Seoul: A labor law intended to enhance job stability in South Korea is reportedly having the opposite effect, according to a recent editorial from Korea Herald. The Fixed-Term Act, which mandates the conversion of fixed-term contracts to permanent positions after two years, has inadvertently encouraged employers to terminate contracts just before this threshold. This practice has created a cycle where contracts often end at 23 months, leading to an increase in temporary employment rather than the desired stability.
According to Yonhap News Agency, President Lee Jae Myung has acknowledged the shortcomings of the Fixed-Term Act, describing it as a system that discourages employment beyond two years. Despite being legislated in 2006 to curb the abuse of nonregular labor, the law has instead solidified temporary employment as a norm, with fixed-term workers now accounting for over 5.3 million individuals, approximately 24 percent of all wage earners in the country.
The editorial highlights that this trend is a reflection of broader structural issues within the South Korean labor market. The country ranks poorly in terms of labor market flexibility compared to nations like the US, Japan, and Denmark. In South Korea, regular workers are difficult to dismiss, and wages tend to increase with tenure rather than productivity, making employers cautious about committing to permanent contracts.
The impact of this dynamic is uneven, with nonregular workers earning significantly less than their regular counterparts. This wage disparity affects consumption, family formation, and social mobility, underscoring the unintended consequences of the current regulatory framework. President Lee has noted that while the policies aim to improve welfare, they may have collectively weakened it, particularly for nonregular workers.
To address these issues, potential reforms include extending the conversion threshold from two to four years, allowing more time for worker assessment and skill development. Another proposal involves shifting focus from employment status to compensation, as seen in countries like Australia and France, where temporary workers receive higher pay to offset job insecurity.
The editorial concludes by suggesting that the current framing of labor reform as a conflict between protection and efficiency is part of the problem. A more sustainable solution would involve a compromise where firms gain flexibility in hiring, while workers benefit from stronger income support and fairer pay. As the Fixed-Term Act approaches its 20th anniversary, the lesson remains that regulation must anticipate behavior to prevent unintended outcomes.