CB-Korea-Final-_163Report on the Survey on Industrial Relations in East Asia
COLLECTIVE BARGAINING IN KOREA
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Report on the Survey on Industrial Relations in East Asia
COLLECTIVE BARGAINING IN KOREA
Prepared by Dr Kiu Sik Bae Research Fellow, Korea Labor Institute
ILO-Japan Multi-Lateral Project, 2006
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COLLECTIVE BARGAINING IN KOREA Prepared by Dr Kiu Sik Bae, Research Fellow Korea Labor Institute © ILO- Japan Multi-Lateral Project, 2006 International Labour Organization Subregional Office for East Asia United Nations Building Rajdamnern Nok Avenue P.O. Box 2-349 Rajdamnern Bangkok 10200, Thailand
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Contents Part 1: Legislative and Institutional Framework for Industrial Relations A. Historical background to Industrial Relations in Korea
Political authoritarianism, Industrialization and the Korean business system Formation of Industrial Relations Systems in Korea Establishment of 1987 Industrial Relations Systems
Part 2: Industrial Relations Actors A. Government B. Employers C. Employees
Part 3: Legal and Institutional Framework and Practice of Collective Bargaining A. Legal Sources and Relevant Legislative Provisions
Sources of collective bargaining Unfair labour practices Unfavourable treatment ‘Yellow-dog’ Contract and union shop Refusal or protracting of bargaining Dominance or interference in union internal affairs Unfair treatment of reporting or testifying in relation to unfair labour practices Remedies of unfair labour practices
B. Duty to Bargain
Definition and Legal Status of Collective Agreement Parties to collective bargaining Bargaining power of parties Subject Matters in Collective Bargaining Concluding a collective agreement Valid term of a collective agreement Effect of Collective Agreements on Employment Contracts and Company Rules Scope of application Bargaining coverage and significance of collective agreements Bargaining Level
Part 4: Trends, Issues and Debates: Social partners’ and Political Actors’ Views and Proposals for Future development of national Bargaining Systems A. Major Issues in Collective Bargaining
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B. Summary and Conclusions
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Part 1: Legislative and Institutional Framework for Industrial Relations A. Historical background to Industrial Relations in Korea Political authoritarianism, Industrialization and the Korean business system After the Korean War in 1950-53, Korea had a very strong state over an underdeveloped civil society. At the end of the war against the communists, Korean society had become a conservative one in which trade unions were often regarded as an auxiliary organization of communism. The left-leaning labour movement was politically eradicated from the industrial scene during the war. Authoritarianism predominated the political scene in South Korea after 1961 when a military coup d'état took place against the nascent civilian government. Although opposition parties and political freedom appeared to be allowed on the surface, authoritarian governments that were supported by the military controlled every corner of the country from the 1960s to mid-1980s. The government not only controlled the political life of people in Korea, but also had enormous power to run and regulate economic activities. When the Park Chung-Hee government initiated the successive Five Years' Economic Development Plans in 1960s, it was able to mobilize the scarce resources at the time for industrialization. The Economic Development Plans were successfully implemented by the government. Thereby the government led the industrialization process through the export of goods during the period of the 1960s - 80s. Up until 1986 the government had sufficient power to drive the country’s economic growth and manage the macro-economic coordination among economic actors. Industrialization gave birth to the ‘chaebol’, which was a business conglomerate with vertically integrated systems. It had a large parent firm with cross-owned shares in a number of other affiliated firms. The government intentionally fostered the growth of chaebols to make use of economies of scale and strengthen Korea’s competitiveness in international markets. The state fostered and encouraged Korean-owned chaebols through various financial supports and subsidies or the protection of domestic markets against competition of foreign firms. Although business organizations such as the Chambers of Commerce or Confederation of Korean Business existed, they were mainly a group which supported the interests of the powerful government. While chaebols were able to enter new industries by mobilizing capital through their subsidiary firms with the government's financial support, they predominated the markets in a number of sectors. From the late 1970s, substantial new investments in the heavy metal and chemical industries were possible because of the chaebol system which was centrally controlled by the owners' families whom normally had minority ownership of their affiliated firms. New industries for exporting goods were more or less headed by the chaebol companies which had relatively weak connections with local firms. Instead, chaebol companies created subcontracting or supplier firms. External labour markets for jobs in the industry were underdeveloped. There were some strata and segmentation in the labour market along value chains between large chaebol firms and their suppliers. This chaebol-centred business system set the stage of developments in industrial relations in Korea. Formation of Industrial Relations Systems in Korea The formation of industrial relations systems in Korea has been closely associated with the political history of the post-Korean War, industrialization, the related state policies and Korean business system. Although a set of labour laws was already legislated in the early 1950s, it largely remained in rhetoric. Up until the mid-1980s, there were big gaps between the provisions of the labour law and their implementation and practice. Industrialization driven by the export of low value-added goods was based on low labour costs, which in turn required the state to control labour affairs in the 1960s - 70s. To a large extent, the state had controlled collective organization of labour by restricting trade union activities. Some
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independent trade unions were excluded and often repressed by authorities. The founding leaders of the Federation of Korean Trade Unions (FKTU) were actually nominated by the state intelligence agency. The FKTU was later supported and controlled by the state. Reflecting the characteristics of the labour market and encouraged by the state’s labour policies, nearly all trade unions were organized at the enterprise-level, though trade unions mimicked industry-based unions in their formal structures. In the late 1960s and throughout the 1970s many new trade unions were organized at the enterprise level by rank-and-file workers with little assistance from industry-based unions, even under the conditions imposed by the authoritarian state.
