4

1977 49.6 50.4 51.5 48.5

Source: <Table VI-3> in Lee (1998)

Fifty percent of income tax and corporate tax was waived on exports, and the export of heavy chemical industry products grew steadily from US$10 billion in 1977 to US$20 billion in 1981. Industrial products made up over 90% of all goods exported, and the heavy chemical industry was responsible for over 55% of all industrial production. The ratio of heavy chemical industry against light industry increased from 12% in the 1970s to 38.4% in 1982.

However, the Korean economy could not avoid the negative effects of the global recession caused by stagflation in advanced countries, including the USA, in 1978 and the second oil shock in 1979. The government’s excessive support of heavy and chemical industries resulted in overinvestment, causing many businesses to go bankrupt.

The two-digit economic growth rate that continued through the 1970s fell rapidly to 4.8% in the third quarter of 1979 and to 4% in the fourth quarter, setting an all-time low record of 6.5% annually due to the second oil shock and the political unrest caused

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From the early to mid-1970s, the number of employed workers increased by about 4.1% or 460,000 people annually (see <Table 2-9>). However, as the rapid growth continued, in 1973, the number of available jobs in the labor market exceeded the number of job seekers, making the opening to application ratio (jobs/applicants) exceed 1. This was because the unlimited supply of laborers from rural areas was no longer available. The unemployment rate fell to around 3% in 1976. While the average annual growth rate in the number of workers employed across all industries remained at 3.7%

in the 1970s, the average annual growth rate for the manufacturing sector was the highest at 10.9%.

<Table 2-9> Economically Active Participation Rate and Unemployment Rate (1970-79)

(Unit: %)

1970 1971 1972 1973 1974 1975 1976 1977 1978 1979

Participation rate 57.6 57.4 58.4 58.9 58.9 58.3 59.7 59.4 59.9 59.5

Unemployement rate 4.4 4.4 4.5 3.9 4.0 4.1 3.9 3.9 3.2 3.8

Source: <Table 4-2> and <Table 5-1> in Kim and Sung (2005)

In the mid-1970s, the labor market was highly unstable with an average monthly employment accession rate of 4.5% and employment separation rate of around 4% for the non-farming sector. Due to the aftereffect of the first oil crisis in 1973, the number of businesses fell from 26,870 in 1973 to 21,528 in 1974 but the number of employed workers rose from 1,485,954 to 1,606,045. On the other hand, the number of workers employed in businesses of fewer than 50 employees fell by 74,726 and the number of workers employed in business of 200 or more employees rose by 164,872, implying that small businesses suffered a direct hit from the first oil crisis.

Thanks to the heavy chemical industrialization policy, Korea quickly took on the appearance of an industrialized nation (see <Table 2-10>). With secondary industries acting as the locomotive for changes to the employment structure, the component ratio

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of employees in mining and manufacturing industries grew steadily from the 1960s to 14.3% in 1970, 16.2% in 1973, 19.1% in 1975, and 23.6% in 1979.

<Table 2-10> Employment and Change Rate by Industry (1970-79)

(Unit: persons in thousands, %)

Employment Employment change rate

All industries

Agriculture, forestry and fishing

Mining &

manufacturing

SOC &

other services

All industries

Agriculture, forestry and

fishing

Mining &

manufac -turing

SOC &

other services 1970 9,617

(100.0) 4,846(50.4) 1,377(14.3) 3,395(35.3) 3.6 2.2 3.3 5.8

1971 9,946

(100.0) 4,797(48.2) 1,413(14.2) 3,737(37.6) 3.4 -1.0 2.6 10.1 1972 10,379

(100.0) 5,238(50.5) 1,468(14.1) 3,674(35.4) 4.4 9.2 3.9 -1.7 1973 10,942

(100.0) 5,445(49.8) 1,779(16.2) 3,719(34.0) 5.4 4.0 21.2 1.2 1974 11,421

(100.0) 5,481(48.0) 2,027(17.7) 3,914(34.3) 4.4 0.7 13.9 5.2 1975 11,692

(100.0) 5,339(45.7) 2,235(19.1) 4,118(35.2) 2.4 -2.6 10.3 5.2 1976 12,412

(100.0) 5,514(44.4) 2,708(21.8) 4,191(33.8) 6.2 3.3 21.2 1.8 1977 12,812

(100.0) 5,342(41.7) 2,866(22.4) 4,604(35.9) 3.2 -3.1 5.8 9.9 1978 13,412

(100.0) 5,154(38.4) 3,092(23.1) 5,167(38.5) 4.7 -3.5 7.9 12.2 1979 13,602

(100.0) 4,866(35.8) 3,209(23.6) 5,527(40.6) 1.4 -5.6 3.8 7.0 Note: ( ) is ratio to all industries.

