Assessment and recommendations

A favourable labour market situation

The employment situation in Korea is favourable, with low overall unemployment, of under 4%, although participation rates are low for women and for some groups, especially for women with children and young people, even those with higher education.

but a profound demographic transformation underway

Due to a sharp decline in fertility rates in the 1980s, Korea has one of the fastest aging populations in the OECD. The working age population reached its peak in 2016, at 37.6 million, and is declining by 0.2% per year; by 2030 it is expected to have fallen by 10%. The old-age dependency ratio – the number of people over 65 to the number of people 15-64 – is currently 19, one of the lowest in the OECD; it is expected to increase to 89 by 2065, when Korea will have the highest rate in the OECD.

and high educational attainment of youth cohorts

Korea has the highest share of young people enrolling in universities in the OECD and the highest share of people age 25-34 with tertiary degrees, 70% (OECD, 2017[1]). The share of young Koreans with less than secondary education is nominal. Further, according to PIAAC, the skills of Koreans even with only secondary education are among the highest in the OECD, indicating a very skilled young workforce.

Korea has seen the supply of younger less-educated workers diminish

Over the decade 2005-15, the combined effect of shrinking youth cohorts and higher educational attainment led to a sharp decline in the number of less-than-tertiary educated of 65%, from about 4 million people aged 25-34 to 1.4 million. This is by far the sharpest decline of any OECD country.

The less-educated workforce also counts many older workers, and overall is rapidly aging. In 2010, 88% of the less-educated workforce was over 45 years old. While workers over age 50 have a high participation rate in Korea, of almost 70%, older workers cannot compensate for the shrinking share of young workers without higher education qualifications entering the labour force. By 2025 the number of low-qualified young workers is expected to fall below 1 million. If there is not a drastic decline in the demand for less skilled workers, it will be increasingly difficult to fill these positions.

Korea still has a large number of jobs requiring little education and low skills

Export-oriented manufacturing was the driver of economic growth in the decades through the 1990s, and continues to be very important. Its share of employment stands at about 15%, having fallen less than in most other OECD countries in the past decade. The service sector has grown substantially and now accounts for 70% of employment. The agricultural sector has a small share of employment, generally low skilled. In the construction sector, which accounts for 7% of employment, many of the jobs are still low-skilled.

Most of these jobs are low-quality jobs

Since the 1990s, the labour market in Korea has become highly dual, with jobs in large firms and in the public sector offering security, higher wages and better working conditions, while those in small and medium enterprises offer less attractive conditions. In manufacturing especially, large firms have outsourced low-productivity elements of their supply chain to SMEs which operate under strong competitive pressure. Turnover is high in these firms and wages are low.

Korea’s foreign population has grown quickly over the past two decades

Most of the immigrant population in Korea has foreign nationality. The foreign population with longer-term permits was almost 1.5 million at the end of 2016, or about 3% of the population. This number is twice the level in 2005 and well above the 1 million foreign residents identified in the 2010 Census. The number of foreigners holding short-term permits was about 350 000 and illegal overstayers numbered 200 000, primarily former visitors and tourists. In 2016, legally resident foreigners comprised about 3.7% of the economically active population, lower than the OECD average.

The foreign population comprises temporary workers of different nationalities and a growing permanent resident population

Of the foreigners in Korea in 2016, 38% were overseas Koreans. The temporary Work-Visit visa (H-2) (16%) was composed almost entirely of Korean Chinese and 74% of the F-4 visa for overseas Koreans (24%) was Korean Chinese. Temporary foreign workers who arrived under the bilateral programme for non-professional workers comprised 18%. Marriage migrants, primarily women who married Korean men through matchmaking services, comprised 8%. Marriage migrants accounted for about 15% of all foreign residents in 2010 but their share has since grown less rapidly than that of other groups, especially Korean-Chinese with permanent residence. Other permanent residents accounted for 9%. Students comprised 5% of foreign residents.

Korea has been active in developing a migration policy

Immigration policy in Korea is determined by the Immigration Policy Committee, a committee under the Prime Minister in which the lead ministry is the Ministry of Justice. This Committee, starting in 2008, has developed five-year Basic Plans on migration and integration, mapping priorities for labour migration; the third Basic Plan 2018-22 was released in 2018. The Basic Plans have largely addressed migration management and the integration framework, without specifying the role that foreign workers are expected to play in specific sectors of the Korean economy and labour market, especially the role of less-skilled temporary migration and the need to carefully monitor and manage it. The Basic Plans have highlighted internationalisation of higher education, access to the global talent pool, and attracting investors.