1 Union density increased from 12.6% in 1970 to 14.7% in 1980. The voluntary
‘grassroots’ trade union movement became more active in the 1970s, even though it was always subject to oppression under the authoritarianism.. Only enterprise unions were legally allowed from 1980 onwards. There was some movement to make trade unions independent of employers and the state. However, it was crushed by the authoritarian government in the 1970s and early 1980s. Mostly docile trade unions under the umbrella of the FKTU were allowed by the state and employers. Full-time union officials who were also union executives at the enterprise level were paid by their employers in return for their cooperation with the companies. The state increasingly restricted workers' freedom of association to organize trade unions in the early 1980s. Because trade unions were quite weak or dependent on employers to a large extent, collective bargaining at the enterprise level was not supported by the meaningful exercise of bargaining power on the part of unions. Apart from some sectors such as taxi, bus and cotton textiles, collective bargaining in most sectors was conducted at the enterprise level. Employers had the upper hand in bargaining on wages, terms and conditions of work. Collective actions including strikes were legally allowed but in practice, actual collective actions by unions were very limited. The sense of solidarity among unions was fairly weak. Sacrificing their independence from employers and the state, most trade unions played the role of a junior partner, or remained subservient, to employers at the enterprise level and the state at the national level up until 1986. It was criticized that most FKTU-affiliated trade unions had become an organization of the labour-management department of the firm. In other words, trade unions to a great extent became an organization within firms. Though trade unions were not organized at most big chaebol firms until 1986, industrial relations based at the enterprise level was established as a system. Establishment of 1987 Industrial Relations Systems (1) Political democratization and 1987 Industrial Relations System Political freedom won from the hard-fought struggle for democracy in 1987 gave workers at non-unionized firms’ fresh opportunities to organize their own 'democratic unions' independent of their employers and the state at the enterprise level.
2 Many workers who felt that they had
been unfairly treated and excluded from important decision-making on their wages and terms and conditions of work went on strikes across the country, while they organized their own 'democratic unions'. Most newly organized trade unions had a strong desire to remain independent of their employers. This was fundamentally different from the incumbent FKTU-affiliated unions which had been subservient to employers. Most of the unions that were affiliated to the FKTU became more active than before, but remained moderate. The institutional inertia of FKTU-affiliated unionism lasted throughout the 1990s. Even though the state allowed workers to organized trade unions at the enterprise level, employers did not allow their employees to organize their own 'democratic' unions. Many
1 The ostensible form of trade unions in the 1960s and 1970s was industrial unions, though the real form of trade unions was based on enterprises. Most union activities, including collective bargaining, took place at the enterprise level. Most union activities were conducted at the enterprise level. 2 'Democratic Unions' aimed to be independent of employers and state intervention, compared with the FKTU-affiliated unions which were hitherto subservient to employers and the authoritarian government and sacrificed their members' interests. Newly organized trade unions declared themselves as being 'Democratic Unions' from 1987 onwards.
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employers strongly opposed the establishment of employees' unions at their enterprises and often resorted to various means of physical acts and bribes. However the state and employers had no choice in finally recognizing 'democratic unions' because the trade union movement received strong support from the workforce and general public, and began to exercise their power by going on strikes. From June 1987 onwards, political democratization in Korea led a gradual shift away from unitarism towards pluralism in industrial relations. The driving force which changed the industrial relations system just after June 1987 was the power which new trade unions began to exercise. Newly formed 'democratic unions' organized most of the non-managerial employees and represented many workers at the enterprise level whom had accumulated much discontent and demands over the years. New 'democratic unions' became stronger and were able to have a strong presence at the workplace. Workplaces have become strongholds of unions where trade unions were able to exercise their power over employers. Most enterprise unions were able to get their full-time union officials paid by their employers. The number of union officials increased in proportion to the number of enterprise union members. This was an outcome of unions' strong collective power at the enterprise level. Trade unions which had been docile to their employers were transformed into effective weapons for stringent resistance to employers. Big chaebol firms in the heavy metal and chemical industry became a fertile ground for strong enterprise-based unions. The 1987 industrial relations system developed in the midst of political democratization as a subsystem of the political social regime at that time. This system was also established in the backdrop of rapid economic growth, relatively protected markets, chaebol-centred business system, shortage of labour supply and rising expectations among workers. The enterprise-based industrial relations system became firmly established in a form different from that of pre-1987. (2) Characteristics of the 1987 Industrial Relations System Employers have preferred enterprise unions to industry unions or regional unions. They envisaged Korean unions becoming more like Japanese ones. They believed that trade unions based on an industry or regional level, therefore external to the firm, tended to be dangerous and radical. This belief was shaped by a labour law provision under the military authoritarianism in the latter half of the 1970s and the first half of the 1980s that anybody who intervened as a third party in enterprise-level industrial relations must be punished. Trade unions were basically organized at the enterprise level and its decision-making power rested with the enterprise unions. Employers were engaged in employment relations at their firms on their own without much coordination with other employers. Because employers' organizations had not been developed very well, there was a lack of coordination or centralized power among employers. Table 1.1: Reform of labour law since 1987
The 1987 - 1989 Revision The 1997 - 1998 Revision
Charact eristics
• Restrictions on union activities lifted
• Free union activities including political activities
• Revision of labour laws to enhance labour market flexibility
Laws on Collectiv e Labour Relation s
• Not only enterprise unions but other unions were allowed
• Restrictions on union organizing lifted
• Union shops allowed
• Restrictions on qualification for
• Multiple unions permitted at confederation level; 5 year suspension on multiple unions at the enterprise level
• Prohibition of wage payment by employers for full-time union
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• Political activity of trade unions permitted
• Restrictions on industrial action by defence employees were changed to match that of the public sector
• The scope of public utility services reduced
officials
removed
• Partial relaxation of ban on industrial action in the defence industry
• Public Servants councils allowed
Laws on Individu al Labour Relation s
• Introduction of the flexible-work hour system
• Introduction of the collective dismissal system:
⇒ For business contingencies, all efforts to avoid dismissals must be exhausted;
⇒ Fair selection of workers for dismissal;
⇒ Consultation with labour representatives;
⇒ Introduction of retirement pay in advance.
• Revision of the collective dismissal system:
⇒ Permitted in the case of mergers and acquisitions carried out to prevent collapse of business;
⇒ Dismissed workers must be given priority in recalls.
• Revision of law on agency work:
⇒ Permitted in 26 occupations including the service industry;
⇒ Unfair treatment of agency workers in the same occupation not permitted.
