Lay­offs at South Korea’s ship­builders will set thou­sands of work­ers adrift

▶ Slower growth, fewer or­ders, and ri­valry with China have an im­pact ▶ Be­ing fired was “like be­ing pushed into a desert with no wa­ter”

Bloomberg Businessweek (North America) - - Contents - �Jiyeun Lee Edited by Christo­pher Power and Matthew Philips Bloomberg.com

With the South Korean gov­ern­ment formulating a plan to re­struc­ture many of the coun­try’s in­debted com­pa­nies, the ship­build­ing in­dus­try—the source of about 8 per­cent of the coun­try’s ex­ports last year—is brac­ing for es­pe­cially deep lay­offs. Many of the job losses will come in in­dus­trial hubs along the south­east coast where ship­yards and ports dom­i­nate the land­scape. These heavy in­dus­tries helped pro­pel growth in pre­vi­ous decades but have been bat­tered more re­cently by a slow­down in the global econ­omy, over­ca­pac­ity, and ris­ing com­pe­ti­tion from China. Korea’s gov­ern­ment and state-run banks are push­ing com­pa­nies to cut back on staff and sell un­prof­itable as­sets.

About 205,000 work­ers were em­ployed in Korea’s ship­build­ing in­dus­try as of the end of 2014, ac­cord­ing to the Korea Off­shore & Ship­build­ing As­so­ci­a­tion. Lee Mi Seon, an an­a­lyst with Hana Fi­nan­cial In­vest­ment, wrote in a re­port that an es­ti­mated 10 per­cent to 15 per­cent of those work­ers will lose their jobs.

In Korea, los­ing a per­ma­nent, full­time po­si­tion of­ten means slid­ing to­ward poverty, one rea­son why la­bor unions stage strikes that at times es­ca­late into vi­o­lent con­fronta­tions. Be­cause Korean com­pa­nies typ­i­cally pre­fer hir­ing and train­ing young em­ploy­ees, rather than re­cruit­ing ex­pe­ri­enced hands, many laid-off work­ers drift into low-wage, tem­po­rary jobs that lack in­sur­ance and pen­sion ben­e­fits, says Lee Jun Hyup, a re­search fel­low for Hyundai Re­search In­sti­tute.

“The pos­si­bil­ity of me get­ting a new job that of­fers sim­i­lar in­come and ben­e­fits is about 1 per­cent,” says one of about 2,600 em­ploy­ees who were laid off in 2009 in the re­struc­tur­ing of Ssangyong Mo­tor, Korea’s No. 4 au­tomaker. The 45-year- old worker, who asked to be iden­ti­fied only by his sur­name, Kim, ini­tially de­liv­ered news­pa­pers and worked in con­struc­tion af­ter los­ing his job. He’s now on a tem­po­rary con­tract at a re­tailer and tak­ing night shifts as a driver to get by. Even though he’s work­ing two jobs, his in­come is half what it was. Be­ing fired was “like be­ing pushed into a desert with no wa­ter,” Kim says.

In an April cab­i­net meet­ing, Pres­i­dent Park Geun Hye said pro­cras­ti­nat­ing on re­struc­tur­ing is like a sick per­son fright­ened about un­der­go­ing life­sav­ing surgery. Korean ex­ports have fallen for more than a year, and mount­ing lev­els of cor­po­rate debt are weigh­ing down com­pa­nies that need to find new sources of growth.

Dae­woo Ship­build­ing & Marine En­gi­neer­ing plans to cut about 10 per­cent of its work­force, or about 1,300 peo­ple, by the end of 2018. Hyundai Heavy In­dus­tries says it’s of­fer­ing some em­ploy­ees early re­tire­ment, af­ter re­duc­ing the num­ber of ex­ec­u­tives by 25 per­cent. Lay­offs are ex­pected to bal­loon as the down­siz­ing at ma­jor com­pa­nies rip­ples through the rest of the in­dus­try. Ha Chang Min, an of­fi­cial at the sub­con­trac­tors’ la­bor union for Hyundai Heavy, says the union ex­pects about 10,000 work­ers to lose jobs this year.

In Ul­san, a ma­jor in­dus­trial city on the south­east coast, claims for un­em­ploy­ment ben­e­fits rose 18 per­cent in the first quar­ter from a year ear­lier, com­pared with a 1.3 per­cent in­crease for the whole coun­try, data from the la­bor min­istry show.

The worst may be yet to come. The value of new or­ders at Korea’s ship­builders fell 94 per­cent in the first quar­ter from a year ear­lier, and it’s fore­cast to fall 85 per­cent for all of 2016, says the Ex­port-im­port Bank of Korea. The slide sug­gests com­pa­nies will no longer be able to hold on to em­ploy­ees once cur­rent projects end.

“The pos­si­bil­ity of me get­ting a new job that of­fers sim­i­lar in­come and ben­e­fits is about 1 per­cent.” �An em­ployee who was laid off at Ssangyong Mo­tor

The bot­tom line The gov­ern­ment of South Korea is pres­sur­ing heav­ily in­debted man­u­fac­tur­ers, es­pe­cially ship­builders, to lay off thou­sands.

*PRO­JEC­TION. DATA: EX­PORT-IM­PORT BANK OF KOREA; CLARK­SON; MIN­ISTRY OF TRADE, IN­DUS­TRY, AND EN­ERGY

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