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1. Why adult learning is important for Korean SMEs?

Abstract

The Korean social and economic context makes adult learning investments particularly important for SMEs. This chapter paints a picture of the place that SMEs occupy in the economy. It looks at the key mega-trends that are changing the skills needed in the labour market, and how these changes may be particularly disrupting for SMEs. Finally, the chapter also looks at current skills shortages, surpluses, and mismatches in the Korean labour market, focussing particularly on skills imbalances in SMEs.

    
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In Brief
Enhancing training opportunities in SMEs is key for Korea

This chapter paints a picture of the place that SMEs occupy in the economy and highlights the reasons why adult learning is important for them. The key findings of the chapter can be summarised as follows:

  • SMEs are the backbone of the Korean economy: they account for nearly all firms (99.9%) and provide 80% of all business sector employment, the second highest share in the OECD after Greece. Yet, SMEs lag behind large firms when it comes to productivity and working conditions. The productivity gap between large firms and SMEs is the largest in the OECD. SMEs also offer lower wages, more unstable contracts, and fewer career progression opportunities compared to large companies. Adult learning can help to close these gaps by increasing the productivity of SMEs and upskilling its workers.

  • New technologies may increase the need for adult learning in SMEs. If new cutting edge technologies were introduced, some 44.3% of jobs in Korean SMEs could be partially or completely automated – against 36.5% of jobs in larger firms. This suggests that many SME workers may need to retrain to adapt to these changes.

  • Population ageing may also increase the need for adult learning. In Korea, the skills gaps between youth and older generations is among the highest in the OECD. Closing these skills gaps will be key considered that older workers are over-represented in SMEs and many of them start and run small businesses in their old age.

  • Despite the fact that the Korean adult population is highly educated, Korean SMEs face significant labour shortages and struggle to attract and retain talents. About 80.5% of SMEs are experiencing difficulty finding employees.

  • Skills imbalances are already emerging in Korea. Like in other OECD countries – in Korea certain high-level cognitive skills are in shortage (reasoning and verbal abilities; complex problem solving skills). Physical and manual skills (e.g. physical strengths) seem to be at an equilibrium level – unlike what can be observed in the OECD area where these skills are in surplus.

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Introduction

The Korean social and economic context makes adult learning1 investments particularly important for SMEs. In Korea, SMEs account for a significant proportion of employment. Yet, they contribute little to value added compared to larger companies, suggesting that more could be done to increase the productivity of SMEs and their employees. Moreover, key mega-trends (population ageing, digitalisation, and globalisation) are putting pressures on the Korean adult learning system, making skills investments in SMEs very urgent to tackle chronic labour shortages and skills imbalances. This chapter is structured as follows. Section 1.1 paints a picture of the place that SMEs occupy in the Korean labour market. Section 1.2 highlights the extent to which the megatrends make training investment in Korean SMEs particularly urgent. Section 1.3 looks at skills imbalances in the Korean labour market, focussing particularly on SMEs. Section 1.4 highlights the contextual (labour market, industrial) conditions needed to favour adult learning in SMEs.

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1.1. The place of SMEs in the Korean labour market

Korean SMEs account for a significant proportion of employment, and dominate certain economic sectors such as services, construction, and manufacturing. However, there are large gaps between SMEs and larger companies, in terms of productivity and working conditions offered to workers. This section paints a picture of SMEs in the Korean labour market, looking at the place that they occupy in the economy, their productivity, and the working conditions that they are able offer. It also offers a snapshot of the skill levels of workers in SMEs and larger companies, placing Korea in the international context.

1.1.1. Virtually all firms in Korea are SMEs and they provide 80% of business sector jobs

In Korea, similarly to other OECD countries, SMEs – defined as firms with less than 250 employees unless otherwise specified 2 – account for nearly all firms (99.9%), with micro-firms3 accounting by themselves for 93% of all companies. SMEs in Korea provide 80% of all business sector employment, the second highest share in the OECD after Greece, well above countries such as Great Britain (53.08%), Japan (52.8%), the United States (42.41%), and Canada (58%). In terms of value-added, Korean SMEs generate over 60% of all business sector GDP (Figure 1.1).

Korean SMEs are particularly present in certain economic sectors. For example, they account for around 90% of total employment in the service sector, 85% of employment in construction, while in manufacturing they account for around 80% of employment. These rates are much higher than what can commonly be found in other OECD countries with comparable data (Figure 1.2). Sectors where Korean SMEs are least present include business facilities management and business support services (64.2% of employment), electricity, gas, steam and water supply (71.2% of employment), and professional, scientific and technical activities (72.2% of employment), according to the Census on Establishments in 2014.

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Figure 1.1. SMEs and their contribution to the business economy
Percentage 2016, or latest available year
Figure 1.1. SMEs and their contribution to the business economy

Source: OECD (2019[1]), OECD SMEs and Entrepreneurship Outlook 2019, OECD Publishing, Paris, https://doi.org/10.1787/34907e9c-en.

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Figure 1.2. Employment by enterprise size, main sectors
Percentage of total employment in sector, 2014, or latest available year
Figure 1.2. Employment by enterprise size, main sectors

Note: Data are based on number of employees; data for KOR are based on establishments; for CAN, 1-9 refers to 1-19; for CAN, JPN, KOR: size class 50-249 refers to 50-299; 250+ refers to 300+; reference year: CAN, ISR: 2015; data for JPN were compiled in Japanese Industrial Classification and include overseas employment.

Source: OECD (2017[2]), Entrepreneurship at a Glance, OECD Publishing, Paris, https://doi.org/10.1787/entrepreneur_aag-2017-en.

Since the 1990s, SMEs – and micro- and small firms in particular – occupy an increasingly important role in the Korean economy. The share of employment among companies with 1-9 and 10-19 employees increased from 37.3% and 8.4% in 1993, respectively, to 40.9% and 10.9% by 2017 – while the overall share of employment among medium-sized companies has remained almost the same. Conversely, in 1993 establishments with 300 or more employees accounted for 22.6% of total employment in Korea4, a share that declined to 14.6% by 2017 (Figure 1.3, Panel A). As shown in Figure 1.3, Panel B, increases in the number of companies over the past decades were observed primarily among micro- and small firms.

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Figure 1.3. Employment by SMEs rapidly increased in Korea during the 1990s
Employees by firm size (percentages) and number of establishments by firm size (in thousands), 1993-2017
Figure 1.3. Employment by SMEs rapidly increased in Korea during the 1990s

Source: Statistics Korea, Census on Establishments, 2018.

1.1.2. There are large productivity gaps between SMEs and larger firms

As is well known, Korea’s rapid economic growth has been driven by export and manufacturing by large business groups, making Korea the sixth-largest exporter in the world. However, this traditional model has also led to polarisation between large firms and SMEs and has resulted in large gaps in productivity between them. Labour productivity in Korea is 46% lower than in the top half of OECD countries (OECD, 2018[3]) and the productivity gap between large firms and SMEs is the largest in the OECD (Figure 1.4).

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Figure 1.4. Productivity gaps between large firms and SMEs
% difference in labour productivity between large enterprises and SMEs in the business economy, 2017 or latest year
Figure 1.4. Productivity gaps between large firms and SMEs

Note: Data excludes financial and insurance activities. Labour productivity is measured as value added per person employed. Data for Korea refers to 2015. SMEs refer to firms with 1-249 persons employed. Large firms refer to firms with 250+ persons employed.

Source: SDBS Structural Business Statistics (ISIC Rev. 4).

There are several reasons behind the gap in productivity between SMEs and large firms. Low technology adoption in SMEs – discussed in Section 1.2.1 – could partly explain the productivity gaps with larger companies.

Unbalanced economic growth driven by large firms, and centred on exports and manufacturing, is also a key reason for productivity gaps across firms of different sizes. For example, in the manufacture sector, labour productivity in SMEs declined from 53.8% of that in large firms in 1988 to 32.5% in 2014 (OECD, 2018[3]).