Source: Chul-Soo Lee, Revision of Korean Labour Laws and Industrial Relations, 2000. As shown in the table above, the industrial relations system in Korea was changed by political democratization and economic deregulation and its subsequent revision of labour law. There were two important periods in which major revisions of the labour law were made in order to reshape industrial relations institutions. The 1987 industrial relations system was very much fragmented with little coordination among employers. On the other hand, trade unions often organized collective campaigns or actions. Decisions on wages and terms and conditions of work were made at the enterprise level. The state assumed the role of coordinating enterprise-level industrial relations at the macro-economic level and often intervened in large industrial strives at the enterprise level which had a national impact. Trade unions were internalized with a strong presence at the enterprise level. 'Democratic unions' and employers made every effort to strengthen their respective bargaining power. They have often relied on physical, sometime unlawful, means to force the other party into submission. During the process, trade unions and employers have lost trust in each other as well as built up tensions and confrontations. Conflicts between trade unions and employers
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have been internalized within the firm where there are 'democratic unions'. These 'democratic unions' took advantage of the economic boom and optimism at the time. Trade unions with a strong power base at the workplace combined with employers' preference to enterprise unions gave birth to Korean-specific enterprise unionism. Trade unions became an effective means for increasing wage levels and improving terms and conditions of work. This type of trade unions later affiliated to the Korean Confederation of Trade Unions (KCTU). There have been other kinds of trade unions which affiliated to the FKTU. They have remained moderate and continued cooperating with employers. Even if they were under strong pressure from their members to increase wage and improve working terms and conditions, they tended to rely less on collective actions than negotiations.
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B. Employers
C. Employees There have been two national confederations of trade unions in Korea. The FKTU (Federation of Korean Trade Unions) was established in 1961 and grew as the only national organization of trade unions recognized by the state. It had to give in to the authoritarian government and employers at the expense of sacrificing its members' interests. It remains an umbrella organization that represents the moderate unions. The other federal confederation is the KCTU (Korean Confederation of Trade Unions) which was established in 1995 and registered as a legitimate union in 2000. The KCTU was established by trade unions which were mostly organized after June 1987. It has remained a strong union with much bargaining and industrial power. Its affiliated unions have had significant presence at workplaces in Korea.
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Part 3: Legal and Institutional Framework and Practice of Collective Bargaining Collective bargaining in Korea was not extensive prior to 1987 because trade unions had weak bargaining power. It remained insignificant in most instances. When a few trade unions obtained strong bargaining power, the state intervened in industrial relations at those firms and eventually assisted the employers to abolish those unions from the 1960s to 1986. However, as political democracy developed, many new trade unions were set up and became much stronger than before. Trade unions were on the offensive and employers the defensive side. Collective bargaining was led by new powerful ‘democratic trade unions’ and resulted in considerable wage increases and improvements in terms and conditions of work until the mid-1990s. When the Asian financial crisis hit the Korean economy at the end of 1997, unions had to concede wage cuts, redundancies or reductions in corporate welfare in their bargaining at almost all firms during 1997 – 1999. As the economy emerged from the crisis, unions engaged in retake bargaining during 2000-2001 to reclaim the concessions made during the crisis. Bargaining patterns that were similar to the previous ones returned at large companies. However, collective bargaining was not the same at most medium firms.
A. Legal Sources and Relevant Legislative Provisions Sources of collective bargaining The Constitution (Article 33) and subsequent labour laws provide trade unions with the legal rights to freedom of association, collective bargaining and industrial action. Korean labour laws allow trade unions exclusive rights to negotiation where unions are organized, irrespective of the proportion of their membership in a certain bargaining unit. If employers at unionized firms refuse to negotiate wages or terms and conditions of work with the unions concerned, this refusal may constitute unfair labour practices.
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Unfair labour practices There are five types of unfair labour practices in Korea: unfavourable treatment, ‘yellow-dog’ contracts, refusal to negotiate with unions or protracting negotiations with unions, interference in union internal affairs, and unfavourable treatment of people with claims of unfair labour practices at the Labour Relations Commission. If it is established at the Commission that the employers in fact engaged in unfair labour practices against their union member(s), a range of legal remedies are available. An alternative remedy is filing a claim at the civil courts on different grounds. Unfavourable treatment Pursuant to Article 81 of the Trade Union and Labour Relations Adjustment Act of 1997 (TULRAA), the following practices by employers constitute unfavourable treatment:
• Dismissing an employee or discriminating against him/her on the ground that the employee intends to establish a union, has joined a trade union or has performed proper trade union activities.
• Dismissing an employee or discriminating against him/her on the ground that he/she has taken part in industrial action.
‘Yellow-dog’ Contract and union shop
3 The concept of unfair labour practices was introduced into the Korean industrial relations system from the USA. It was intended to prevent employers from infringing upon the fundamental rights of workers and to promote the protection of workers and trade unions from employers' abuse and intervention in trade union affairs.
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A ‘yellow-dog’ contract is an employment contract in which employers forbid an employee to join a trade union or order the employee to join a particular union. ‘Yellow-dog’ contracts are not legally enforceable. Where a union represents two-thirds or more of the employees in the workplace, the employer may conclude a collective agreement which guarantees 'union shops'. In this case, the employer shall not take disciplinary action against the employee just because he/she has been expelled from the union. Refusal or protracting of bargaining Refusing or protracting collective bargaining with trade unions, without a justifiable reason, constitutes unfair labour practice. Dominance or interference in union internal affairs This unfair labour practice consists of
• Dominating or interfering with union internal affairs or union activities by paying wages to full-time union officials;
• Giving financial support to cover the union's operation costs or by other means. It excludes consultation or bargaining with trade union officials; employers contribution to employee welfare or prevention of relief from economic difficulties or other hardship; or provision of minimal facilities for the union at the workplace. Unfair treatment of reporting or testifying in relation to unfair labour practices It is unlawful to dismiss an employee or discriminate against him/her on the ground that he/she has reported an incidence of unfair labour practice by the employer to the Labour Relations Commission, or has testified about such offences. Remedies of unfair labour practices (1) Remedies by administrative procedures There is a two-pronged approach to remedying unfair labour practices: restoration and punishment. Employees or a trade union whose rights have been infringed upon by the employer's unfair labour practices, may take their case to the Regional Labour Relations Commission for remedies. Alternatively, the punishment approach involves the employee or union bringing a complaint or accusation against the employer to the labour inspector. (2) Remedies by civil procedures Apart from the administrative procedures mentioned above, the employee or union may bring a civil lawsuit against the employer for reinstatement of dismissed employees or claim for damages.
