Bloomberg Businessweek (North America)
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”
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.