The employment structure by occupation also reflected the changes in industry composition (see <Table 2-11>). The proportion of agriculture and fishing jobs decreased from 50.6% in 1972 to 35.7% in 1979, while the proportion of production workers, drivers, equipment operators and unskilled laborers increased to 29.1%.

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<Table 2-11> Employment and Change Rate by Occupation (1972-79)

Year Total

Managers &

professionals and related workers

Service & sales workers

Agricultural, forestry

& fishing workers

Craft, machine operators &

elementary occupations

1972 10,379 1,068(10.3) 1,912(18.4) 5,257(50.6) 2,145(20.7)

1973 10,943 1,010(9.2) 2,069(18.9) 5,463(49.9) 2,401(22.0)

1974 11,421 1,129(9.9) 2,212(19.4) 5,498(48.1) 2,582(22.6)

1975 11,692 1,163(10.0) 2,352(20.1) 5,360(45.8) 2,815(24.1)

1976 12,413 1,286(10.4) 2,353(18.9) 5,539(44.6) 3,235(26.1)

1977 12,812 1,526(11.9) 2,435(19.0) 5,329(41.6) 3,524(27.5)

1978 13,415 1,732(12.9) 2,625(19.6) 5,148(38.4) 3,910(29.1)

1979 13,603 1,887(13.9) 2,776(20.4) 4,862(35.7) 4,078(30.0)

Note: ( ) is ratio to all occupations.

In terms of employment by worker status, the proportion of full-time workers and temporary workers increased to 37.2% in 1979, resulting in continued job stability for employed workers and quality improvements in the employment structure (see <Table 2-12>).

<Table 2-12> Employment and Change Rate by Worker Status (1972-79)

(Unit: person in thousands, %) Year Total Self-employed Unpaid family

workers

Regular &

temporary employees

Daily workers

1972 10,379 3,554(34.2) 2,823(27.2) 2,852(27.5) 1,153(11.1)

1973 10,943 3,780(34.6) 3,009(27.5) 2,993(27.3) 1,160(10.6)

1974 11,421 4,007(35.1) 2,972(26.0) 3,343(29.3) 1,101(9.6)

1975 11,692 4,008(34.3) 2,932(25.1) 3,628(31.0) 1,123(9.6)

1976 12,413 4,258(34.3) 3,015(24.3) 4,001(32.2) 1,139(9.2)

1977 12,813 4,287(33.5) 2,812(21.9) 4,288(33.5) 1,426(11.1)

1978 13,413 4,445(33.1) 2,726(20.3) 4,788(35.7) 1,454(10.9)

1979 13,603 4,571(33.6) 2,553(18.8) 5,058(37.2) 1,421(10.4)

Note: ( ) is ratio to all worker statuses.

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With the overseas expansion of construction companies in the Middle East in the mid-1970s, considerable amounts of skilled manpower and technology were relocated overseas, causing the wages of construction workers to rise within the country. The average wage across industries rose by 25.2% in this period, and specifically by 35.5%

in 1976. Working conditions improved gradually. The average annual nominal wage growth rate in the 1970s was 26.0% and the real wage growth rate was 9.6%. In particular, for the period from 1976 to 1979, the average annual nominal wage grew by 31.8% and the real wage rose by 15.3%. The construction industry’s expansion to the Middle East resulted in a lack of manpower in Korea which affected all other industries.

Following the first oil crisis, as a means to correcting the problem of low wages, the government sought to ensure adequate wages by declaring Emergency Measure No. 3 in 1974 and adopting a worker protection policy. In 1975, the government adopted strong administrative guidance to eliminate low monthly wages of 10,000 won and below. As a result, workers with wages below 10,000 won, who made up 21% of all workers in 1971, had completely disappeared by 1976.