B. Duty to Bargain Good faith obligation The parties to collective bargaining are obligated to negotiate and conclude a collective agreement in good faith and not to abuse their bargaining power. An employer, who refuses, omits or delays to conduct collective bargaining or conclude a collective agreement without giving a reasonable justification, commits an act of unfair labour practice which is subject to criminal penalization (Art. 30 paras. 1 and 2 of the TULRAA).
C. Collective Bargaining in Practice
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Definition and Legal Status of Collective Agreement A collective agreement refers to a written agreement signed and sealed by the parties to collective bargaining (the trade union and the employer or the relevant employers’ organization). The agreement contains the terms that have agreed upon in the process of the negotiations with regard to wages, hours of work and other conditions. Parties to collective bargaining The parties to collective bargaining are legal persons or entities whom conduct the bargaining in their own names and subsequently assume their rights and obligations in the collective agreement. The parties are generally the trade union involved and the employer or his/her representative organization. In collective bargaining, the employees are represented by a trade union that fully satisfies the qualifying requirements of TULRAA. The employer is represented by a corporation in the case of an incorporated business, or an individual employer in the case of an individual enterprise. An employers' organization can also be a party to the collective bargaining process of a member employer, where it has the authority to control or regulate industrial relations affairs of the particular member employer. Both the union and employer may delegate authority to an appointee to conduct collective bargaining or conclude a collective agreement. The appointee will exercise the delegated authority within the scope granted to him/her. Bargaining power of parties There are three factors which affect the bargaining position and power of each party: the labour market situation, the relative power of trade unions against employers, and government policies or institutions which either support or discourage trade unions and collective bargaining. Up until 1986, unions’ bargaining power was not strong mainly because of government policies. Apart from the mid-1980s, the labour market situation was not favourable to trade unions. From mid to late 1980s, the Korean economy benefited from the so-called 'three lows' - low interest rates, low dollar and low fuel price, which were able to strengthen the economy’s cost competitiveness. There was a boom in the economy and labour was in high demand. As a result, the labour market tightened between mid to late 1980s. Trade unions became independent of employers and the state, and began to increase their power within firms at that time. Government policies and institutions which restricted employees from setting up unions, going on strikes and volunteering for union activities were more or less lifted. The tight labour market, strong power of trade unions, and removal of restrictive government policies concurrently occurred in the late 1980s. Trade unions were able to strengthen their bargaining power against employers at their respective firms. Enterprise unions which had originally been introduced by the authoritarian state to control trade unions ironically became a strong weapon for trade unions to build their power base at the workplace. As shown below in Table 3.3, 77 per cent of large firms with more than 500 employees were unionized. As most firms with strategic significance were unionized, trade unions were able to exercise considerable power despite low union density. Most employers were not well prepared to bargain with unions which suddenly gained so much power. Trade unions had the upper hand in collective bargaining. Since 1987 trade unions at the enterprise level have pursued distributive bargaining to increase their wage level and improve employment conditions by using their strong power at the workplace. Distributive bargaining was initially accepted by employers in the context of the economic boom and optimism in the late 1980s. Distributive bargaining driven by most enterprise unions under the KCTU was very successful until the early 1990s. Wages nearly doubled and working conditions and employment benefits significantly improved, especially at
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unionized medium and large firms, over the period of 1987 - 1994. Many small and medium-sized enterprises (SMEs) were under pressure to increase wages and improve conditions of work. There was some spill-over in wages and working conditions from large firms to SMEs. Wage increases in large unionized firms were a driving force for those in SMEs. Subject Matters in Collective Bargaining The subject matters in collective bargaining are confined to the ones that, in general,
• can be handled or taken care of by the employer;
• are of collective nature (i.e. the matter does not concern only one employee); and
• are associated with the improvement of employees’ working conditions, without prejudice to the employer's right to business and personnel management.
The bargaining agenda generally includes workplace issues, compensation and welfare at the enterprise level. In principle, matters concerning the employer's right to business and personnel management are excluded from collective negotiations. However, they can be dealt with at the bargaining table so far as they directly relate to the improvement of working conditions and their inclusion is not indicative of denying the employer the right to business and personnel management. Individual grievances that arise in the employment relationship, such as ones relating to overdue wages or dismissal, cannot be dealt with in the process of collective bargaining. However, these grievances can be resolved through other channels such as the Labour-Management Council at each workplace. Matters which are beyond the employer's reach, including enactment or revision of laws or regulations, opposition to the government's policy measures and political issues, should not be discussed at the bargaining table. Enterprise unions have tried to obtain control over various aspects of workplace operations through the enterprise-level bargaining agenda. Confrontation and a lack of trust between management and unions have triggered unions to seek formal or informal bargaining on many issues that are supposedly related to working conditions. More and more issues are coming onto the bargaining table at each bargaining round and session of Labour-Management Councils. As a result, workplace issues are increasingly subject to ‘deep’ and heavy regulation through collective bargaining. There has been much concern about the rigidities in industrial relations at the workplace which arise from the depth of regulation of various workplace issues. Figure 3.1 below shows the trade-off between depth and coverage of collective bargaining in Korea compared with Western European countries. Figure 3.1: Coverage and Depth of Collective Bargaining
