Labor Cost of Korean Auto Industry Increased Most in the World

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Wednesday, September 9th, 2015
The labor cost of Korea's automobile industry has increased most among the world's major car-making nations for the past five years.
Due to high wages and wage rigidity, the nation's car industry is considered on the verge of losing its competitive edge against other countries. Still, labor unions are showing little sign of change, including the union of Kumho Tire staging a full-fledged strike for 23 days on end and the Hyundai Motor union is set to vote for a strike on September 9.
The Korea Automobile Manufacturers Association held a seminar titled "How to Create Cooperative Labor Relations in the Automobile Industry" on the 8th at the Renaissance Hotel in Seoul's Gangnam and said the average labor cost of Korea's top-five car manufacturers has increased 37.7 percent from 2009 to 2014 (annual growth rate of 6.6%). The figure was based on reviewing financial statements of the world's major car makers.
In contrast, the labor cost of Japanese auto makers including Toyota and Honda has declined 28.9 percent during the same period. As for French (Peugeot Citroën and Renault) and German auto manufacturers (Volkswagen) as well, the labor cost fell 18.9 percent and 2.0 percent, respectively. Only U.S. car makers (GM and Ford) saw their labor cost rise (0.5%) during the same period.
The average wage for individual workers in Korea's car companies was 92.34 million won in 2014, higher than that for Toyota (83.51 million won) and Volkswagen (90.62 million won). The share of wage bills to sales revenue for Korean car makers was 12.4 percent, again higher than that for Toyota (7.8%) and Volkswagen (10.6%). In contrast, Korean car makers' productivity was lower than that of major car makers of the world. The average per-employee sales revenue for Korean automobile companies was 747.06 million won, less than a half of Toyota's 1,594.40 million won. This is even lower than that of other car makers whose average work hours are much shorter than those for Korean car companies, including Volkswagen (857.12 million won) and GM (967.89 million won).
Korea is the world's fifth-largest car-making nation with 4.52 million cars produced last year. The total number of employment in the automobile industry and other related sectors is 1.82 million, accounting for 7.3 percent of all employment of 25.06 million. Still, the industry is fast losing its competitiveness due to excessively high wage levels and wage rigidity. The number of automobile output has steadily fallen since 2011 after peaking at 4.65 million. Auto exports also declined to 3.06 million last year from 3.17 million in 2012.