Another key reason is that SMEs are concentrated in low-productive sectors. For example, as discussed in Section 1.1.1, Korea’s SMEs are concentrated in the service sector, where productivity is less than half of that in manufacturing.

Korea’s widespread subcontracting culture has been pointed out as one of the main causes for the productivity gaps between large firms and SMEs (Kim, 2015[4]). Large companies in Korea, especially in manufacturing sector, had a larger share of total employment before the 1990s. Since the early 1990s, however, Korea began to face much higher competitive pressures from emerging economies such as China, along with rising wages at home.

In this context, large companies began to outsource their various production processes to SMEs in order to reduce labour costs and to achieve greater flexibility, and medium-sized enterprises also turned some of their production process over to smaller firms. After the 1997 Asian Economic Crisis, such subcontracting process was widespread in manufacturing and eventually became common also in the service sector (OECD, 2018[5]).

Raising productivity of SMEs is key for economic growth. According to recent OECD estimates, raising SMEs’ productivity from its current level of about a third of that of large firms to half (which corresponds to the OECD average) would lift GDP per capita by more than 40% in 2060, amounting to an increase in the 2020-60 annual growth rate from 1.2% to 2.1% (OECD, forthcoming[6]).

1.1.3. SMEs typically offer poorer working conditions than larger companies

In Korea, SMEs offer poorer working conditions than large companies, including less job stability, lower wages, longer working hours, and less career advancement opportunities. If this is a challenge that Korea shares with other OECD countries, gaps in working conditions are particularly marked in Korea by OECD standards.

First, SMEs are more likely to offer non-regular, unstable, job contracts. In Korea, non-regular workers are largely concentrated in SMEs and particularly in micro- and small firms. As shown in Table 1.1, around 94.4% of non-regular workers are employed in SMEs, of whom 47.6% work in micro firms.5

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Table 1.1. Regular and non-regular workers in Korea by firm size, 2018 (%)

By firm size

Regular workers

Non-regular workers

Total (all salaried workers)

Micro (1-9 employees)

29.3

47.6

35.3

Small (10-29 employees)

21.8

25.0

22.9

Medium-sized (30-299 employees)

32.8

21.7

29.2

Large (300+ employees)

16.1

5.6

12.6

Source: Statistics Korea (2018[7]), Supplementary Results of the Economically Active Population Survey by Employment Type in August 2018.

SMEs are also more likely to offer lower wages. Regular and non-regular workers in SMEs earn less than both regular and non-regular workers in large firms (Figure 1.5). As shown in Table 1.2, in 2018 the (hourly) average wage of non-regular workers in SMEs was only 41.8% of that of regular workers in large firms, while regular workers in SMEs on average earned 56.8% of the salary of regular workers in large firms.

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Figure 1.5. Average gross earnings in Korea by employment type and firm size, 2018 (thousand KRW)
Figure 1.5. Average gross earnings in Korea by employment type and firm size, 2018 (thousand KRW)

Source: OECD estimates using MOEL (2019), Survey Report on Labor Conditions by Employment Type.

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Table 1.2. Wage gap between regular and non-regular workers by firm size, 2013-18
Total hourly wages by employment type and firm size (Index “Regular worker in large firm (300+)” = 100)

2013

2014

2015

2016

2017

2018

300+

Regular workers

100.0

100.0

100.0

100.0

100.0

100.0

Non-regular workers

65.6

64.2

65.0

62.7

65.1

63.2

1-299

Regular workers

53.8

52.3

49.7

52.7

54.3

56.8

Non-regular workers

36.7

34.6

35.0

37.4

40.3

41.8

Note: Data refer to total hourly wage level relative to regular workers in large firms.

Source: OECD Secretariat calculations based on the Survey Report on Labor Conditions by Employment Type.

Korea has a high incidence of low-paid work. With 22.3% of full-time employees earning less than 2/3rd of median (hourly) earnings of all full-time employees, Korea has the fifth highest incidence of low-pay in the OECD area after Israel, Ireland, Latvia and the United States (Figure 1.6).

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Figure 1.6. Incidence of low-pay by country, 2018 or latest year
Percentage of full-time employees earning less than 2/3rd of median (hourly) earnings of all full-time employees
Figure 1.6. Incidence of low-pay by country, 2018 or latest year

Note: data for Korea refers to 2017.

Source: OECD Earnings Distribution Database, www.oecd.org/employment/emp/employmentdatabase-earningsandwages.htm.

Unsurprisingly, the incidence of low-pay in Korea is higher in SMEs and this is largely driven by low pay in the smallest firms. As shown in Figure 1.7, although the incidence of low pay has decreased in recent years, it remains much higher in small firms (16%) than in larger companies (4.5%).

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Figure 1.7. Incidence of low-pay, by firm size and year, Korea
Percentage of full-time employees earning less than 2/3rd of median (hourly) earnings of all full-time employees
Figure 1.7. Incidence of low-pay, by firm size and year, Korea

Source: KRIVET elaborations of the Survey on Labor Conditions by Type of Employment (SLCTE).

Wage gaps have increased constantly over the past decades. In the 1980s, average wages between large and small firms were relatively similar, with workers in small firms (10-29 employees) earning 90% of what workers in large firms were paid. Since the 1990s, however, the gap has been widening. As of 2016, the average hourly base pay in large firms are around twice as high as that of SMEs with less than 300 employees (Figure 1.8).

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Figure 1.8. Average hourly base pay in Korea by establishment size, 1993-2016
KRW in constant 2015 prices
Figure 1.8. Average hourly base pay in Korea by establishment size, 1993-2016

Note: Data refer to real average base pay per regular hour worked in 2015 prices. Data have been deflated using the KOSIS consumer price index (2015 = 100).

Source: OECD estimates using MOEL (2017[8]), Survey Report on Labor Conditions by Employment Type, http://laborstat.molab.go.kr/newOut/renewal/menu05/menu05_search_popup.jsp, Table “Age, Days, Hours, Payments, Workers by Size, Education, Age”.

Working hours are another important aspect of working conditions. Although working time has been decreasing in recent years in Korea, in 2018 it still was the third longest in the OECD, at 1967 hours per year (roughly 164 hours per month). If working hours are long across the board, they are particularly long in SMEs – and this is particularly true for small and medium-sized firms.6 In particular, in 2018, employees of small and medium-sized enterprises worked around 170 hours per month on average, about 7 hours more than workers in large firms (Figure 1.9).

In July 2018, the Korean government reduced the maximum weekly working hours from 68 to 52 hours (roughly from 272 to 208 hours per month) in large firms with more than 300 employees. This regulation was extended to firms with 50-299 employees in January 2020 and will be expanded to firms with 5-49 employees in July 2021. The extension of the new 52-hour workweek to SMEs may serve as an opportunity to reduce the gap in working hours between small and larger companies.

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Figure 1.9. Working hours in Korea
Figure 1.9. Working hours in Korea

Note: For Korea data disaggregated by firm size, data refers to average monthly working hours of all employees (permanent, temporary and daily employees).

Source: Panel A: OECD Labour Force Statistics Database; Panel B and C: Ministry of Employment and Labor, Labor Force Survey at Establishments.

Career progression opportunities are another important element of working conditions. Workers may feel motivated to know that they can progress in their career and that working conditions may improve in the future. However, many SME workers feel stuck in poor jobs, and do not feel that they can grow and advance in their current career. Elaborations of the 5th Korean Working Conditions Survey show that only 32.5% of workers in micro-firms feel that their job offers good prospects for career advancement. This rate increases evenly with the size of the firm, reaching 53.1% of workers in large companies (Figure 1.10).

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Figure 1.10. Career advancement opportunities in Korean SMEs, 2017
Percentage of workers who agree or strongly agree that their job offers good prospects for career advancement, by firm size
Figure 1.10. Career advancement opportunities in Korean SMEs, 2017

Note: data refer to 2017.