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Concluding a collective agreement The right to conclude a collective agreement is given to the union representative(s) and the employer. It is not permitted for any rules, regulations or other form of instruments to restrict the union representative’s right to conclude collective bargaining and the negotiations of collective agreements. Valid term of a collective agreement The collective agreement’s term of validity must not exceed 2 years. The parties are free to determine the valid term of the agreement so far as it is 2 years or less. In case the parties had not specified the effective duration of the collective agreement, or had set a term of more than 2 years for the validity of the agreement, the actual valid term is deemed to be 2 years. If a new agreement has yet to be concluded, even though the parties have conducted negotiations to renew the agreement, the previous agreement shall remain valid for 3 months from its date of expiry. A collective agreement shall remain effective until a new agreement is signed, even after its term of validity had expired, if such is provided by the agreement. In this case, if a party intends to terminate the agreement, it should notify the other party of such termination no later than 6 months before the date of termination. Effect of Collective Agreements on Employment Contracts and Company Rules Provisions contained in rules or contracts of employment that are incompatible with the standards of working conditions and employee treatment in the collective agreement shall be deemed invalid. As for matters that are not specified in the contract of employment, or are specified in the contract but are not compatible with the relevant provisions of the collective agreement, the standards specified in the collective agreement shall be applied. Scope of application
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In principle, a collective agreement shall apply to the trade union (and workers whom are union members) and the employer who have concluded the agreement. Nevertheless, where an enterprise based agreement covers a majority of permanent workers at a company or workplace (i.e. more than 50% of workers are union members), the normative provisions on working conditions contained in the agreement shall apply to the remaining workers (non-union members) whom are employed in the same kind of job (Arts. 35 and 36 of the TULRAA). Bargaining coverage and significance of collective agreements The bargaining coverage refers to the proportion of the workforce covered by collective bargaining. Collective agreements have applied only to employees at unionized firms because most trade unions were enterprise-based and collective bargaining took place at the enterprise level. Therefore the bargaining coverage in Korea is more or less equal to union density, as shown below in Table 3.1. Table 3.1: Union density
Year No. of Unions Membership Union density (%)
1965 2,634 301,522
2003 6,257 1,549,949
Source: The Ministry of Labour. Bargaining coverage in Korea has remained relatively low compared to that of advanced economies. As shown in Table 3.2 below, most advanced economies (except for the USA and UK) have had some extension mechanisms whereby collective agreements concluded between unions and employers can be extended to employees in non-union firms. Apart from labour laws, those extension mechanisms which Korea lacked have been effective in regulating employment relations at non-union firms in advanced economies. Table 3.2: Bargaining Coverage in Advanced Economies, 2000 Country
Korea Japan UK USA Germany France Italy Sweden
Coverage (%)
10+ 15+ 30+ 14 68 90 + 80+ 90+
Source: OECD (2004), Employment Outlook, Paris, p.145. Bargaining coverage is uneven depending upon the size of firms. As shown below in Table 3.3, 77 per cent of large firms with more than 500 employees are unionized, while 5.8 per cent of small firms with 5 - 9 employees are unionized.
4 Large firms are mostly unionized and their
employees are covered by collective bargaining, while small firms are mostly non-unionized
4 Very small firms with 1-4 employees account for 84.1 per cent of the total number of companies in Korea and 32.9 per cent of the total number of the employed workforce. Firms with more than 100 employees account for only 0.36 per cent of the total number of firms and 21.9 per cent of the total number of the employed workforce.
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and their employees are not covered by collective bargaining. Table 3.3: Proportion of unionized firms by size (no. of employees)
Size of firm (Number of employees)
1 - 4 5 - 9 10 - 29 30 - 99 100 - 299
300 - 499
0 5.8 14.3 24.8 51.7 68.4 77.0
Source: Korea Labor Institute (2005), KLI Labour Statistics. Bargaining coverage across different types of employment varies quite significantly. As shown below in Table 3.4 union density and therefore bargaining coverage is relatively high for permanent workers. However, union density and bargaining coverage for temporary workers and workers hired on a daily basis remain negligible. Overall, bargaining coverage remains very low in Korea because of the enterprise-based industrial relations system and a lack of extension mechanisms for collective agreements. Employees in SMEs, temporary workers and workers hired on a daily basis are least likely to be covered by collective bargaining. Table 3.4: Trade union density by employment type, August 2004
No. of wage earners
(in 1,000) Union membership
(in 1,000) Union density (%)
Workers hired on a daily basis
2,071 8 0.4%
Source: Korea Labor Institute (2005), KLI Labour Statistics. Bargaining Level Collective bargaining can take place at the establishment level, enterprise level, sub-sectoral level, regional level, industry level, or national level. Collective bargaining in Korea has mostly occurred at the enterprise level before the massive strikes in 1987 and even thereafter. The bargaining level tended to be determined at the level where most unions were organized. Except in some special instances, enterprise unions were able to engage in collective bargaining only at the firm/enterprise level. It was natural that employers and trade unions negotiated wages and conditions of work at the enterprise level under the enterprise-based industrial relations system in Korea. There were small exceptions in areas such as cotton textiles, urban bus and taxi transportation in which sub-sectoral bargaining or regional bargaining took place over the years. Trade unions in Korea began transforming their organizational forms from enterprise unions to industry-based unions during the late 1990s and early 2000s. The development of industry-based unions has become a long-standing objective of the Korean union movement with the aim of increasing solidarity among workers and overcoming the fragmentation of unions. KCTU-affiliated enterprise unions, especially in the metal and hospital industry, reorganized themselves into industry-based unions. At the end of June 2006, 97,000 members (including employees at Hyundai Motor Union, Kia Motor Union, Daewoo Motor Union and other big enterprise unions) joined the metal industry union. As of July 2006, nearly sixty per cent of the KCTU membership belonged to industry-based unions.