Employer use of foreign workers has increased in low quality jobs, initially without a strong policy direction

Starting in the late 1980s, foreign workers started to be employed in these jobs. Initially, Korea admitted foreigners under an internship programme, which grew sharply in the 1990s and was rife with abuse. There was widespread rent-taking by intermediaries in the recruitment process in origin countries, and many highly indebted interns arrived and were employed not as trainees but as workers without respect for conditions of labour law, while others sought employment outside the terms of their permit. There was also a high overstay rate. By the late 1990s, there were almost 200 000 overstaying foreign workers, and about 100 000 interns.

In the mid-2000s, Korea instituted a formal policy for temporary employment of foreign workers, EPS

The watershed moment for foreign worker policy in Korea was in 2004, with the introduction of the Employment Permit System (EPS). This policy had two main components. The first was a programme for admission of temporary foreign workers for up to three years, through bilateral agreements, with workers assigned to employers in a fixed number of sectors through quotas. The second was a programme for admission of ethnic Koreans abroad – primarily Chinese – to visit and work in Korea for up to almost five years, subject to restrictions on their employment in certain sectors.

The programme has expanded since introduction to account for a large share of employment in certain sectors

Since its introduction, the number of workers employed under bilateral agreements has risen to 294 000, or 10% of the manufacturing sector employment, and has become an integral part of the labour force of SMEs in manufacturing and agriculture, despite the restrictions placed on which firms are allowed to recruit foreign workers and a ceiling, at the firm level, on employment of some categories of foreign workers. The programme for ethnic Korean Chinese rapidly reached its ceiling of 303 000, although it has fallen in recent years as many participants have changed status to permanent residence. About 10% of employers with more than five employees rely on filling at least some vacancies with foreign workers; this share has remained steady in recent years and reflects the use of foreign workers by a specific type of firm in Korea.

The programme provides low-cost workers to firms that struggle to remain competitive

Low-skilled temporary worker programmes may allow certain firms to delay or maintain a low level of investment. Korea has made the decision with EPS to provide firms with a certain quantity of low-skilled workers, albeit with safeguards against a negative effect on resident workers. EPS is designed in such a way as to limit competition for available foreign workers, which could drive up wages; about two-thirds of participants earn minimum monthly wage, and hourly wages are lower than the Korean average in SMEs in the manufacturing industry. Many OECD countries have similar programmes in seasonal agricultural jobs, to maintain the viability and low prices of this sector; some have programmes for household care workers or other seasonal or one-time needs. Korea is rare in the extent of the programme and in the design of the programme.

One policy concern is to increase the cost of employing foreign workers in order to protect resident workers. One proposal under consideration is to introduce a levy to increase employer cost. However, real wage increases would also increase costs, and this could be achieved through the points-based system by distributing work permits to the highest-paying firms.

The EPS model is a government-to-government model with all phases of employment overseen

EPS is unique among OECD countries in its scale and comprehensiveness. Potential candidates must pass a basic Korean language test in order to enter a pool managed by the government in the origin country. For each position in Korea, three potential candidates are identified, who must pass a physical strength and capacity test. The list of candidates sent to employers reflects employer preferences for nationality, gender and age, as well as specific skills. Employer preference for nationality is respected up to a point, since EPS also ensures that all participating partner countries are included in the recruitment. Employers choose one of the candidates. However, asking employers to express a preference by nationality, age or gender in the recruitment process is not in line with Korean antidiscrimination standards and should be addressed. The Korean government agency administering the programme, HRD Korea, brings workers to Korea and provides ongoing support to EPS workers, with initial training and pre-return and post-return training, as well as supporting employers and workers during their stay.

Foreign workers are assigned to employers based on a number of different criteria

Admission quotas are set below the demand for foreign workers. Employers must labour market test their demand for foreign workers, and only if they are unable to fill the position after a mandatory advertising period and after reviewing workers sent by the public employment services are they allowed to recruit. Employers apply to use the EPS system for workers and, in two to four annual draws, are assigned a number of permits for employment corresponding to the number of EPS workers they may employ. Initially, permits were divided among employers in the sector; since 2014, permits have been allocated to employers based on a points system ranking prior compliance and the share of EPS workers among their workforce. Lower shares of foreign workers are rewarded with more workers, although firm-level ceilings are quite high, with small firms allowed to have almost all their workers through EPS. The points system also penalises employers for severe abuses of workers. Employers who have been sentenced to at least imprisonment for sexual violence, etc. will be prohibited from getting issued a certificate of visa issuance for foreign workers for five years. For employers who have been punished for assault, sexual violence, etc., the punishment they have faced will be weighted in the PBS, rather than automatically disqualifying them from receiving further workers. The government should make efforts to prevent unpaid wages through safeguards, such as deducting points under the PBS.