Source: KOSHA elaborations based on the 5th Korean Working Conditions Survey (KWCS).

In this context, it is not surprising that workers in SMEs appear to be much less satisfied with their job than workers in larger companies. As shown in Figure 1.11, less than 27% of workers in micro-firms are satisfied or very satisfied with their job in Korea, against around 60% of workers in large firms.

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Figure 1.11. Job satisfaction in Korea, by firm size
Percentage of workers who are satisfied or very satisfied with their job, by firm size
Figure 1.11. Job satisfaction in Korea, by firm size

Source: OECD elaborations of the Korean Labor & Income Panel Study (19th wave, 2016).

The key reasons for job dissatisfaction among Korean workers are varied. Data from the Korean Labor & Income Panel Study shows that Korean workers are mainly dissatisfied with wages, followed by personal development opportunities, job stability, and work hours. This is true for workers in firms of all sizes, but workers in SMEs seem to be unhappy with work conditions much more frequently than workers in large firms. For example, 28% of workers in micro-firms are dissatisfied or strongly dissatisfied with wages, compared to only 12% of workers in large firms (Figure 1.12). Some 14% of workers in micro-firms are (strongly) dissatisfied with the possibility of personal development that the job can offer, which is almost three times as many as in large companies.

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Figure 1.12. Reasons for job dissatisfaction
Percentage of workers who are dissatisfied or strongly dissatisfied with the following work conditions
Figure 1.12. Reasons for job dissatisfaction

Source: OECD elaborations of the Korean Labor & Income Panel Study (19th wave, 2016).

In a context of poor working conditions, limited career progression opportunities, as well as overall low job satisfaction, it is not surprising that many SME workers look for better job prospects elsewhere, notably in a larger company or in the public sector. This translates into high turnover and low job tenure, particularly in SMEs.

In 2018, 30.4% of employees in Korea were in their jobs for less than one year – compared with an OECD average of 19.4% (Figure 1.13, Panel A). The average job tenure of workers in Korea in 2018 was a little over six years, the lowest of any OECD country and considerably lower than the OECD average of 9.4 years (Figure 1.13, Panel A). Job tenure is particularly low among SME workers, notably among workers in smallest firms. Figure 1.13, Panel C, shows that average job tenure in firms with 5-9 employees is 4.7 years as of 2018, less than half of that of large firms with 500 or more employees.

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Figure 1.13. Average job tenure (years) and incidence of job tenure of less than one year (percentages)
Figure 1.13. Average job tenure (years) and incidence of job tenure of less than one year (percentages)

Note: For Panel C, the Size of establishments is classified on the basis of permanent employees.

Source: Panel A and B: OECD Job Tenure Dataset, a subset of the OECD Employment Database, www.oecd.org/employment/database; Panel C: Ministry of Employment and Labor, Survey Report on Labor Conditions by Employment Type.

1.1.4. SME workers have lower levels of skills

In Korea, employees in SMEs have lower levels of skills than employees in large firms. This may be due to various reasons. To some extent, SMEs may be unable to attract high-skilled workers, notably because they cannot offer attractive working conditions (see section 1.3). It may also be that, because SMEs are concentrated in low value-added sectors (see section 1.1.1), they do not require high-skilled workers. Another potential reason is that SMEs provide little opportunities for skills development and skills use at work, which in the long-term leads to workers’ skills deterioration and obsolescence. Low levels of skills among SME workers may also reflect that vulnerable groups who typically have lower qualifications (e.g. older people, see section 1.2.3), are overrepresented in SMEs.

Elaborations of the Survey on Adult Skills (PIAAC) show that in Korea workers in SMEs have on average lower levels of literacy and numeracy skills, compared to workers in larger firms: the mean literacy score for a worker in a micro-firm is 267 (257 mean numeracy score) compared to 289 for a worker in a large firm (282 mean numeracy score). A similar pattern can be observed in the OECD countries on average (Figure 1.14).

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Figure 1.14. Mean literacy and numeracy scores, by firm size
Figure 1.14. Mean literacy and numeracy scores, by firm size

Source: OECD elaborations based on the Survey of Adult Skills (PIAAC) 2012; 2015.

As in other OECD countries, in Korea low-skilled workers are over-represented in the smallest firms. About 18.5% of workers in SMEs have low literacy and/or numeracy skills in Korea7 (compared with 17.6% in the overall Korean population), a share that decreases as firm size increases: some 20% of workers in micro-firms have low literacy and/or numeracy skills (OECD average 24%), against 17% of workers in small firms (OECD average 19%), 13% of workers in medium-sized firms (OECD average 18%), and 8% of workers in large companies (OECD average 15%) (Figure 1.15). Age probably plays a role, since older workers are more likely to be employed in SMEs and older workers in Korea have among the lowest skill levels across the OECD.

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Figure 1.15. Workers with low basic numeracy and/or literacy skills
Percentage of workers with low basic numeracy and/or literacy skills
Figure 1.15. Workers with low basic numeracy and/or literacy skills

Note: The indicator refers to workers who score Level 0 or 1 in numeracy and/or literacy.

Source: OECD elaborations based on the Survey of Adult Skills (PIAAC) 2012; 2015.

In line with these patterns, Figure 1.16 shows that high-performers in numeracy and/or literacy8 are less commonly found in Korean SMEs while they are overrepresented in larger companies: they represent around 45% of workers in micro-firms, a share that gradually increases to about 70% in large companies.

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Figure 1.16. Proficiency levels in literacy and numeracy, by firm size, Korea
Figure 1.16. Proficiency levels in literacy and numeracy, by firm size, Korea

Source: OECD elaborations based on the Survey of Adult Skills (PIAAC) 2012; 2015.

As the importance of digital skills in the labour market has increased rapidly, it is striking that Korean SME workers often lack even the most basic digital problem solving skills. PIAAC data show that in Korea, 72% of workers in micro-firms have low digital problem-solving skills (OECD average 66%), a rate that declines to 50% in large firms (similar to the OECD average). This makes Korea the OECD country with one of the widest gap between micro- and large firms (22 percentage points), after Japan (30 percentage points), Israel (26 percentage points) and Denmark (23 percentage points) (Figure 1.17). Again, these patterns may largely reflect the over-representation of older people in SMEs.

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Figure 1.17. Workers with low digital problem-solving skills
Percentage of workers with low problem-solving skills in technology-rich environments, by firm size
Figure 1.17. Workers with low digital problem-solving skills

Note: The indicator refers to workers who score Level 1 or lower in problem-solving skills in technology-rich environments, or workers with no computer experience or who failed ICT core. Chile, Greece, Israel, Lithuania, New Zealand, Slovenia and Turkey: Year of reference 2015. All other countries: Year of reference 2012. Data for Belgium refer only to Flanders and data for the United Kingdom refer to England and Northern Ireland jointly.

Source: OECD elaborations based on the Survey of Adult Skills (PIAAC) 2012; 2015.

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1.2. Mega-trends and implications for SMEs

Mega-trends such as technological progress, globalisation, and population ageing, are changing (or may change in the future) the quantity and quality of jobs that are available and the skills they require. If this is true for the Korean labour market as a whole, these mega-trends may be particularly disruptive for SMEs. To reap the benefits of these changes, adult learning systems need to be ready to support SMEs and SME workers in maintaining and developing the skills needed in a changing world of work. This section identifies the main drivers of change in SMEs, including structural change, automation, new technologies, globalisation, as well as population ageing.

1.2.1. Structural change, automation, and the introduction of new technologies

Structural change creates jobs in some sectors and decreases opportunities in others, thereby altering the types of skills that are needed. In the past decade, Korea has seen its economy transform more rapidly than other OECD countries. The Lilien index measures the extent to which employment in different sectors of the economy grows or shrinks at different speeds. The higher the score on the Lilien index, the more profound the transformation. Figure 1.18 shows that Korea has experienced the biggest changes in the OECD in the period 2005-15.