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Table 3.5: Types of KCTU-affiliated Unions and their memberships (June, 2006)
Type of unions No. of unions Membership Proportion of
membership (%)
Sub-sectoral or Industry-based unions
Total 742 638,180 100
Sources: Korean Confederation of Trade Unions, KCTU home page, www.kctu.org (accessed: 2006); Korean Metal Workers' Union, KMWU home page, http://metal.nodong.org (accessed: 2006). Wage bargaining is still overwhelmingly conducted at the enterprise level, as shown below in Table 3.6. Following the developments in collective bargaining in some sub-sectors and industries, the proportion of sub-sectoral bargaining, industry bargaining and regional bargaining has increased since 2000. Collective bargaining above the enterprise level accounts for roughly 19 per cent of all collective bargaining. Table 3.6: Level of Wage Bargaining
Level of CB Enterprise
NB: *’Enterprise Bargaining I’ refers to bargaining between management and enterprise unions. ** ‘Enterprise bargaining II’ refers to bargaining between management and industry-based unions. Source: KLI (2005)
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Part 4: Trends, issues and debates: social partners' and political actors’ views and proposals for future development of national bargaining systems
A. Major Issues in Collective Bargaining Move to Industry-Level Bargaining As enterprise unions merged into industry-based unions or sub-sectoral unions, there has been an increase in demand for industry-wide bargaining or sub-sectoral bargaining on the part of trade unions. Employers in Korea have favoured enterprise bargaining much more than industry or sub-sectoral bargaining. This is despite the fact that enterprise bargaining has not led to desirable outcomes for employers. The reasons why employers do not like sub-sectoral or industry bargaining are ideological and practical. Employers fear that sub-sectoral or industry bargaining driven by those unions may be accompanied by massive strikes at the sub-sectoral or industry level, and that they may have to negotiate with supposedly ‘radical’ third parties. Employers have also experienced significant conflicts with sub-sectoral or industry-based unions over the issue of whether employers have to take part in collective bargaining at the sub-sectoral or industrial level led by those unions and accordingly form employers' associations for this purpose. Moreover, there has not been an employers' association to lead collective bargaining at the sub-sectoral or industry level on the part of employers. No one has been able to coordinate employers' interests in collective bargaining at the industry level, despite strong pressures from the sub-sectoral or industry-based unions. This was one of the key reasons why collective bargaining at the sub-sectoral or industry level was often protracted and flared up into industrial action. In addition, some large employers in the metals industry (where many employees were organized by the industry-based union) refused to participate in collective bargaining at the industry level. These employers perceived their industrial power to be strong enough to resist the union's demand for industry-level bargaining. They insisted upon collective bargaining at the enterprise level instead. Although there have been conflicts between employers and industry-based unions, and many trial and errors surrounding collective bargaining at the industry level, there have been some positive developments in the metals and hospital industries. Employers' associations were organized in those two industries in 2006 for the purposes of industry-level collective bargaining. Wage bargaining at the industry level was concluded without much industrial action in 2006. Industry-level bargaining in the metals industry was primarily conducted at SMEs; whilst in the hospital industry there was a range of large and small hospitals involved. Along with these developments at the industry level, there has been some significant advancement in sub-sectoral bargaining in areas such as securities, life and property insurance, agricultural and fishery cooperatives, driving schools and electricity generation. Korean trade unions are still experimenting with reorganizing themselves into industry-based unions and centralizing enterprise-level bargaining into industry-level bargaining. As unions at large firms are increasingly reorganizing themselves into industry-based unions and seeking industry-level bargaining rather than enterprise-level bargaining, industrial conflicts and disputes relating to industry-level bargaining may follow. New attempts at industry-level bargaining by the powerful metals industry union (which includes the Hyundai Motor Union, Kia Motor Union and Daewoo Motor Union) may not be so easily resisted by the respective employers. There may be further developments in industry-level bargaining in this sector next year. However, depending on the bargaining strategies pursued by the metals industry union and any changing political and economic circumstances, the realization of these developments is uncertain. Many issues relating to industry-level bargaining remain undecided. Pattern Bargaining and Bargaining Coordination The employers' organization and the two confederations of trade unions (the FKTU and the KCTU) are supposed to coordinate wage bargaining among their members. They have
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suggested a yearly guideline for wage increases and key considerations for collective bargaining for their respective affiliated unions and employers. However their capacity to coordinate bargaining has been very limited. There were no employers' organizations at the sectoral level until recently. Even though there were a number of industry-based union federations under the FKTU and KCTU, they have not had much capacity to coordinate the bargaining activities of their affiliated unions. A kind of pattern bargaining which were initiated by powerful enterprise unions emerged in key industries such as automobile, electronics and shipbuilding. For instance the Hyundai Motor Union tended to set a pattern for the annual wage round in the automobile industry and other metals industries. This was normally done by going on strike for a number of days and then concluding the bargaining at a rather high premium. Other large unions in the automobile industry and other industries would follow suit in terms of the wage increases. Moreover, other large unions would add extras like bonuses, benefits or welfare programs to the wage increases spearheaded by the Hyundai Motor Union. These additions have brought about ‘leapfrogging’ in wage bargaining among big companies. Figure 4.1: Trend in wages by firm size
Source: Ministry of Labour (2005), Monthly Labour Survey. This sort of pattern bargaining led by big enterprise unions had the tendency of spreading relatively high increases in wages over to other medium firms in the same sector or region. However, these spill-over effects have increasingly been limited to large firms of the chaebol groups because of the growing gaps between the high performing big firms and more modest performing SMEs. Wage gaps between different sized firms have widened since 1999. Large unions with strong bargaining power are claimed to have increased the wage gaps in recent years. Indirect Bargaining through Labour-Management Councils (LMCs) One important feature of the Korean industrial relations system lies in the compulsory establishment of labour-management councils. Firms with more than 29 employees are required by law to set up a labour-management council at the enterprise level, where employee representatives are elected by employees at non-unionized firms or appointed by the trade union at unionized firms. The aim of labour-management councils is to facilitate information sharing and consultation, promote employees' participation in decision-making processes and build trust between employers and employees. Employee representatives in labour-management councils are supposed to be regularly consulted by management on issues relating to work, employment, productivity, training, grievance handling and employer-employee cooperation. They are also involved, along with management, in making decisions on training, education, welfare and the set-up of joint committees in the workplace. According to the Act on Promotion of Employees' Participation and Cooperation concerning the
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establishment and operation of labour-management councils, an equal number of representatives from management and employees sit on the council, The number from each side ranges from 3 to 10, depending on the firm size. The councils are required to hold a regular meeting every three months and ad hoc meetings whenever necessary. Labour-management council meetings shall be held with the presence of a majority of both employee representatives and management representatives. A resolution shall be made with the approval of two-thirds or more of the representatives present. Labour-management councils are similar to works councils in Western Europe in some aspects but different in their composition of employer and employee representatives. While European work councils are employees' organizations, LMCs are organizations composed of both management and employees representatives. Whereas works councils in Western Europe have connections with trade unions external to the firm, employee representatives in LMCs of non-unionized firms in Korea have very few connections with trade unions. As shown in Table 4.1 below, labour-management councils are set up at more than sixty per cent of the total establishments with more than 29 employees. The evidence suggests there is a proportional rise in the presence of labour-management councils, the larger the size of establishments. Taking into account the statutory requirements for firms to set up LMCs at their establishments, the proportion of establishments with LMCs is remarkably high. Table 4.1: Proportion of enterprises with labour-management councils, 2003
30 – 99 Employees
100 – 199 Employees
200 – 499 Employees
24,192 4,613 2,354 32,188
41,538 6,201 2,788 51,140
Ratio (A/B x 100) (%)
58.2 74.4 84.4 62.6
Source: Ministry of Labour (2004), The Current Situation of Set-up of Labour-Management Councils by Establishment Size. Moreover, as shown below in Table 4.2, the number of labour-management councils has increased over the years, particularly at small establishments with 30 - 99 employees. Table 4.2: Number of Labour-Management Councils by Establishment Size
Year 30-99 employees
1997 16,985 4,396 2,106 964 24,411
2000 20,408 4,273 2,142 981 27,802
2004 26,403 5,030 2,388 1,048 34,887
Source: Ministry of Labour Most of the time, trade unions assume the important role of employee representatives in labour-management councils at unionized firms. The actual roles of employee representatives on labour-management councils vary from having no part or a minor part in consultation, to actual bargaining. This depends on management’s attitude, the threat of union organizing, firm size, region, sector and union influence. Some employee representatives of labour-management councils play a significant role not only in consultation on statutorily required matters, but also in consultation or bargaining on wages and working conditions. According to the results of the 2006 Workplace Panel Survey shown in Table 4.3 below, employee representatives at more than half of the surveyed labour-management councils discussed wage increases in consultation with management.
