🚨 Korea's 4.5-Day Workweek Debate
Today Korean Economic News for Beginners | 2025.09.23
0️⃣ Shorter Work Hours Risky When Productivity is at 2/3 Level
📌 Small Business Management Crisis Feared if 4.5-Day Workweek Starts Without Better Productivity
💬 With Korea's labor productivity staying at two-thirds the level of major developed countries, concerns are growing that reducing work hours without improving productivity could cause a management crisis for small businesses. The Korea Chamber of Commerce SGI (Seoul Economic Research Institute) warned in a recent report that "Korea's hourly labor productivity is only 67% of the OECD average, so introducing a 4.5-day workweek would sharply increase labor costs and greatly worsen small business profitability." The analysis shows that with the seniority-based wage system still in place, simply reducing work hours would raise per-hour labor costs even more, inevitably weakening business competitiveness. It was also emphasized that countries like Belgium and Iceland that successfully introduced 4-day workweeks all had higher labor productivity than Korea as their foundation for the system change.
1️⃣ Easy to Understand
Social interest in introducing 4.5-day or 4-day workweeks is growing, but experts point out that Korea is not yet ready to accept such systems. The biggest problem is 'productivity' - simply put, Korean workers create less value than other countries even when working the same hours.
Let me first explain what labor productivity means. Labor productivity is an indicator showing how much added value a worker creates during a certain period of time. For example, if Factory A and Factory B each work 8 hours, but Factory A makes products worth 1 million won while Factory B makes products worth 1.5 million won, then Factory B has higher labor productivity.
Korea's labor productivity is 67% of the OECD (Organization for Economic Cooperation and Development) average. This means that when workers in other developed countries create a certain value working 8 hours, Korean workers can only create about two-thirds of that value in the same time. In this situation, reducing work hours would further decrease the total value created.
Countries that successfully introduced 4-day workweeks share common features. Belgium has hourly labor productivity of $82, more than double Korea's $37, and Iceland also records $67, much higher than Korea. These countries could introduce the system because they had high productivity as a foundation to achieve sufficient economic results even with reduced work hours.
What Korean companies, especially small businesses, worry about is the burden of labor costs. Wages are already continuing to rise while productivity stays flat, so if work hours are also reduced, companies might need to hire more people to do the same work or pay more overtime wages.
Also, Korea still has a strong seniority-based wage system. This is a system where wages are decided based on how long someone has worked at a company rather than individual ability or performance. In such a structure, reducing work hours means labor costs stay the same while production decreases.
The point is that while reducing work hours is important, improving work efficiency and helping companies become more competitive should come first.
2️⃣ Economic Terms
📕 Labor Productivity
Labor productivity is an indicator showing how much added value a worker produces during a certain period of time.
- It's mainly measured as GDP per employed person or added value per working hour.
- High labor productivity means achieving more results in the same time, indicating the level of economic development.
- Technology innovation, education level, and capital investment affect improving labor productivity.
📕 Seniority-Based Wage System
The seniority-based wage system is Korea's traditional corporate compensation structure where wages automatically rise based on years of service and age.
- The length of service at a company becomes the main criterion for wage decisions rather than individual performance or ability.
- While stable, it can create gaps between productivity and wages, increasing corporate burden.
- Recently, there's a trend toward performance-based pay or job-based pay systems.
📕 Return on Assets (ROA)
Return on Assets is an indicator showing how efficiently a company uses its assets to generate profits.
- Calculated by dividing net income by total assets, with higher values meaning better asset management efficiency.
- While it varies by industry, generally 5% or above is considered good.
- Declining ROA means worsening corporate profitability and can lead to decreased investment attractiveness.
📕 Work Hour Reduction and Productivity
Work hour reduction aims to improve workers' quality of life, but without productivity support, economic side effects can be large.
- Most success cases had productivity improvements through automation and digitalization first.
- Simply reducing hours can lead to decreased total production and weakened corporate competitiveness.
- Therefore, investment and innovation for productivity improvement are needed before introducing such systems.
3️⃣ Principles and Economic Outlook
✅ Korea's Labor Productivity Status and Structural Problems
Let's analyze why Korea's labor productivity is low and how this affects work hour reduction.
First, Korea's hourly labor productivity is $37, staying at 67% of the OECD average of $55. This is significantly lower than the US ($84), Germany ($76), and Japan ($47). While manufacturing is relatively good, service industry productivity is much lower, dragging down overall productivity. Restaurants, retail, and personal services still maintain labor-intensive structures, delaying automation and digitalization.
Second, the productivity growth rate is also slowing. The labor productivity growth rate, which rose 3-4% annually in the early 2010s, has recently dropped to 1-2%. Meanwhile, wage growth rates remain at 3-4%, widening the gap between productivity and wages. This is because labor costs rose quickly due to the 2018 minimum wage spike and 52-hour workweek introduction, but corresponding productivity improvements didn't happen. In this situation, further reducing work hours would deepen the productivity-wage gap even more.