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Figure 1.18. Structural change 2005-15
Lilien Index
Figure 1.18. Structural change 2005-15

Source: OECD (2019[9]), Getting Skills Right: Future-ready adult learning systems, OECD Publishing, Paris. https://doi.org/10.1787/9789264311756-en.

But the most important changes to the Korean economic structure may lie ahead. There is a lively debate about the impact technology will have on jobs in the future. It is likely that cutting-edge technology will be able to automate more and more complex tasks at accelerating speed, fundamentally changing the skills that are required for many jobs. Other jobs may even become entirely redundant.

Recent OECD studies have estimated the share of jobs at risk of automation in OECD countries that have participated in the Survey of Adult Skills (PIAAC), including Korea (Nedelkoska and Quintini, 2019[10]; Arntz et al., 2016[11]). Using the methodology developed by Nedelkoska and Quintini (2019[10]), it is possible to estimate the share of jobs at risk of automation disaggregating the results by firm size.9 As shown in Figure 1.19, what emerges is that:

  • Some jobs may disappear altogether while others would see a significant change in the tasks they involve. Should current cutting-edge technology become widespread, 10.8% of jobs in Korean SMEs could change so dramatically as to disappear entirely and an additional 33.5% could face a significant risk of change.

  • Jobs in Korean SMEs face a higher risk of automation compared to jobs in larger companies. Some 44.3% of SME jobs could be partially or completely automated as a result of the introduction of new technologies, against 36.5% of jobs in larger firms. This gap is only slightly larger than in the OECD on average, where 47.4% of SME jobs and 41.2% of jobs in large companies face a high or significant risk of automation.

  • The risk of automation in Korea decreases gradually as firm size increases. In micro-firms, 48.5% of jobs are at risk of (partial or total) automation, against 42.7% in small firms, 39.4% in medium-sized firms, and 36.5% of large firms.

There may be several reasons behind the higher risk of automation being faced by Korean SMEs. First, it could be due to compositional effects relating to industry and occupation. Second, it may reflect the fact that Korean SMEs often produce low value-added goods and services, and hire low-skilled workers who need to perform only manual and routine tasks. Third, it could mirror the lower level of adoption of new technologies in SMEs, where many routine jobs that could be partially/completely automated are still performed by workers.

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Figure 1.19. Jobs at risk of automation, by firm size
Share of jobs which are at a high risk of automation or a risk of significant change (%)
Figure 1.19. Jobs at risk of automation, by firm size

Note: Jobs are at high risk of automation if the likelihood of their job being automated is at least 70%. Jobs at risk of significant change are those with the likelihood of their job being automated estimated at between 50 and 70%. Data for Belgium correspond to Flanders and data for the United Kingdom to England and Northern Ireland.

Source: OECD calculations based on the Survey of Adult Skills (PIAAC) (2012), http://www.oecd.org/skills/piaac/; and Nedelkoska, and Quintini (2019[10]), “Automation, skills use and training”, OECD Social, Employment and Migration Working Papers, No. 202, https://doi.org/10.1787/2e2f4eea-en.

Evidence shows that employment in highly automatable jobs has been increasing in Korea. For example, Seol (2019[12]) shows that employment in high-risk, highly automatable jobs, has increased from 1.6 million to 2.5 million in the period 2013-17, and in 2017 represented 28% of all SME workers.10

These trends are not surprising considered that in Korea the automation of processes and tasks is not yet widespread in SMEs. Chang and Lee (2017[13]) show that 62.5% of exporting SME have not yet automated their manufacturing processes. Moreover, the degree of automation that has been introduced is relatively basic, consisting of barcodes (17%) or radio-frequency identification (14%).

OECD elaborations of the Workplace Panel Survey (2015) seems to further confirm these insights. Only 25% of small firms, 32% of medium-sized firms, and 38% of large companies report a high level of work process standardisation (i.e. creating the standard of manufacturing/process).11 Similarly, only 14% of small firms, 17% of medium-sized firms, and 22% of large companies report a high level of automation12 (i.e. automating a process or part of work by machine, computer or electric machine) (Figure 1.19).

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Figure 1.20. Standardisation and automation of the work process in Korea, by firm size
Percentage of firms reporting high standardisation or automation of the work process
Figure 1.20. Standardisation and automation of the work process in Korea, by firm size

Note: ‘Standardisation’ refers to creating the standard of manufacturing / process, so rational activities and compatibility be improved. ‘Automation’ refers to automating a process or part of work by machine, computer or electric machine. Data refer to main products / delivered services. High standardisation or automation refers to the share of firms reporting a level of standardisation or automation of 80%-100%.

Source: OECD elaborations based on the Workplace Panel Survey (6th wave, 2015).

One of the reasons as to why SMEs often do not automate processes is that many of them do not feel the necessity of automation. This may suggest a lack of competition, at least in certain sectors, that would oblige SMEs to introduce automation to ensure their survival (Chang and Lee, 2017[13]).

Low automation may also be due to the inability of SMEs to adopt new technologies – as the resources that are necessary for costly investments in advanced technology may be out of reach. Indeed, Korean SMEs still lag significantly behind in their use of key digital technologies compared to larger Korean companies, and compared to SMEs in other OECD countries (OECD, forthcoming[14]; OECD, forthcoming[6]).13

For example, the share of SME workplaces converted to smart factories – i.e. highly digitised and connected production facilities that rely on smart manufacturing – is low at 7.4% (OECD, 2018[3]). To give another example, Korean SMEs lag far behind in their use of cloud computing technology. The share of small firms in Korea (with between 50 and 249 employees) that used cloud computing in 2016 was 10%, one-third of the OECD average (Figure 1.21). Moreover, few Korean SMEs use big data. The share of Korean SMEs using big data was only 4% in 2016, well below the 11% OECD average, and below any other OECD country with available data (Figure 1.22).

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Figure 1.21. Enterprises using cloud computing services, by firm size, 2016
As a percentage of enterprises in each employment size class
Figure 1.21. Enterprises using cloud computing services, by firm size, 2016

Note: Cloud computing refers to ICT services used over the Internet as a set of computing resources to access software, computing power, storage capacity and so on. Data refer to manufacturing and non-financial market services enterprises with ten or more persons employed, unless otherwise stated. Size classes are defined as: small (10-49 persons employed), medium (50-249) and large (250 and more). OECD data are based on a simple average of the available countries. For more detailed information at the country level, see endnote14.

Source: OECD (2017[15]), OECD Digital Economy Outlook 2017, OECD Publishing, Paris.

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Figure 1.22. Enterprises performing big data analysis, by firm size, 2016
As a percentage of enterprises in each employment size class
Figure 1.22. Enterprises performing big data analysis, by firm size, 2016

Note: For Korea, data relate to the year 2015.

Source: OECD (2017[15]), OECD Digital Economy Outlook 2017, OECD Publishing, Paris.

Many SMEs are not stepping up efforts to invest more in IT technology, either. OECD elaborations based on the Workplace Panel Survey show that 58.8% of small firms and 47.2% of medium-sized firms do ‘not at all’ or ‘not much’ agree that the company significantly expanded investments in IT in 2015. This compares to 44.3% of larger companies (Figure 1.23).

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Figure 1.23. Firms’ investments in IT
Percentage of firms significantly expanding investments on IT, by firm size
Figure 1.23. Firms’ investments in IT

Note: data refers to the percentage of firms agreeing with the statement ‘Our workplace significantly expanded investments on IT’ by firm size.

Source: OECD elaborations based on the Workplace Panel Survey (6th wave, 2015).

Low levels of adoption of new technologies in SMEs means that many routine jobs that could be partially/completely automated are still performed by workers. In this context, the potential for Korean SMEs to improve their technology base and introduce automation practices is high. If new technologies are adopted by SMEs in the future, and more tasks are automated, many SMEs may go through significant transformations, a situation which may require many SME workers to retrain.