As of March 1975, female workers’ wages were 42.2% of male workers’ wages.

Taking wages of workers with high school education as 100, wages of those with elementary school education were 52, wages of those with middle school education were 62, and wages of those with university education were 214. Taking wages of production workers as 100, wages of clerical workers were 214.5, wages of technical workers were 265.4, and wages of administrative workers were 457.8. Around the mid-1970s, the income gap between genders, education levels and job types began to close in slightly.

Labor movement was strictly controlled by the authoritarian government. The three primary rights of labor were limited, and labor union activities regarding disputes

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compulsory arbitration was expanded, and voluntary dispute resolution between labor and management was almost non-existent. The Federation of Korean Trade Unions was the only recognized labor union, but it failed to adequately protect the rights of the working class. As a result, a sizable number of workers joined the underground labor movement led by university students.

As an alternative to suppressing the demands made by labor unions for better working conditions, the scope of the Labor Standard Act was expanded gradually, and the scope of the Industrial Accident Compensation Insurance Act was also expanded. The government began to set up the framework for a welfare nation by introducing a national health insurance system.

3. Rationalization and Liberalization Phase (since 1980)

3-1. Early Stage of Globalization (1980-1986)

Due to the second oil shock and the political turmoil following President Park’s death, the economic growth rate fell to 6.4% in 1979 and saw a negative figure in 1980.

However, the political climate stabilized with the establishment of the Fifth Republic.

After the mid-1980s, price levels stabilized, exports increased, and the economy became very active as the government adopted an austerity budget and the situation of the three-lows (low crude oil prices, low value of the dollar, and low interest rates) continued. Developed countries forged their protectionism and regionalism and continued to force developing countries to open up during the Uruguay Round. The Korean government allowed a 100% foreign investment ratio across all industries from 1983, and the import liberalization ratio reached 91.5% in 1986. Although the economy remained active as its opening accelerated, the agricultural sector had to suffer a direct hit from the opening up of the market and imports of cheap agricultural products.

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With execution of the Fifth 5-Year Economic Development Plan conducted by the Fifth Republic of Korea, exports continued to increase and the Gross National Product grew rapidly. The average annual economic growth rate remained around 10%. GNP per capita exceeded US$3,000 in 1987.

However, the concentration of economic power intensified. The top ten conglomerates’

contribution to the GNP rose from 33% in 1979 to 54% in 1989, and the number of enterprises interrelated to the top 30 conglomerates increased from 126 in 1970 to 513 in 1989.

Exports grew from US$10 billion in 1977 to US$62 billion in 1989. Represented by the export of Pony and Excel (Hyundai made cars) to the USA in 1986, the export-oriented and high-value automobile, electronics, and semiconductor industries became visibly active.

The number of agricultural workers fell continuously (see <Table 2-13>). By the end of the 1980s, only 1 in every 5 people worked in agriculture. The number of wage earners grew fourfold from about 2 million in the early 1960s to about 8 million in the mid-1980s. In particular, the number of workers in the manufacturing industry grew 7.5 times from 1963 to 1985.

<Table 2-13> Workers by Industry (1963-85)

(Unit: persons in thousands, %)

1963 1970 1975 1980 1985 Change rate

Agriculture 725

(30.0)

743 (19.6)

677 (14.1)

551 (8.5)

437

(5.4) 0.6

Manufacturing 417

(17.3)

995 (26.3)

1,782 (37.1)

2,475 (38.2)

3,146

(38.9) 7.5

Service & commerce 1,272 (52.7)

2,049 (54.1)

2,344 (48.8)

3,459 (53.3)

4,507

(55.7) 3.5

Total 2,414

(100)

3,787 (100)

4,803 (100)

6,485 (100)

8,090

(100) 3.4

LIST OF TABLES

CONTENTS

LIST OF TABLES

LIST OF TABLES

LIST OF FIGURES

Preface

Chapter 1

Introduction

Chapter 1. Introduction

Chapter 2

Economic Development

and the Labor Market

Chapter 2. Economic Development and the Labor Market

1. Take-off Phase (1961-1972)

2. Heavy-chemical Industry Promotion Phase (1973-1979)

3. Rationalization and Liberalization Phase (since 1980)