Inequality in the Workplace: Labor Market Reform in Japan and Korea

Conclusion

162 6 CONCLUSION During the past few decades, labor market reform has been one of the most controversial political agendas in advanced industrialized countries afflicted with economic downturns, high unemployment rates, intense market competition , and de-industrialization. Policy makers have considered labor market reform—represented by deregulation and liberalization of rules and regulations on employment contracts and working conditions and hours—crucial to bring forth a quick economic turnaround and to create more jobs. Despite similar trajectories in the increase of labor market flexibility, the patterns of reform have diverged remarkably across countries. Some have adopted labor market liberalization for employing outsiders (e.g., part-time, temporary, and fixed-term contract workers) with continued protection for insiders (fulltime permanent workers), whereas others have pursued far-reaching reform that also aims at improving businesses’ flexibility for employment of insiders, who had been under the privileges of job security, high wages, and generous social protections. In addition, some countries have reinforced labor market inequality and dualism between insiders and outsiders in the wake of labor market reform, while others have maintained a high level of economic equality by expanding social protections for those affected. Why did these countries choose different political responses to the similar pressures to change? Why did some fail to alleviate widening economic disparity between insiders and outsiders, whereas others were able to effectively cope with social and economic dislocations driven by labor market reform? This concluding chapter draws out the significance of my study’s findings for the analysis of the politics of labor market reform in Japan CONCLUSION 163 and Korea and considers broader theoretical and empirical implications for institutional changes in the labor market and social protections. The Institutional Arrangements of the Labor Market This book has analyzed the political processes and outcomes of labor market reform in Japan and Korea over the past two decades, two countries which have been identified as primary examples of a coordinated market economy confronting a stronger pressure to reform its “rigid” labor market institutions in an era of globalization than a liberal market economy would face. Under political and economic pressure, Japan and Korea promoted a series of labor market reforms in order to solve the problems of economic distress and intensified market competition , although each adopted a different method. Despite its protracted recession since the early 1990s, Japan opted for labor market reform that primarily liberalized rules and regulations on employment contracts and working conditions for outsiders. The key institutional tenets of employment protection regimes for insiders (regular workers) remained relatively intact. Japan’s labor market reform focusing on outsiders, with continued protection for insiders, led to the deepening of inequality and dualism along the two dimensions of employment status (e.g., regular workers versus non-regular workers) and firm size (e.g., large firms versus SMEs). A rapidly increasing number of non-regular workers had to bear the costs of labor adjustments in response to economic challenges and business cycle fluctuations. Various functionally equivalent programs (e.g., social and economic regulations and public works projects), which served as important alternatives to state-funded social protections for workers (insiders as well as outsiders),have been substantially weakened over the past two decades, contributing to the widening economic disparity in the Japanese labor market. By contrast,Korea adopted comprehensive labor market reform,targeting regular workers in the chaebŏl sector (namely “core” insiders), and its reform path was far more complicated and politically contentious than its Japanese counterpart . Although policy makers anticipated that lowering the level of employment protection for insiders would reduce the insider-outsider differences, if not equalize employment and working conditions between them, well-organized chaebŏl unions representing the interests of insiders blocked the implementation of labor market reform through intense industrial disputes at the firm level. Thus, although Korea’s reform substantially weakened the level of employment protection for regular workers in SMEs, and certainly for non-regular workers, 164 CONCLUSION it strengthened, ironically, the privileges of internal labor markets for regular workers in large chaebŏl firms. In the wake of labor market reform, Korea has confronted a sharp rise in labor market inequality and dualism between insiders and outsiders, a reform outcome similar to what Japan has experienced for the past two decades. The main findings of this book reveal the importance of the institutional arrangements of the labor market in explaining the process and outcomes of labor market reform...