1.2.2. Globalisation and participation in Global Value Chains (GVCs)

An increasingly globalised world has a profound impact on the skills that are in demand in the labour market. Globalisation can lead to greater specialisation and hence different skill-sets needed by firms. In fact, evidence from advanced economies suggests that increasing participation in global value chains (GVCs) raises the demand for those high-level skills which are needed to specialise in high-tech manufacturing industries and in complex business services (OECD, 2017[16]; OECD, 2016[17]). Increasingly GVCs can also lead to jobs being offshored, especially at the low-end of the skills spectrum.

Korean SMEs have not yet become major players in GVCs. This leaves an opportunity to Korea to act early and anticipate potential disruptions. Indeed, although in Korea SMEs account for more than 80% of total business employment, their contributions to overall exports is just 20%, the second lowest in the OECD after Mexico (Figure 1.24).

Even though this share does not take into account the role that SMEs play as suppliers of inputs to larger direct exporters, SMEs’ indirect contribution to exports also appears limited: value added from domestic services, where SMEs account for 90% of employment, accounted for only 26% of gross exports over 2010-14, well below the 40% OECD average (OECD, 2018[3]).

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Figure 1.24. SME export activity by country, 2015 or latest available year
As a percentage of exports, total business economy
Figure 1.24. SME export activity by country, 2015 or latest available year

Source: OECD Structural and Demographic Business Statistics Database, 2018 (http://dx.doi.org/10.1787/sdbs-data-en) and Trade by Enterprise Characteristics Database, 2018 (https://doi.org/10.1787/eeefdd40-en).

The propensity to engage in international markets is also low among Korean SMEs. Compared to OECD countries for which data are available, Korean SMEs have the third lowest reported participation in international markets (i.e. percentage of firms selling goods or services abroad) after Japan and Chile, among both innovative and non-innovative SMEs (Figure 1.25).

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Figure 1.25. SMEs participating in international markets, by innovation status, 2010-12
As a percentage of firms in the relevant group
Figure 1.25. SMEs participating in international markets, by innovation status, 2010-12

Note: Participation in international markets is defined as firms selling goods or services abroad. International comparability may be limited due to differences in innovation survey methodologies and country-specific response patterns. European countries follow harmonised survey guidelines with the CIS.

Source: OECD (2015[18]), OECD Sciences, Technology, and Industry Scoreboard, https://doi.org/10.1787/sti_scoreboard-2015-en.

1.2.3. Population ageing

One mega-trend that could, in the future, have large implications for skill needs in Korean firms – and particularly SMEs – is population ageing. According to the UN world population prospects, the old-age dependency ratio is expected to increase very sharply from just 17.7% in 2015 to 66.3% in 2050. This means that Korea will move from having the third lowest to the fifth highest old-age dependency ratio in the OECD in only 35 years, by far the largest increase in the OECD (Figure 1.26).

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Figure 1.26. Population ageing
Population aged 65+ as percentage of population aged 15-64
Figure 1.26. Population ageing

Note: Projections are based on the medium scenario of possible future growth of the world population.

Source: UN world population prospects (2017).

Population ageing impacts skill and training needs in a number of ways. First of all, it increases the need for individuals to maintain and update their skills over longer working lives. Recent policy measures in Korea already include plans to extend working lives to cope with rapid population ageing: the standard eligibility age for public pension is currently 61 years and it is set to rise to 65 by 2033.

Second, the retirement of large cohorts can lead to significant shortages of labour, a gap that can (partially) be filled through training of the existing workforce. Finally, population ageing is likely to contribute to further shifts in the structure of the economy, as demand for goods and services changes. For example, population ageing may result in an increased demand for health and elderly care services/personnel – requiring more individuals to be trained for these professions.

While the implications of population ageing on skills and training needs is likely to affect the Korean labour market as a whole, the consequences for SMEs may be even more marked. First of all, population ageing is expected to increase competition for workers, which can be particularly challenging for SMEs which already struggle to offer attractive working conditions.

Secondly, most older workers are concentrated in SMEs – which is a challenge considered that skills and education gaps between youth and older generations are among the widest in the OECD (OECD, 2019[19]; OECD, 2019[20]; OECD, 2018[21]). According to PIAAC data, some 40.7% of all older employees (ages 50-65) in Korea work in micro firms, 26.8% work in small firms, 17.2% work in medium-sized firms, and only 15.2% work in larger companies (Figure 1.27). Unless these skills gaps are closed, SMEs may face a competitive disadvantage vis-à-vis larger firms.

Third and last, when they are not employed in an SME, many older people often launch a second career that involves self-employment or business ownership. However, few have the necessary business skills to achieve high productivity and business success (OECD, 2018[21]). This means that, unless they are adequately trained, many older workers may end up setting up and running unproductive small and medium businesses. According to PIAAC data, about 20% of older people (50-65) in Korea are business-owners (i.e. self-employed with employees), the second highest share in the OECD after Greece, and another 22% are own account workers (i.e. self-employed without employees) (Figure 1.27).

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Figure 1.27. Older workers in SMEs and larger companies, OECD and Korea
Figure 1.27. Older workers in SMEs and larger companies, OECD and Korea

Note: OECD average refers to the weighted average of OECD countries that have participated to the Survey of Adult Skills. Business owners are self-employed with employees. Own account workers are self-employed without employees.

Source: OECD elaborations based on PIAAC (2012; 2015).

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1.3. Skills imbalances in the Korean labour market

The labour market and economic context discussed in Sections 1.1 and 1.2 is generating imbalances between the demand and supply of skills. While many SMEs struggle to find employees, jobseekers have a hard time finding jobs that are a good match for their skills. Drawing from national and international data sources, this section looks at skills imbalances in the Korean labour market, focussing particularly on SMEs.

1.3.1. Korean SMEs face chronic labour shortages

Despite the fact that the Korean adult population is highly educated, Korean SMEs face significant labour shortages. For example, a recent poll by the Korea Small Business Institute reported that 80.5% of SMEs are experiencing difficulty finding employees (OECD, 2018[3]).

Results of the latest Occupational Labour Force Survey at Establishment point to similar findings and show that during the second half of 2018, there were 77 000 unfilled vacancies in SMEs15 (12.9% of job openings), compared to 7 000 in large firms (4.4% of job openings).16

In the same period, SMEs reported to need 240 000 additional workers17 – compared to only 29 000 in large firms – in order to operate the business and production facility normally and to respond to customer orders.18 As shown in Table 1.3, in the second half of 2018, the labour shortage rate of SMEs (2.5%) was over twice that of large firms (1.2%).

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Table 1.3. Labour shortage rate in Korea by firm size (%)

2017

(second half)

2018

(first half)

2018

(second half)

Total (5+)

2.3

2.4

2.2

5-299

2.6

2.8

2.5

5-9

3.5

3.6

2.9

10-29

2.6

2.6

2.2

30-99

2.2

2.4

2.3

100-299

2.3

2.6

2.6

300+

1.1

1.1

1.2

Note: The Occupational Labour Force Survey at Establishment asks employers for the current number of workers and the number of persons needed (more than current staff) in order to operate the business and production facility normally, and to respond to customer orders. Labour shortage rate is defined as follows: the number of persons needed / (the number of current workers + the number of persons needed).

Source: MOEL, Occupational Labour Force Survey at Establishment.

Different data sources and studies all suggest that chronic labour shortages in SMEs are not due to a lack of available workers, but reflect low wages and poor working conditions (OECD, 2018[3]). They could also reflect poor HR processes, as SMEs are typically less efficient in looking for and recruiting talent.

Indeed, Korea displays high levels of educational attainment and the highest share of young adults with tertiary qualifications among OECD countries (OECD, 2019[19]). However, as discussed in Section 1.1.3, SMEs are often unable to attract younger high-skilled talents likely because – compared to larger companies – they offer less attractive jobs.19

In this context, it is not surprising that many Korean high-skilled adults simply do not wish to work for an SME. For example, a 2016 survey of university students by the Federation of Korean Industries reported that 32% wanted to work for a big company and another 25% preferred state-run institutions. Only 5% said they wanted to work at an SME (FKI, 2016[22]).