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Table 4.3: Discussion of wage increases at Labour Management Councils in 2005
30-50 employees
50-100 employees
100-300 employees
N M(SD) N M(SD) N M(SD) N M(SD) N M(SD)
Employer responses
105 0.54 (0.50)
125 0.56 (050)
167 0.63 (048)
123 0.59 (049)
520 0.59 (049)
NB: Unit is expressed in decimals. N- Number; M- Mean; (SD) - Standard Deviation. Source: Korea Labor Institute (2006) Workplace Panel Survey Employee representatives at some labour-management councils have more than just consultation rights on wages and working conditions. As shown in Table 4.4 below, employee representatives at twelve to sixteen per cent of all labour-management councils surveyed are said to have wage bargaining rights. Further, around ten to twelve per cent surveyed have bargaining rights on working conditions. At two to five per cent of labour-management councils, employee representatives even have the right to strike. Thus labour-management councils have been a vehicle whereby higher wages and better working conditions at unionized firms, to a less extent, spill over to non-unionized ones. Although labour-management councils were not designed for the purpose of bargaining on wages and conditions, the unintended consequences have been consultations and actual bargaining on those issues. However, bargaining on wages and working conditions in LMCs is still limited in the sense that most employee representatives are not given time-off and external assistance to prepare for the negotiations. Further, if negotiations within a LMC reach a deadlock, employee representatives generally cannot use the threat of strikes to put pressure on the employer. Table 4.4: Rights of employee representatives at Labour-Management Councils
30 - 50
more than 300 employees (N=124)
Total (N=535)
Wage bargaining rights
0.13 (0.34) 0.12 (0.33) 0.16 (0.36) 0.15 (0.36) 0.14 (035)*
Collective bargaining rights
0.11 (0.31) 0.11 (0.31) 0.10 (0.31) 0.12 (0.33) 0.11 (031)
Right to strikes 0.05 (0.21) 0.02 (0.12) 0.03 (0.18) 0.02 (0.13) 0.03 (0.17)
NB: Unit is expressed in decimals. *(Standard Deviation) Source: Korea Labour Institute (2006), Workplace Panel Survey In summary, labour-management councils are used as forums for consultations and indirect bargaining on wages and working conditions. Social Dialogue Apart from the state-led labour policies, we did not see developments in mechanisms to coordinate industrial relations policies at the macro-level until the mid-1990s. The enterprise-based industrial relations system was maintained through the coordination and frequent interventions by the state as a whole until then. However, it became increasingly difficult for the state to introduce or change labour law or industrial relations policies unilaterally. In the late 1980s and early 1990s the government failed to conclude ‘three-way’ agreements for wage moderations with employers and the moderate FKTU (which at the time, was not supported by affiliated unions and criticized by the new 'democratic unions').
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Immediately after the 1987 Democratization Declaration, the then newly elected government allowed 'democratic unions' at the firm level and sectoral level. However, it denied the formation of a national organization of 'democratic unions' (the predecessor of KCTU) for procedural reasons. The government and employers tried to exclude the formation of a national organization of democratic unions on legal grounds, and isolated it until the mid-1990s. Around 1995 the civil government set up a tripartite body called the Committee for the Reform of Industrial Relations together with employers' organization, the FKTU and the KCTU, and independent industrial relations scholars. The committee sought to give the KCTU legitimate status on the one hand. It also sought to reform the labour law in order to make it easier for employers to lay off workers and thereby increase the flexibility of the labour market. The Committee made some important progress in improving social dialogue among the tripartite bodies, but eventually failed to achieve its goal because top-ranking government officials decided to reform the labour law unilaterally. The government faced nation-wide strikes by a majority of the unions and workers, which resulted in the renouncement of its reform bill. Another impetus to social dialogue occurred during the 1998 financial crisis in Korea. The nation urgently needed the reform of the labour law to make redundancies easier for the purpose of speeding up corporate restructuring. The new Kim Dae Jung government convened a tripartite meeting with the employers' organization, FKTU and KCTU, and pushed them to conclude a historic tripartite agreement on the reform of the labour law in February 1998. The agreement comprised of granting freedom of association to teachers and public servants and more social security measures including unemployment policies in exchange for provisions which make redundancies easier. While the government institutionalized the Tripartite Commission as a permanent organization, the KCTU withdrew from the Commission. The government had to work with the employers' organization and the FKTU at the Commission to discuss important policy issues such as the reform of the public sector, introduction of the 40-hour working week, legislation for migrant workers, temporary workers and part-time workers. The KCTU has always resisted government policies because they perceive the policies to be detrimental to workers' interest or not sufficient to address them. Despite the lack of consensus among parties, the Commission has managed to make some progress in gathering the participating parties to hold a social dialogue and reach agreements on some issues. Under the enterprise-based industrial relations system, the social dialogue encouraged through the Commission by the government was able to fill the gaps between collective bargaining and labour-management councils at the firm level and coordination of industrial relations policies and practices at the macro level. This type of social dialogue remains an important forum and the primary governance mechanism for interested parties to participate in policy-making processes at the macro level.