There is no sector mobility and limited job mobility for EPS workers

EPS workers, once admitted, are expected to stay with their initial employer unless they are subject to illegal employment practices or firm closure. Workers may request up to three voluntary changes of the employer during their work period for legitimate reasons, with the employer’s consent. Employers may be unwilling to release their workers due not only to the high initial investment in participation in the programme and in training workers but also to the shortage of labour. However, in cases of unpaid wages and working condition violations, there is no limit on the authorized number of workplace changes. There are no limits to changing workplaces due to violation of the employment contract such as the employer’s violation of working conditions and unfair treatment. Job mobility has been a point of contention. The mechanism for job changes should be examined. With the introduction of a points-based system, for example, it would be possible to allow workers to transfer to higher-ranked employers who have not fulfilled their allotment; this would be transparent and would encourage greater compliance with programme regulations.

Job mobility provisions could improve compliance

While illegal employer practices allow job change, poor but legal working conditions prevail in these sectors – explaining the high turnover of Korean workers. Mobility constraints in EPS eliminate incentives for employers to improve the competitiveness of working conditions. Employers may also provide lodging and board, for which they are allowed to deduct costs; there is no incentive to improve housing conditions. A proposal to allow workers in agriculture to change employers in the case of poor housing conditions or excessive rent charges could be implemented and extended to other sectors.

The EPS has reduced the abuses associated with temporary labour migration programmes

Prior to its introduction, low-skilled labour migrants paid high rents to intermediaries and their debt made them vulnerable to abuse and more likely to illegally overstay. Migrant recruitment costs have been substantially lowered through EPS. Low wages are prevalent in SMEs in the manufacturing and services sector for Korean workers. EPS does not require employers to report payment of minimum monthly wage, but evidence suggests that EPS workers earn the minimum monthly wage – and about one-third earn more than that. Reported working hours of 60 hours per week however raise the concern that overtime is not consistently being paid. Competition among firms for EPS workers could be further supported to grant workers more protection, authorising more employment permits to firms than available workers and allowing workers a slightly greater degree of in-sector and in-region mobility.

Measures to reduce illegal overstay have been partially successful

One of the main concerns regarding low-skilled foreign workers is the risk of overstay; EPS was introduced partially to prevent overstay. The rate – 16.3% in 2016 – is comparable to temporary work programmes with similar characteristics in other OECD countries. Korea uses two main mechanisms to discourage overstay. The first is the Departure Guarantee Insurance, a payroll contribution paid by the employer. The insurance pays severance at departure, and the worker receives these funds at the airport or within 14 days of returning home. Court cases have ruled that overstayers have a right to this fund. The fund could be structured to ensure that it is fully paid for timely departure and withheld progressively for longer overstay. The second mechanism is to place pressure on the origin country to suspend recruitment; this has been used to effect with several origin countries. Softer measures include working with returning workers to help them find work with Korean firms in their origin country, and publicising this possibility. These could be expanded.

Compliance and transparency could be reinforced using new technology

While EPS workers earn at least minimum wage, there is as noted some concern over non-payment of overtime. In addition, foreign workers in Korea participate in four separate insurance schemes, of which they contribute to two, while employers contribute to the other two. Insurances include a set-aside which is returned to the worker upon departure. To improve transparency, the existing app for EPS workers should allow workers to predict, calculate and track their individual accumulated deposits and severance pay rights.

Duration of stay has been increased from three to five to ten years

When introduced, the maximum stay was three years, considered a sufficient time to recover the investment in training by the worker, the programme administration and the firm. However, many workers acquired firm-specific skills and improved their language ability and productivity, so that at the end of the first three-year period, employer pressure led to an introduction of a 22-month extension. When this deadline was reached, provisions were made for “diligent” workers (those who remained with their employer for the entire period) to return to Korea, as well as workers capable of passing a more advanced language test. These workers would return home, for three months for diligent workers and six months for other returning workers, before re-entering Korea. When the first workers approached the 10-year mark, no further extensions were granted. Of all permits in OECD countries, EPS has the longest temporary low-skilled work permit duration where no settlement or family reunification is allowed, more than Israel (five years) or the United States (three years).