University graduates often prefer to wait for an attractive job opportunity than run the risk of being “trapped” in a small firm. Many of them spend time preparing for entry exams needed to enter large companies. In this context, it is not surprising that Korea is one of the few OECD countries in which young university graduates (aged 15-29) are most likely to be neither in employment, education, or training (NEET) than their lower-educated peers (OECD, 2019[20]; Fernandez et al., 2020[23]).

When adults do take up a job in an SME, it is often out of necessity rather than for the opportunities that the job itself can offer. According to Workplace Panel Survey data, 36.3% of workers in micro-firms in 2015 said that the main reason for taking up their current job was that they needed urgent money to pay for expenses, a share that decreases evenly to 12.3% of workers in larger firms. Unsurprisingly, compared to workers in large firms, SME workers less often cite work conditions (e.g. work hours, wages) and job stability as a reason for taking up their job (Figure 1.28).

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Figure 1.28. Reasons for taking up a job in Korea
Percentage of workers by firm size
Figure 1.28. Reasons for taking up a job in Korea

Note: The graph includes only the three most frequently reported reasons. Other responses contained in the questionnaire include ‘Couldn’t find a job in desired field’; ‘Couldn’t find a job suiting my major or area of experience’; ‘In order to gain the experience needed to move onto a better job’; ‘In order to balance housework/ childcare with work’; ‘In order to balance studies with work’; ‘Because pay at this job depends on effort’; ‘Flexible work hours’; and ‘Other’.

Source: OECD elaborations of the Korean Workplace Panel Survey (6th wave, 2015).

SMEs are well aware of these challenges. Results of the Occupational Labour Force Survey at Establishment show that, during the second half of 2018, 23.3% of SMEs reported that the main reason for not hiring new staff was that ‘the working conditions (such as the wage level) did not match the expectations of the job seeker’. Another 18.5% reported that they could offer only ‘jobs that job seekers avoid’ (Figure 1.29).

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Figure 1.29. Most important reasons for not hiring new staff in Korea
Percentage of firms, by firm size
Figure 1.29. Most important reasons for not hiring new staff in Korea

Note: responses reflect the answers mentioned as first priority.

Source: Occupational Labour Force Survey at Establishment, second half of 2018.

1.3.2. OECD Skills for Jobs database

The OECD Skills for Jobs database provides timely information for Korea and other OECD and emerging countries, about skills shortages (i.e. when adequate skills are hard-to-find in the current labour market) and skills surpluses (i.e. when certain skills are in excess in the labour market relative to the demand).

Unlike employer surveys,20 the OECD Skills for Jobs indicators are based on quantitative data from large-scale household surveys, and are constructed using a multidimensional set of quantitative signals of skills pressure, including wage growth, employment growth and unemployment. Box 1.1 provides a detailed description of the methodology behind the OECD Skills for Jobs database, as well as the specificities of the methodology used to construct the indicators for Korea.

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Box 1.1. The OECD Skills for Jobs database

The OECD Skills for Jobs database provides timely information about skills shortages – i.e. when skills sought by employers are not available in the pool of potential recruits – and skills surpluses – i.e. when the supply of certain skills is higher than the demand. It covers 40 countries among OECD and emerging economies.

The database has key innovative features compared to existing measures of skills shortages/surpluses. By looking at skills – i.e. the set of competences mobilised to perform the tasks related to a job – rather than occupations or fields of study, the new indicators go beyond the traditional measures of imbalances. Furthermore, unlike the generally subjective information available from employer surveys, the OECD Skills for Jobs database draws from quantitative data derived from household surveys. Finally, the indicator is constructed using a multidimensional set of quantitative signals on skills pressure (i.e. five sub-indices, including wage growth, employment growth and unemployment), which provides a holistic interpretation of skill imbalances in the labour markets.

Skill needs indicator

The skill needs indicator is constructed in two consecutive steps:

  • In the first step, sub-indices for hourly wage growth, employment growth, unemployment rate, hours worked and under-qualification are used to provide a quantitative indication of the extent of the labour market pressure on each one of the occupations analysed. The result of this analysis returns a ranking of occupations ordered from the one most in shortage to most in surplus.

  • In the second step, occupations that are in shortage/surplus are mapped into the underlying skills requirements associated to those occupations, using the occupation-skills taxonomy developed by O*NET.

Information is provided at the 2-digit ISCO occupation level and is disaggregated into three domains of competence – knowledge, skills, and abilities:

  • Knowledge refers to the body of information that makes adequate performance on the job possible (e.g. knowledge of plumbing for a plumber; knowledge of mathematics for an economist).

  • Skills refer to the proficient manual, verbal or mental manipulation of data or things (e.g. complex problem solving; social skills)

  • Ability refer to the competence to perform an observable activity (e.g. ability to plan and organise work; attentiveness; endurance).

Qualification mismatch

The qualification mismatch index calculates the share of workers in each economy/occupation that are under- or overqualified to perform a certain job. This is done by computing the modal (i.e. most common) educational attainment level for each occupation in each country and point in time, and use this as a benchmark to measure whether individual workers’ qualifications match the “normal” education requirement of the occupation.21 Thus, over-qualification (under-qualification) depicts a situation for which the highest level of education achieved by an individual worker in an occupation is above (below) the modal level for all workers in that occupation.

Methodology used to construct the Skills for Jobs database indicators for Korea

The data source used to develop the indicators for Korea is the Korean Labor & Income Panel Study (KLIPS), from the Korean Labor Institute (KLI). The occupational shortage indicator is calculated for 35 occupational groups at the ISCO-08 2-digit level. In the case of Korea, the unemployment rate sub-component was not used to calculate the occupational shortage indicator, the reason being that there were too few observations on the unemployed with available information on occupations in the previous job. The self-employed workers are excluded from the analysis, because KLIPS survey does not include information on wages and hours worked for the self-employed, which is needed to construct the indicators. For Korea, the Skills for Jobs indicators are disaggregated by the size of the firm – an exercise which was not done for other countries contained in the OECD Skills for Jobs database. These indicators are constructed by calculating the weighted average of the occupational shortage index, aggregated by firm size. It is important to note that in the KLIPS survey, information on firm size is missing for a substantial number of observations.

Source: OECD (2018[24]), Skills for Jobs,https://www.oecdskillsforjobsdatabase.org/data/Skills%20SfJ_PDF%20for%20WEBSITE%20final.pdf; OECD (2017[25]), Getting Skills Right: Skills for Jobs Indicators, https://doi.org/10.1787/9789264277878-en.

Mismatches in the Korean labour market

OECD Skills for Jobs results at the occupational level show that in Korea shortages can be found in a large variety of occupations, such as skilled agricultural, forestry, and fishery workers, as well as health associate professionals, electrical and electronics trade workers, and assemblers. On the other hand, surpluses – i.e. where signals suggest that supply exceeds demand – are observed in occupations like managers, agricultural forestry, and fishery labourers, as well as protective service workers (Figure 1.30).22

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Figure 1.30. Imbalances by occupation, Korea, 2017
Hard-to-fill (+) and easy-to-fill (-) occupations
Figure 1.30. Imbalances by occupation, Korea, 2017

Note: ISCO-08 occupations. The degree of imbalances ranges from -2.5 (easy-to-find) to +2.5 (hard-to-find).

Source: OECD Skills for Jobs database.

The OECD Skills for Jobs database goes beyond occupational imbalances and also provides detailed information on skills imbalances. Figure 1.31 shows that in Korea – like in the OECD area on average – certain high-level cognitive skills are in shortage (reasoning and verbal abilities). There are also observed shortages in basic skills and complex problem solving skills. Physical and manual skills (physical strengths; visual abilities) seem to be rather at an equilibrium level – unlike what can be observed in the OECD area on average where these skills are in surplus. The only surpluses in Korea can be observed for knowledge of Law and Public Safety, and Business and Management.

