Reuters
Seoul

Beneath South Korea’s rosy headline jobs figures are persistent signs pointing to weak productivity in the services sector, responsible for more than half of economic output, and worsening job prospects for the country’s youth.
The employment rate in the first nine months held steady at a record 60.2% in 2014, data released last month showed, compared with 58.5% in 2000 after the Asian financial crisis. The services sector led the way, employing 37% more in 2015 as of September than in 2000, versus a mere 4% increase for the manufacturing sector. As a result, the services sector’s share of total employment jumped to 77% from 69% over the period, versus a fall to 17% from 20% for the manufacturing sector.
While that may agree with a government keen to make Asia’s fourth-largest economy less dependent on exports of manufactured goods, each worker in the services sector is actually contributing much less to the economy than a worker in the manufacturing industry. And the gap is widening. In 2000-2014, productivity in the services sector grew 9%, compared with a whopping 68% jump in the manufacturing sector, data from the Korea Productivity Center shows.
Extensive regulations meant to protect small and medium sized firms in the services sector, on top of government assistance following the 1997-98 financial crisis, have led to low productivity and a lack of competitiveness and innovation. In the third-quarter of 2015, even though gross domestic output expanded faster than expected from the previous three months, growth in the services sector slowed.
“The services sector’s productivity problem is related to a web of regulations,” said JPMorgan Chase economist Lim Ji-won, adding that consequently, many new business starts and hiring are in areas with low entry barriers and usually less profitable.
Another problem in the job market is that employment prospects for the youth are deteriorating, due to intense competition for limited full-time jobs and a decline in hiring at top-profile manufacturers. The employment rate for those in the 15-29 age group has fallen to 41% from 43% in 2000, while the jobless rate in that age group has risen to a record 9.5% from 8.1%.