Provisions for returning workers have been enthusiastically taken up

The provision for diligent workers has been taken up by employers and workers; employers have preferred to retain their veteran employees, rather than start again with new EPS workers. The skills and language ability, as well as familiarity with firm practices, acquired during the five years of diligent work appear to be of value for employers. It would be reasonable to expect a wage threshold for returning workers, especially if the firm does not undergo a new labour market test for the vacancy for which they worker is returning. A higher re-entry wage would also be a means to encourage employers to hire resident workers, since there is no labour market test for employing a diligent worker.

More opportunity to remain for more skilled EPS workers

In principle, EPS workers are not allowed to change status. In 2011 a small window for status change was opened to allow workers who had acquired specialised skills, received a higher salary, and held higher education qualifications to change status to an E-7 visa; this visa is indefinitely renewable, allows family reunification and a pathway to permanent residence. About one in five EPS workers holds tertiary qualifications in the home country, suggesting initially a large pool of potential users. However the skills certification and salary requirement proved too high for most workers and take up was minimal. In 2014, the bridge to the E-7 was further widened, with education and skills criteria reduced. Fewer than 300 EPS workers qualified for this status change in 2015. In 2017, a further bridge was introduced, favouring future status change. Higher-productivity EPS workers should be encouraged to use these bridges.

The shift towards more selectivity may mean that future EPS workers will be more productive

After more than a decade of imposing only a basic Korean language test and a strength test, Korea introduced in 2016 the possibility for EPS candidates to increase their chances of selection through additional “points” for experience or certificates of training or government-issued qualifications in the fields sought after. High points can even substitute a poor Korean language test result, which otherwise blocked experienced candidates. The shift towards selecting more experienced and skilled workers for EPS will likely increase their value to employers – important if the new higher minimum wage introduced from 2018 to 2020 is to be respected. However, this higher value for employers may also mean more of them will transition from temporary to renewable long-term status. The use of a points system for low-skilled workers is a novelty in OECD countries. Going forward, it is possible that there will be a tension between the objective of the EPS, to provide low skill workers, and the increased efforts to select foreign workers according to their adaptability and to support the development of skills of participants. The wage effects of higher productivity should be monitored.

Bringing higher-skilled and higher-productivity workers into EPS represents a change in the non-professional model, which justifies the sector and job mobility restrictions. Higher skill EPS workers will find it easier to shift to permits such as E-7, which allow job mobility. The occupational restrictions that currently ensure that they do not compete unfairly with skilled Korean workers would no longer apply, which raises the question of whether a labour market test would be appropriate at the transition from EPS to long-term stay.

The seasonal worker programme in agriculture needs to be monitored closely

EPS was not designed for seasonal employment. Concern over potential overstay long prevented introduction of a seasonal agricultural workers programme until a 2015 pilot, involving local authorities, who could sponsor seasonal workers themselves or allow foreign residents (marriage migrants) to nominate their relatives. Several hundred workers came through the programme. This is an unusual model for seasonal workers; most countries try to avoid ties between seasonal workers and local actors or residents, to ensure departure. While overstay was not a problem in the pilot, allowing local residents to propose nomination to the local authority raises the risk of rent-taking from which the EPS programme has so far been largely insulated. The programme is less designed to meet labour demand than to provide a work-visit permit to relatives of migrants. If the programme is to expand, Korea should consider the seasonal work models used in Canada and Spain for example, where bilateral agreements are in place and repeat rates are high.

The EMS Work-Visit programme has gradually lost restrictions and workers have gone primarily into the service sector and construction, with many transitioning to permanent residence

Ethnic Korean Chinese have been coming to Korea for employment on different grounds since the late 1980s; most speak Korean. The system became the Work-Visit for ethnic Koreans in 2007 with numerical restrictions on sectors of employment, these quotas were eliminated in 2009 (except for the construction sector). H-2 workers are allowed to be employed in about 80 occupations. In 2013, 38% of H-2 workers were in the manufacturing sector, while 27% worked in the restaurant and hospitality sector and 17% in construction. In 2010, H-2 visa holders were granted access to the F-4 long-term residence visa if they met criteria on one of three grounds (age, employment in a rural sector, and passing a vocational certification). It was relatively easy to qualify for vocational certification, since some were easily obtained even if the worker had no intention of working in that occupation (although occupational restrictions apply to F-4 visa holders). As a result, the number of F-4 visa holders rose from 190 000 in 2012 to 373 000 in 2016, while the number of H-2 Work Visit residents has fallen below its ceiling, although it remains in the mid-200 000s. Ethnic Korean Chinese now account for 30% of long-term foreign residents. However, half of the adult Korean-Chinese foreigners are over 50 years old, compared with 15% for other foreigners; 52% are women. As this group is aging both in Korea and in China, it cannot be considered a long-term source of foreign labour. At the same time, the language requirement for ethnic Koreans has been lifted; since those coming from countries of the former Soviet Union have poor Korean language skills, any increase in flows from these countries will have implications for the integration of this group.

