Yoon Suk-yeol’s next opponents: Housing and jobs

SEOUL – Final month, South Korean voters elected Yoon Suk-yeol as their subsequent president.

It was a hotly contested race, which Yoon received by a razor-thin margin of simply 0.7%. What is going to the conservative Folks Energy Social gathering candidate’s victory imply for South Korea and East Asia?

For starters, Yoon’s authorities appears poised to shift away from its predecessor’s coverage of “strategic ambiguity” within the Sino-American rivalry and restore South Korea’s safety and financial ties with each america and Japan. Whereas outgoing President Moon Jae-in’s first official telephone name following his 2017 electoral victory was with Chinese language President Xi Jinping, Yoon’s first name as president-elect was with U.S. President Joe Biden.

On condition that China is its largest buying and selling accomplice — bigger than the U.S. and Japan mixed — South Korea is already a member of the China-led Regional Complete Financial Partnership. The outgoing authorities has lately declared that it’ll apply to affix the Complete and Progressive Settlement for Trans-Pacific Partnership, led by Japan and Australia, earlier than the tip of its time period in mid-Might. Actually, South Korea didn’t contemplate becoming a member of the CPTPP till after China utilized. The precise negotiation for becoming a member of will probably be dealt with by the brand new authorities, which can also be anticipated to affix the Indo-Pacific Financial Framework, the Biden administration’s proposed automobile for financial cooperation within the area.

On the home entrance, Yoon must confront two quick economic-policy challenges. The primary is hovering housing costs — a key concern within the presidential marketing campaign and a significant purpose why the candidate representing Moon’s Democratic Social gathering, Lee Jae-myung, misplaced the election.

The Moon authorities launched a number of insurance policies aimed toward stabilizing housing costs, together with elevating property taxes for a lot of owners, tightening guidelines on the reconstruction of house items and introducing stricter necessities for mortgage loans. This demand-focused strategy backfired. Householders resented the elevated taxes; limits on the availability of refurbished residences drove up costs additional; and the housing market tilted closely towards consumers with money.

Lee tried to distance himself from the Moon administration’s failed strategy. However it’s Yoon who will now must sort out hovering housing costs with insurance policies centered on rising provide and decreasing authorities interference within the housing sector, together with loosening guidelines on reconstruction and loans.

The Yoon administration’s second quick precedence will probably be to deal with tough employment points, together with rising labor-market polarization and a scarcity of excellent jobs for younger individuals. The Moon administration tried to bolster employees’ financial safety by altering mounted or non permanent contracts into everlasting — just about tenured — contracts. It additionally tightened workplace-safety and environmental rules, launched a 52-hour workweek rule for companies with 50 or extra staff and elevated the minimal wage.

However these efforts did not account for the Korean labor market’s segmentation between overprotected employees at giant conglomerates (chaebols) and under-protected employees at small and medium-size enterprises (SMEs). Within the first phase, corporations pursued automation wherever potential, quite than rent extra employees with strict working-hour limits and better wages. For his or her half, South Korean SMEs — whose share within the labor market is giant, in comparison with many comparable international locations, and which have a tendency to rent extra minimum-wage employees — struggled to satisfy the brand new necessities and had been even compelled to fireside employees.

Yoon has pledged that his administration will search to offer so-called flexicurity, boosting labor-market flexibility and offering a stronger security web for under-protected employees. However this imaginative and prescient, which emulates the Northern European mannequin, has not been welcomed by Korean labor unions.

Labor-market reform may additionally assist the Yoon administration to deal with the longer-term problem of reversing the downward development of potential and precise gross home product development charges. South Korea has thus far intently adopted the Japanese path, with low start charges and fast inhabitants ageing contributing to a one-percentage-point decline in GDP development each 5 years.

Japan’s per capita GDP (in buying energy parity phrases) amounted to 70% of America’s within the early 2000s — and remained at or under that stage for greater than twenty years. In 2020, Korea reached that stage. The query is whether or not it might probably proceed to develop and keep away from Japanese-style “misplaced many years.”

This is not going to be simple, not least as a result of one seemingly apparent strategy — physical-capital funding — is unlikely to do a lot good. In spite of everything, South Korea’s mounted funding fee, as a share of GDP, is already a lot larger than that of comparable international locations. However Germany — whose per capita GDP quantities to over 80% of America’s — has illuminated one other means.

Germany’s Hartz labor-market and welfare reforms within the early 2000s went a great distance towards rising potential GDP development. In South Korea, there may be loads of area to implement comparable reforms to spice up labor productiveness and broaden the workforce, particularly by bringing in additional ladies.

In 2018, solely about 60% of Korean ladies aged 35-39 had been within the workforce, in comparison with about 80% in Germany. General, South Korea’s feminine labor-force participation fee is among the many lowest within the OECD, adopted intently by Japan. Insufficient labor-market flexibility is one issue driving this low participation. One other is the dearth of high-quality, inexpensive little one care choices. Actually, South Korea is the world’s costliest place to lift a baby from start to age 18, measured as a share of per capita GDP.

That’s the reason Yoon has additionally pledged to enhance the availability of social companies, from accessible little one care to inexpensive training to upskilling and retraining alternatives. (Lee proposed money subsidies.) In Yoon’s view, these welfare insurance policies are additionally pro-growth insurance policies.

Whether or not they are going to be sufficient to allow South Korea to keep away from Japan’s development trajectory stays to be seen. However one factor is for certain: Yoon has his work lower out for him.

Keun Lee, vice chair of the Nationwide Financial Advisory Council for the president of South Korea, is distinguished professor of economics at Seoul Nationwide College and the creator of “China’s Technological Leapfrogging and Financial Catch-up: A Schumpeterian Perspective” (Oxford College Press, 2022). © Mission Syndicate, 2022