(EDITORIAL from The Korea Herald on Aug. 10)

Korea's economy is thriving due to semiconductor exports, but the labor market is underperforming. The country's current-account surplus is accompanied by a shrinking job market. The state-run Korea Labor Institute has downgraded its employment growth forecast for the year, expecting only 103,000 new jobs instead of 210,000. The employment rate is projected to drop to 62.7 percent, and unemployment may rise to 2.9 percent, marking the first decline since 2020.

This decline is particularly concerning among young Koreans. Employment among 20-year-olds has fallen for 44 consecutive months, with their employment rate decreasing by 1.3 percentage points in the first half of the year compared to the previous year. The issue is not solely due to population decline, as it is more concentrated among new entrants and recent graduates who are struggling to find jobs.

Many young job seekers are delaying graduation or staying outside the labor market, which is often due to companies preferring experienced workers.

The imbalance extends to specific industries. Manufacturing has shed 62,000 jobs in the first half of the year, while services added 300,000 jobs, mainly in health and social welfare. However, professional, scientific, and technical services have lost 88,000 jobs. Regular employment has grown at only one-third of last year's pace, and two-thirds of the total employment growth consists of non-wage workers.

The Korea Labor Institute attributes this weak employment situation to the economy's heavy reliance on semiconductors, which are capital-intensive and generate fewer jobs per unit of output compared to manufacturing. Since the growth is mainly driven by rising memory prices, the actual increase in physical output, and thus employment, has been limited. To improve the job market in the second half of the year, the economy needs a recovery in domestic demand and sectors beyond semiconductors.

Policies should focus on creating quality jobs that can sustain workers over time. The service sector, which makes up more than 70 percent of employment and 60 percent of GDP, shows room for improvement. Its labor productivity remains low compared to the OECD average. Legislation aimed at developing the service industry and regulatory reforms that encourage growth for productive service businesses should be given renewed attention.

Additionally, the integration of artificial intelligence into businesses can create more job opportunities, given Korea's strong technological capabilities. However, technology must be turned into products and services to have a tangible impact on employment. As long as Korea's growth engine remains solely within semiconductors, a healthy economy requires a bridge connecting productivity, exports, domestic demand, and employment.