cfeEng244.pdf

Summary: The dispute at Hanjin Heavy Industries and Construction has reached a second round. Its labor union ended a long strike that had been in protest of the shipbuilder`s planned layoffs. But the stand-off entered a new stage as politicians intervened. The National Assembly recommended the company rehire workers. The action may make things worse at Hanjin and lead to its bailout with taxpayer money if it faces bankruptcy. The biggest worry is that politicians will override the court`s ruling and voluntary agreement between the shipbuilder and its labor union, severely damaging the rule of law.

* * *

The labor dispute sparked by massive layoffs at Hanjin Heavy has entered a second round. The first round appeared to end with the voluntary agreement between management and the labor union on June 27, 2011. But Kim Jin-sook, a former worker and female labor activist, staged a sit-in atop a 35-meter crane at the Yeongdo shipyard in Busan, sparking another stand-off. Politicians held the so-called `Hope Bus` rallies, making it a national issue. It seems they intend to nationalize Hanjin Heavy.

Let`s look at how the dispute started. The Yeongdo shipyard is known to have reached its capacity. As such, Hanjin built a shipyard in Subic, Philippines, in 2007. Then, the global financial crisis came and the shipbuilding industry slipped into a downturn. Hanjin received no orders for nearly two years starting in December 2008.

To cope with the crisis, the company announced a plan to cut about 400 manufacturing jobs in December 2010. In protest, its labor union started a general strike on December 20, 2010, which lasted for 189 days. Both sides finally reached an agreement on June 27, 2011 after the company upheld the law and principles, insisting no pay for no work, calling for help from law enforcement authorities against illegal occupation, and obtaining a court order banning unionists from entering the shipyard. The company promised to pay 22 months of salary in compensation for voluntary retirees in return for an end to the general strike. It was a voluntary compromise but Kim Jin-sook ignored it and continued her sit-in on a crane.

Kim`s unyielding protest sparked a second round of confrontations. Politicians from the three opposition parties and labor unionists took `Hope Bus` to come to the shipyard and held four rallies. Citizens living in Busan rose up against the protests, complaining about the consequent inconvenience and damage to the regional economy. Politicians` intervention complicated the situation. Meanwhile, the National Assembly used its authority to "advise" the company to rehire the workers already laid off in a year, pouring oil on the fire. The worries are growing that the shipbuilder will face more financial troubles if it rehires the redundant workers even as its orders are not sufficient enough to run the Yeongdo shipyard.

Will politicians turn Hanjin into a state-run company

The first clause of Article 24 under the Labor Standards Law requires an employer to lay off workers only when it faces "urgent need for management." Articles 24-26 of the law stipulate very strict conditions allowing layoffs. An employer should have a sincere discussion with the labor union before layoffs; give 50-days notice to those subject to the plan; obtain the Labor Ministry`s approval; and pay compensation for their pain. The layoff law introduced by former President Kim Dae-jung in February 1998 is notorious for nearly blocking layoffs. Hanjin apparently has an urgent need to layoff workers because it has obtained no orders since December 2008. Considering Hanjin`s situation, should politicians urge the shipbuilder to accept the National Assembly`s advice to rehire workers? The company may suffer more financial difficulties if it has to rehire redundant workers. Do politicians intend to turn the shipbuilder into a state-run company and cover their losses with taxpayer money?

Don`t shake up the rule of law

Korea`s labor market is as rigid as Germany`s. According to the Fraser Institute`s economic freedom index on labor regulation, Korea was ranked 128th out of 141 countries in 2008, followed by Germany. The ranking fell from 58th out of 123 countries in 2000 under Kim Dae-jung`s government; to 107th out of 141 countries in 2006 during Roh Moo-hyun`s rein. Korea is second after Portugal in terms of employment protection of regular jobs (i.e., the difficulty to fire regular-job workers) among OECD countries. The most flexible labor market among OECD members is the U.S., followed by the U.K., Canada, New Zealand, and Ireland. Their economy had been robust, boosted by the labor market, until the global financial crisis broke out in 2008.

Considering global trends and still rigid Korean labor market, Hanjin`s layoff agreement should be respected. Politicians` attempt to reverse the decision is against the rule of law. They should remember that the economy can grow only when companies earn profit. The shipbuilder must be allowed to revive itself through layoff and restructuring.