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Figure 1.31. Imbalances by skills, 2017
Hard-to-find (+) and easy-to-find (-) skills, knowledge types and abilities
Figure 1.31. Imbalances by skills, 2017

Source: OECD Skills for Jobs database.

Results from the OECD Skills for Jobs database also provide a detailed picture of shortages and surpluses at the sector level, based on the occupational composition of each sector. Figure 1.32 reveals that, in Korea, sectoral/industry shortages are the strongest in the agriculture, forestry and fishing sector, as well as in the education sector – meaning that a large share of workers in those sectors is employed in occupations that are in shortage. Conversely, surpluses are found in the sectors of Public administration and defence, Financial and insurance activities, and Accommodation and food service activities, where a large share of those sectors’ employment is in occupations in surplus or that face weak demand. Notably, weak demand rather than excess supply seems to be an issue in the public administration sector which is unusually small in Korea by international standards.23

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Figure 1.32. Imbalances by industry, 2017
Concentration of easy-to-fill (+) and hard-to-fill (-) occupations by industry
Figure 1.32. Imbalances by industry, 2017

Note: The degree of imbalances ranges from -2.5 (easy-to-find) to +2.5 (hard-to-find). The industry results are employment-weighted averages of the occupation results, using information of the occupational composition within industries. Electricity, gas, steam and air conditioning supply also include “water supply; sewerage, waste management and remediation activities”. Wholesale and retail trade also include “repair of motor vehicles and motorcycles”. Public administration and defence also include “compulsory social security”.

Source: OECD Skills for Jobs database.

In addition to substantial shortages and surpluses, the Korean labour market also has a significant share of workers who are mismatched in terms of qualification level.24 According to the OECD Skills for Jobs data, in 2017, 21% of Korean workers were under-qualified for their occupation, and an additional 12% were over-qualified (Figure 1.33, Panel A).25 This is lower than mismatch levels observed in other OECD countries, where 19% of workers were under-qualified and 17% over-qualified on average. Another positive feature of the Korean labour market is that mismatches are on a downward trend, as rates of over- and under-qualification have decreased by 10 percentage points in the period 1998-2017 (Figure 1.33, Panel B).

Despite relatively low and declining levels of under/over-qualifications, Korea still performs less well than several OECD countries in Europe (e.g. Czech Republic, Poland, and Slovak Republic). The presence of some degree of over-qualification in the Korean workforce is consistent with the inability of the labour market to absorb the high share of young university graduates. Under-qualification, on the other hand, might reflect that employers have difficulties finding workers with the right qualification level and resort to hiring under-qualified workers.26 It could also reflect that older workers often do not have qualifications although they may have the skills (acquired through experience) needed to perform the job.

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Figure 1.33. Share of workers mismatched by qualification level
Figure 1.33. Share of workers mismatched by qualification level

Note: In Panel A, OECD average excludes Korea. Differences between countries also reflect differences in the occupational classification used.

Source: OECD Skills for Jobs database.

Mismatches in Korean SMEs

Looking at occupational shortages and surpluses at firm size level suggests that, in Korea in 2017, small firms were facing the most intensive shortages, followed by medium sized-firms /very small firms, and large firms. On the other hand, micro-firms were facing surpluses on average (Figure 1.34).

As explained in Box 1.1, these disaggregated indicators are a weighted average of the occupational shortages, and therefore they simply reflect the occupation structure by firm size. The only reason for a certain firm size category to have stronger shortages is that they employ more workers in occupations in shortage and fewer in occupations in surplus. These data do not reflect whether a certain firm size category faces more difficulties finding workers for a specific occupation than other firm size categories. For example, the reason why small firms with 30-49 employees experience more shortages is that their workforce is made up disproportionately with occupations in shortage. Likewise, surpluses in micro-firms reflect the fact that these firms use occupations in surplus more intensively.

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Figure 1.34. Imbalances by firm size, 2017
Hard-to-fill (+) and easy-to-fill (-) occupations
Figure 1.34. Imbalances by firm size, 2017

Note: The degree of imbalances ranges from -2.5 (easy-to-find) to +2.5 (hard-to-find). In the data source used to calculate this indicator (i.e. the Korean Labor and Income Panel Study) information on firm size is missing for a substantial number of observations.

Source: OECD elaborations based on the OECD Skills for Jobs database.

More detailed results for skills, abilities, and knowledge types, broadly confirm this patterns. Apart from two notable exceptions (reaction time and speed abilities; and control movement abilities), small firms with 30-49 employees experience the greatest shortages in all the broad skills, abilities and knowledge types presented in Figure 1.35.

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Figure 1.35. Imbalances by skills and firm size, 2017
Hard-to-find (+) and easy-to-find (-) skills, knowledge types and abilities
Figure 1.35. Imbalances by skills and firm size, 2017

Note: In the data source used to calculate this indicator (i.e. the Korean Labor & Income Panel Study) information on firm size is missing for a substantial number of observations.

Source: OECD elaborations based on the OECD Skills for Jobs database.

Over the past two decades, qualification mismatches have decreased across firms of all sizes in Korea, but today they remain more prominent among the smallest firms. Almost 45% of workers in micro-firms are either under or overqualified for their job, compared to only about 25% of workers in large firms (Figure 1.36).

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Figure 1.36. Share of workers mismatched by qualification level and firm size
Figure 1.36. Share of workers mismatched by qualification level and firm size

Note: In the data source used to calculate this indicator (i.e. the Korean Labor & Income Panel Study) information on firm size is missing for a substantial number of observations.

Source: OECD elaborations based on the OECD Skills for Jobs database.

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1.4. Context conditions to tackle skills imbalances in SMEs

As will be discussed in Chapters 2 to 5, Korea has already implemented many adult learning measures to enhance training participation in SMEs. Yet, there is only so much that adult learning programmes can do to reduce skills shortages. For example, wide differences in working conditions between SMEs and large companies – largely driven by productivity gaps, the virtual inexistence of trade unions in SMEs, and a widespread subcontracting culture – may hamper SMEs’ ability to attract and retain high skilled workers, which in turn may undermine their ability to train their staff (see Chapter 2).

In this context, complementary policies that go beyond the scope of adult learning (e.g. labour market, industrial policies) need to be put in place to promote an adult learning-friendly environment. Recently, the government has put in place several policy measures that go in this direction. These policies revolve around:

  • Improving working conditions in SMEs, in a view to help SMEs attract high-skilled workers. For example, the government’s recent decision to significantly increase the minimum wage (see Chapter 2) reflects an effort to achieve an “income-led growth” that fosters workers’ productivity, closes the labour market duality gap, and guarantees a decent living for low-income workers including SME workers.

  • Linking performance more closely to wages. Recent efforts to move away from seniority wages and promote better links between workers’ productivity and wages – such as the introduction of the “wage peak” system, and efforts to promote the use of objective wage grids27 – could motivate workers to train to advance and progress in their career. These are steps in the right direction that should be scaled-up more widely.

  • Speeding up the adoption of new technologies in SMEs – which will likely increase their demand of high-level skills. In December 2018 the Korean government has set up a smart manufacturing innovation strategy. The objective is to have 30 000 plants converted to smart factories by 2022. The government expects that SMEs in the manufacturing sector would create 66 000 new jobs by automating 50% of their manufacturing facilities and increase KRW 18 trillion (about EUR 14.1 billion) of sales. Recognising that adequate manpower is needed to make full use of new technologies, the government is planning to train 100 000 smart manufacturing workers.

  • Pursuing innovation growth. In particular, the government is trying to make SMEs a driver of innovation by promoting the Fourth Industrial Revolution and fostering innovative start-ups (see Chapter 4). To accomplish this, the government established the Ministry of SMEs and Start-ups in 2017 and launched a range of new initiatives to promote a favourable business environment. These include measures to build an innovative ecosystem and infrastructure for future industries, boost financial support to SMEs and venture start-ups, and expand support for SME exporters.

