[fn Editorial] Declining Labor Productivity, Is a 4.5-Day Workweek Premature?

From 2018 to 2023, while annual wages rose by an average of 4.0% per year, labor productivity only increased by 1.7%. Compared to the period from 2000 to 2017, when the annual increase rates of wages (nominal) and labor productivity (nominal) were both around 3.2%, wages have risen significantly in the last five years, while labor productivity has increased relatively little. This is the result of a joint study conducted by the Korea Chamber of Commerce and Industry's Sustainable Growth Initiative (SGI) and Professor Park Jeong-su of Sogang University on the 22nd.

Labor productivity is defined as the output produced divided by the labor input. Low labor productivity means that a lot of labor is inputted but the output is low, indicating inefficiency.

According to the Korea Chamber of Commerce and Industry's survey, labor productivity has declined as wages have risen significantly over the past five years. Generally, an efficient economy is one where production increases in proportion to labor input.

In other words, our economy is experiencing rising wages but stagnant production, leading to decreased efficiency. It means that as wages rise, we should work harder to increase production, but that has not been the case. South Korea's annual labor productivity (GDP per employed person) is $65,000, ranking 22nd among the 36 OECD countries as of 2023.

The reason the Korea Chamber of Commerce and Industry investigated labor productivity is likely to assess whether the government's plan to reduce working hours to a 4.5-day workweek is justified. In other words, they want to point out that if labor productivity continues to decline, reducing working hours will further decrease productivity.

It is true that Koreans are among the hardest-working people in the world. They have worked hard and sweated, and now it's time to reduce work and take a break. The government's policy of pursuing a balance between life and work is not wrong. It is also a global trend. After all, we are not meant to work all our lives and die.

However, we need to deeply consider whether our current economic situation is such that we can afford to reduce working hours and increase leisure time like the advanced countries ahead of us.

Our economy is still not reaching a GDP per capita of $40,000 and is lagging behind Taiwan, indicating that the situation is not good. While taking more breaks is good, it might be better to delay a bit and further develop the economy before doing so.

Some advanced countries have implemented a 4-day workweek. However, their labor productivity is significantly higher than ours. Belgium ($125,000) and Iceland ($144,000) are double, and France ($99,000), Germany ($99,000), and the UK ($101,000), which are piloting a 4-day workweek, are at least one and a half times higher.

If labor productivity does not increase and working hours are reduced, companies will see a decline in production performance, which will inevitably affect the national economy as a whole. On the other hand, recent rapid wage increases due to seniority-based wage systems, sharp minimum wage hikes, increased overtime pay, and regular wage rulings have increased the burden on companies, according to this study.

Nevertheless, if reducing working hours is inevitable, the suggestion that the business environment needs to improve should be heeded. This includes flexible application of working hours, labor market flexibility and workforce restructuring, and support for the growth of small and medium-sized enterprises. Specifically, it involves applying exceptions to the 52-hour workweek for advanced industries and reforming the wage system to focus on job and performance, which is not a new proposal. It should be reflected in policy.