Third, the productivity gap between small and large companies is also an obstacle to work hour reduction. Large companies have room to increase productivity through automated equipment and IT system introduction, but small companies find productivity improvement difficult due to lack of investment funds. Small company labor productivity is only 30% of large companies', so they're likely to face relatively bigger impacts from work hour reduction. Also, small companies lack workforce reserves, so reduced work hours could make it hard to fill work gaps, disrupting business operations.
Work hour reduction without productivity improvement is likely to act as a fatal burden especially on small and medium enterprises.
✅ Overseas Success Cases and Differences from Korea
Let's analyze overseas cases that successfully introduced 4-day workweeks to see what lessons they offer Korea.
First, success case countries like Belgium and Iceland all introduced their systems based on high labor productivity. Belgium's hourly labor productivity reaches $82, 2.2 times Korea's, showing particularly high automation rates in manufacturing and finance. Iceland ($67) also records 1.8 times higher productivity than Korea. These countries had foundations to achieve sufficient economic results even with reduced work hours. Also, these countries already maintained high hourly wage levels before introducing 4-day workweeks, so work hour reduction didn't directly lead to income decreases.
Second, flexible wage systems centered on performance pay were key success factors. These countries have well-established systems for compensation based on individual performance and contribution rather than years of service. Therefore, workers who maintain or increase productivity even with reduced work hours can receive sufficient compensation, providing motivation. In contrast, Korea still has strong seniority-based wage systems, so work hour reduction only increases labor cost burden regardless of performance.
Third, digital transformation and automation investment came first. Most companies that introduced 4-day workweeks improved efficiency through work process innovation, AI introduction, and automation equipment expansion before reducing work hours. They automated repetitive and simple tasks while restructuring work so employees could focus on more creative and high-value tasks. However, Korean small companies lack the resources for such investments.
Successful work hour reduction requires comprehensive productivity improvement, wage system reform, and digital transformation.
✅ Future Outlook and Policy Tasks
Let's analyze what conditions need to come first for work hour reduction to succeed in Korea.
First, gradual and step-by-step approaches are needed. Rather than introducing 4.5-day or 4-day workweeks all at once, differentiated approaches by industry and company size are needed. It's better to start pilot programs with high-productivity large companies or IT industries first, then strengthen support for small company productivity improvement before gradually expanding. Also, work hour reduction should happen alongside wage system reform, work efficiency improvement, and automation investment.
Second, small business support measures need major strengthening. The government should expand financial support for small companies to introduce automation equipment and digital systems, and provide technical consulting. Support measures to cushion temporary labor cost burden increases from work hour reduction are also needed. For example, tax benefits could be given to small companies making productivity improvement investments, and partial labor cost support could be considered for companies participating in work hour reduction pilot programs.
Third, improving labor market flexibility is also an important task. For work hour reduction to succeed, companies need to be able to flexibly manage their workforce. Labor market efficiency should be improved through reducing treatment gaps between regular and non-regular workers, expanding job-based pay introduction, and strengthening performance-based compensation systems. Also, lifelong learning systems should be built to expand retraining opportunities so workers can adapt to changing work environments.
Ultimately, work hour reduction shouldn't be a goal in itself, but should become a means to achieve bigger goals of productivity improvement and job quality enhancement.
4️⃣ In Conclusion
Korea's 4.5-day workweek discussion has good intentions of improving workers' quality of life, but realistically faces many challenges. The most fundamental problem is that Korea's labor productivity hasn't yet reached developed country levels.
With Korea's labor productivity at 67% of the OECD average, work hour reduction is likely to act as a significant burden on companies, especially small businesses. We shouldn't overlook that countries like Belgium and Iceland that successfully introduced 4-day workweeks all had much higher productivity than Korea as their foundation for system transition.
What's more worrying is that while productivity growth rates are slowing, wage growth rates remain high. In this situation, if work hours are also reduced, companies' labor cost burdens will spike, and small companies with limited investment capacity could face management difficulties.
But this doesn't mean we should abandon work hour reduction itself. What matters is the order and method. First, we should support companies to increase productivity through automation investment, digital transformation, and work process improvement. At the same time, transitioning from seniority-based wage systems to flexible performance-centered compensation systems is also necessary.
At the government level, practical support measures should be prepared so small companies can adapt to such changes. Rather than simply telling them to reduce work hours, comprehensive packages including financial support, tax benefits, and technical consulting for productivity improvement investments should be provided.
Also, differentiated approaches by industry and company size are needed. It's realistic to start pilot programs with large companies or IT industries that already have high productivity, accumulate experience, then gradually expand.
Ultimately, whether 4.5-day or 4-day workweeks, success requires focusing on 'improving efficiency' rather than 'reducing time.' Only when work hour reduction is built on the foundation of productivity improvement can we achieve win-win results for workers, companies, and the entire economy.
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