  • Strengthening employment services to improve job matching. For example, the government will increase the number of employment service offices, including Employment-Welfare Plus Centers, to ensure that jobseekers can find an employment service help desk close to where they live. From July 2020, the government plans to establish 70 additional mid-sized job centres and branch offices in regions that currently do not have an Employment-Welfare Plus Centers. This measure may improve job matching for all firms, including SMEs.

  • Supporting jobseekers with their independent job-search efforts. The government is strengthening the use of job information online platforms such as WorkNet. Since August 2019, WorkNet has more innovative features such as the “Theme-based Recruitment Section” where jobseekers can find the businesses they want to work for more easily. Going forward, WorkNet will also offer an online 24/7 automated counselling (chatbot), as well as AI-based job information recommendation based on jobseekers’ profile. This measure could help all jobseekers to find a job, and could indirectly improve job matching in all firms, including SMEs.

References

[11] Arntz, M. et al. (2016), The Risk of Automation for Jobs in OECD Countries: A Comparative Analysis, OECD Publishing, Paris, https://doi.org/10.1787/5jlz9h56dvq7-en.

[13] Chang, H. and Y. Lee (2017), Survey of the Actual Situation of the Competitiveness of Small and, Trade Focus, No. 32, Korea International Trade.

[23] Fernandez, R. et al. (2020), “Identifying and addressing employment barriers in Belgium, Korea and Norway: Implementing the OECD Jobs Strategy”, OECD Social, Employment and Migration Working Papers.

[22] FKI (2016), A Survey on the Employment Perceptions of University Students in 2016.

[4] Kim, J. (2015), “Promoting Good-Quality Job Creation in the Sector of SMEs”, KDI Focus, Vol. 29.

[8] MoEL (2017), MOEL (2017), Survey Report on Labor Conditions by Employment Type, Korean Ministry of Employment and Labor, http://laborstat.molab.go.kr/newOut/renewal/menu05/menu05_search_popup.jsp.

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Notes

← 1. This report focuses on adult learning that is job-related, i.e. adult education and training that is expected to have some effect on performance and productivity at work.

← 2. Small and medium-sized enterprises (SMEs) are non-subsidiary, independent firms which employ less than a given number of employees. This number varies across countries. In this report, the upper limit designating an SME is 250 employees, unless otherwise specified. The self-employed and unpaid family workers are excluded from the analysis. If a different definition is used, this is because the data source does not allow to use such breakdowns.

← 3. Micro-firms are defined as firms with less than 10 employees.

← 4. 34.4% in the manufacturing sector.

← 5. Labour market segmentation has important implications for working conditions because compared to regular workers, non-regular workers have precarious job contracts, are less likely to be coved by social insurance, and have lower access to training (OECD, 2018[5]).

← 6. The working hours in micro-firms (1-29 employees) are less or similar to those of large firms (+300). This can be explained by the high prevalence of temporary and daily workers with short working hours in micro-firms. Indeed, the share of those workers in micro-firms (13.2%) is more than double that of large firms (5.5%).

← 7. Compared with 24.3% in the OECD on average.

← 8. Levels 3, 4 or 5.

← 9. The difference between SMEs and large firms can be due to several factors, such as: a different occupational and industrial composition of employment; differences in the content of the jobs (all else being equal) e.g. tasks of a given occupation in an SME might be different from the tasks of the same occupation in a large firm.

← 10. This is partly due to the fact that SME high-risk workers tend to persist in their employment situation: only few of them lost (11.6%) or changed (5.1%) jobs in the first half of 2017 (against 12.3% and 5.3% of workers in large firms respectively).

← 11. This refers to the share of firms reporting a level of standardisation of 80%-100%. Data refers to main products / delivered services.

← 12. This refers to the share of firms reporting a level of automation of 80%-100%. Data refers to main products / delivered services.

← 13. Low technology adoption could also explain productivity gaps in SMEs.

← 14. For Australia, data refer to the fiscal year 2014/2015, ending 30 June, instead of 2016. For industrial classification, ANZSIC06 division is used instead of ISIC rev.4 division. Data include agriculture, forestry and fishing. For Canada, data refer to 2012 and to enterprises that have made expenditures on software as a service (e.g. cloud computing). The North American Industry Classification System (NAICS) is used instead of ISIC Rev.4. Medium-sized enterprises have 50-299 employees. Large enterprises have 300 or more employees. For Iceland, data refer to 2014. For Japan, JSIC Rev.13 division is used instead of ISIC Rev.4, data refer to 2015 and to businesses with 100 or more employees. Medium-sized enterprises have 100-299 employees. Large enterprises have 300 or more employees. For Brazil and Korea, data refer to 2015. For Mexico, data refer to 2012. For Switzerland, data refer to 2015 and to firms with five or more employees.

← 15. In this survey, SMEs are defined as firms with less than 300 employees. Large firms are defined as firms with 300 employees or more.

← 16. 91.7% of all unfilled vacancies were in SMEs.

← 17. In addition to the current workforce.

← 18. Some 89.2% of all additional workers needed in Korea were in SMEs.

← 19. SMEs report difficulties in hiring middle-skilled workers. The Occupational Labour Force Survey at Establishment shows the number of unfilled vacancies by skill level and firm size. Results show that SMEs face shortages of workers with education level 2-1 (educational attainment of high school graduate), level 1 (no requirement) and level 2-2 (2-year college graduate). By contrast, large firms face shortages of level 2-2 (2-year college graduate) and level 3 (university graduate or master degree).

← 20. Employer surveys, like the Occupational Labour Force Survey at Establishment, provide a direct source of information on skill shortages, and therefore they are very useful to give an indication of firms’ hiring challenges. However, these surveys are usually subjective. Instead of representing true skill shortages (e.g. lack of skills in the available workforce), they may reflect hiring difficulties resulting from poor working conditions, inadequate remuneration, or poor HR policies (OECD, 2017[25]).

← 21. The modal educational attainment level is calculated for each 3-digit ISCO occupation that has at least ten observations, and different modes are calculated for each country and year.

← 22. Some of the results need to be taken with caution, because they may reflect some biases in the data sources used. For example, the surpluses observed in agricultural forestry, and fishery labourers, presented Figure 1.30, may reflect the fact that the data source used (KLIPS) is sampled over mainly urban households while rural households are under-represented. Moreover, it is well recognised in Korea that labour shortages are common in the agricultural sector, and the government tries to fill these gaps through foreign workers. In this context, surpluses observed in agricultural forestry, and fishery labourers could be due to the fact that domestic shortages are filled by foreign workers.

← 23. Because the self-employed are excluded from the analysis (see Box 1.1), results need to be taken with caution for sectors with high shares of self-employment. This is the case for the Real Estate Activities. Shortages presented in Figure 0.32 may reflect the fact that in Korea the real estate business sector is mostly dominated by self-employed and freelancers.

← 24. Qualification mismatch measures the misalignment between a workers’ occupation and his/her qualification level. Workers are said to be underqualified when their highest educational attainment is below the usually observed qualification level in the worker’s occupation. In the opposite case, when a worker’s qualification level is above the standard qualification level in his/her occupation, this worker is overqualified.

← 25. There are many ways to measure over-qualification and under-qualification mismatches (OECD, 2016[26]). Differences with the results reported in this report are mostly linked to the use of a different methodology.

← 26. The fact that under-qualification mismatches are higher than over-qualification mismatches may reflect the fact that the sample is biased towards older generations, who are less likely to hold qualifications and are more likely to be under-qualified for their job.

← 27. Korean government submitted a bill that promotes the adoption of objective wage grids through labour-management agreement, in the construction workforce (skills) grading system. The bill was presented to the National Assembly but has not yet passed.

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