Foreigners are ineligible for a number of key benefits offered working Koreans

Foreigners, with the exception of those belonging to a household that includes a Korean citizen, do not have access to income support (the Basic Livelihood Security Programme) or to the EITC, the primary forms of income support for low-income working Koreans. While this may have made sense as long as workers were in Korea for short periods with no prospect of settlement, for the growing number of long-term and permanent-residence holders (there are more than 600 000, including family members of Korean nationals), equal access to income support appears important, especially since wages remain low for so many of them.

Highly qualified foreign workers are recruited mostly for export-oriented positions rather than to meet general skills shortages

Due to high educational attainment and an oversupply of qualified young people, there is no broad shortage of highly skilled workers. However, Korea has a favourable framework for work permit authorisation for qualified foreigners, with a large number of separate programmes. The strategy for attracting highly skilled foreign workers focuses primarily on supporting export activity, FDI and knowledge transfer, rather than securing skilled labour force. In some cases, such as employees of firms investing in Korea, processing work permits is instant and paperwork is simplified. Korea has introduced a number of special visas for investors, including for start-up firms. Large-scale investors acquire immediate permanent residence and the right to bring their families as permanent residents.

International student enrolment has started to grow again, but the higher education sector should be under close observation

Korea has an excellent tertiary education system producing highly qualified university graduates. Universities have a strong incentive to boost international enrolment as they face a decline in native numbers and because the Ministry of Education considers “internationalisation” in its quality index. Korea is attractive to foreign students, most of whom come without government scholarships. Although the share of international students in higher education in Korea is still low (about 2%), it rose sharply in 2014-17, from 85 000 to 124 000, after several years of plateau due to stricter verification of admission criteria. Many (41%) are language students or non-degree students.

In 2013, only 6% of graduating international students found a job in Korea; the job market for international graduates is difficult because few firms are seeking their profile. There is concern that many foreign students come to Korea for employment during their studies only, and many of the lower-ranked universities have little incentive to impose close selection on international students. This has been improved and a new compliance system put in place. Use of international rankings should take into account foreign student performance rather than enrolment.

A large number of permit categories are offered to qualified foreign workers, each with its own requirements and processing standards

Even excluding visitors, short-term stays and diplomatic categories, Korea has about 170 permit sub-categories for study, employment, and family. Different family categories account for about 40, and study for about 15, leaving a large number of categories for investors and workers. Korea has a number of longer-term residence categories – F visas – all of which qualify as residence for naturalisation. Some F visas grant permanent residence without employment restrictions but others do not, and the benefits of each visa in terms of duration and family reunification vary. Status changes among these visas are not uncommon. These visas could be simplified by eligibility criteria and associated rights and requirements.

This is partly due to occasionally overlapping initiatives by different ministries

Co-ordination of migration initiatives occurs through a 5-year Basic Plan setting out priorities and assessing achievements, with an associated budget. Ministries launch and promote their own initiatives, leading to the creation of specific and sometimes overlapping visa categories and initiatives for specific groups (high-level scholars, status-changing investors).

The division of permits into “non-professional” and “professional” should be reviewed.

Korea separates its permit categories into non-professional and professional. Only the E-9 non-professional permit requires a labour market test. The E-7 visa, the catch-all category for employment in one of more than 80 occupations, is not labour market tested, even if it covers about 20 occupations requiring lower skill levels where a 20% firm-level ceiling on foreign workers applies. Korea should consider separating the E-7 visa into a labour-market tested permit and a high-skilled labour-market test-exempt permit, as in many other OECD countries. Further, a large share of what are classified as “professional” visas are actually foreign-language teachers, who are low-paid and work in instable employment, often unemployed and using a bridging visa between jobs. Some free-lancers bridge to other sectors using a job-search visa. In light of this, the language teacher visa should be a bridge to permanent residence only in the presence of meeting an appropriate income threshold.

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