The Diverging Political Pathways of Labor Market Reform in Japan and Korea

Article excerpt

In this article, I analyze diverging political pathways of labor market reform with an empirical focus on the cases of Japan and Korea. Despite similar trends of regulatory reform toward the increase of labor market flexibility, the patterns of labor market reform differed in the two countries. Japan adopted labor market liberalization for nonregular workers with the persistence of employment protection for regular workers. In contrast, Korea opted for regulatory reform for all workers while simultaneously strengthening workers' basic rights and improving protections for nonregular workers. I argue that the institutional features of the employment protection system determine the diverging patterns of labor market reform in Japan and Korea.

KEYWORDS: labor market reform, institutional features of the employment protection system, Japan, Korea

**********

UNDER INTENSIFIED GLOBAL MARKET COMPETITIONI ADVANCED INDUSTRIALIZED countries as well as developing ones have liberalized restrictive rules and regulations governing employment contracts and working conditions over the past few decades, embracing the principles of labor market flexibility (Imai 2006; Iversen 2005; Kim and Lim 2000; Miura 2002; Murillo and Schrank 2005; Park 2000; Wood 2001). By the early 1990s, policy debates over the transformation of rigid labor market institutions into more flexible ones dominated East Asian countries, especially Japan and South Korea (hereafter, Korea), where state-led developmental models had begun to stumble. A protracted recession after the bursting of the asset bubble pushed Japan to promote a series of labor market reforms in order to revive its sluggish economy. Similarly, the 1987 political democratization and the Asian financial crisis cast doubt on the viability of Korea's old labor model, in which repressive labor control combined with wage restraints undergirded state-led development. Japan and Korea responded to these political and economic challenges by taking important steps to reform the labor market, but they did so in very different ways.

In Japan, the conservative Liberal Democratic Party (LDP) government liberalized the labor market for nonregular workers (e.g., part-time, temporary, and fixed-term contract workers), but it rarely challenged the key principle of employment protection for regular workers (e.g., full-time permanent workers in large firms). By contrast, in Korea, the two center-left governments ruled by prolabor presidents prioritized the weakening of employment protection for regular workers while strengthening workers' basic rights and improving protections for nonregular workers. Korea's labor market reform, however, provoked intense political conflicts between chaebol (family-owned and family-managed large business conglomerates) employers, chaebol unions and workers, and policymakers in the processes of policymaking and implementation.

Why did the two countries respond differently to the common pressure for labor market reform? Why did a center-right government allow the opportunity of the economic crisis go to waste, retaining extensive employment protection for regular workers, whereas a center-left government promoted labor market liberalization across the board? I argue in this article that the institutional features of the employment protection system explain the diverging patterns of labor market reform in Japan and Korea. In Japan, the characteristics of the employment protection system, in which institutional arrangements had centered on implicit and explicit political exchange among employers, regular workers, and policymakers and had been entrenched in social and economic transactions, prevented employers and policymakers from proposing labor market reform for regular workers even in times of economic downturn. Instead, they opted to transfer the costs of labor adjustments to nonregular workers (mostly female, young, and elderly workers) excluded from the coverage of the political exchange. …