B. Summary and Conclusions In both industrialised and industrialising countries, an industrial relations system provides the framework for governing employment relations at the enterprise, industry and national level. National systems (political, economic, business, education, judiciary and health) are able to be supported by a self-governing industrial relations system. Korea has experienced significant developments and changes in its industrial relations system over the years. The formation of industrial relations systems in Korea has been closely associated with the political history after the Korean War, industrialization, state policies and the Korean business system. Before 1987, the state intervened in the operations of industrial relations by controlling trade unions in various ways in order to maintain relatively low wages and industrial peace. Trade unions were quite weak and dependent on employers to a large extent. Collective bargaining at the enterprise level was not supported by unions possessing genuine bargaining power. Most collective bargaining was conducted at the enterprise level and industrial relations based at the enterprise-level became established as a system.
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The ‘1987 industrial relations system' developed in the midst of political democratization. It was also established in the backdrop of rapid economic growth, relatively protected markets, a chaebol-centred business system, shortage of labour supply and rising expectations among workers. The system of enterprise unions which had been introduced by the authoritarian state to control trade unions ironically became a strong weapon for unions. Trade unions with strong power at the workplace combined with employers' preference for enterprise unions (as opposed to industry based unions) gave birth to a Korean-specific type of enterprise unionism. Conflicts between trade unions and employers became internalized within the firm. The growth of the trade union movement helped to institutionalize collective bargaining as a fundamental aspect of the industrial relations system in Korea. Trade unions had the upper hand in collective bargaining. Wages nearly doubled and working conditions significantly improved, especially at unionized medium and large firms over the period of 1987 - 1994. However, the 1987 industrial relations system was very much fragmented with little coordination in labour relations among companies. The state assumed the role of coordinating enterprise-level industrial relations at the macro-economic level. The bargaining coverage of the enterprise-based bargaining system in Korea remains very low. Bargaining coverage is uneven between large and small firms, and between permanent, temporary and daily-hired workers. Almost all collective bargaining has been conducted at the enterprise level. From the early 2000s onwards, many enterprise unions have reorganized themselves into industry-based ones. As of July 2006, nearly sixty per cent of the KCTU membership belonged to industry-based unions. There have been increases in demand for industry-based bargaining or sub-sectoral bargaining on the part of trade unions. Employers in Korea have much favoured enterprise bargaining over industry or sub-sectoral bargaining. Moreover there has been no employers' association to lead collective bargaining at the sub-sectoral or industry level on the part of employers. Although there have been conflicts between employers and industry-based unions and many trial and errors surrounding collective bargaining at the industry level, there have been some developments in the metals and hospital industry. Korean trade unions are still experimenting in reorganizing themselves into these industry-based unions and centralizing the system of enterprise-level bargaining into industry-level bargaining. However, depending on the bargaining strategies pursued by the industry-based unions and changing political and economic circumstances, it is uncertain whether these developments will successfully eventuate. Many issues relating to industry-level bargaining remain unresolved. To date, no effective mechanism for coordinating enterprise-level collective bargaining at the macro level has been developed, apart from the ad hoc intervention of the state. A kind of pattern bargaining which were initiated by large and powerful enterprise unions emerged in key industries such as automobile, electronics or shipbuilding. This sort of pattern bargaining had a tendency of spreading relatively high wage increases over to medium-sized firms in the same sector or regions. However these spill-over effects have increasingly been limited to large firms of the chaebol groups because there have been growing gaps between strong performing large firms and more modest performing SMEs in recent years. Korea has developed labour-management councils as an indirect bargaining channel. Labour-management councils were designed for information sharing, employees' participation in decision-making, consultation and building trust between management and employees. However their roles are not limited to the above functions and sometimes extend to wider consultation and negotiations on wages and working conditions. Under the enterprise-based industrial relations system, social dialogue encouraged through the Tripartite Commission by the government was able to fill the gaps between collective bargaining at the enterprise level and coordination in industrial relations policies and practices at the macro level. Despite numerous controversies surrounding the Tripartite Commission and its role, this attempted form of social dialogue in Korea still remains an important forum for relevant parties to participate in policy-making processes at the macro level. Korea has developed an industrial relations system based on enterprise unions and enterprise
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bargaining. The Korean industrial relations system has functioned in a very different way to the Japanese system, in spite of the enterprise-based nature of the two systems. For example, there are well-developed informal mechanisms of coordinating collective bargaining in Japan. In Korea, the state intervened and coordinated collective bargaining before 1987. However, there has not been any effective mechanism for coordinating collective bargaining after 1987. The diverging path between the two countries could be accounted for by the different context of politics, history and economic systems in the two countries. The industrial relations system in Korea has benefited union-organized, permanent workers at large firms to the exclusion of many workers in SMEs, and those in temporary and precarious forms of employment. As such, the system has been criticised for contributing to the bipolarization of the labour market. The irony of the industrial relations system in Korea is that it has generated numerous significant unintended and often opposite consequences. For example although enterprise unionism had been encouraged and legally imposed by the state to foster moderate unions, it actually achieved the opposite result with the growth of many militant KCTU-affiliated unions since 1987. Labour-management councils which were designed for replacing trade unions have become an indirect vehicle for bargaining. The centralization process from an enterprise-based bargaining system to industry or sub-sectoral bargaining led by KCTU-affiliated unions currently remains at the experimental stage. Employers prefer the status quo of enterprise bargaining. It is not clear whether the trade unions that have driven the change, intend to actively organize workers in SMEs and atypical workers and represent them in collective bargaining. Therefore it is still uncertain whether the attempt to centralize collective bargaining will be successful and result in more inclusive industrial relations system.
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