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Structural Changes, Ideational Shifts, and Welfare State Responses in Korea

Structural Changes, Ideational Shifts, and Welfare State Responses in Korea. Ito Peng Department of Sociology University of Toronto Presented at Department of Labor and Welfare Studies University of Milan 8 June 2006. Outline of the Presentation. Introduction Theoretical framework

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Structural Changes, Ideational Shifts, and Welfare State Responses in Korea

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  1. Structural Changes, Ideational Shifts, and Welfare State Responses in Korea Ito Peng Department of Sociology University of Toronto Presented at Department of Labor and Welfare Studies University of Milan 8 June 2006

  2. Outline of the Presentation • Introduction • Theoretical framework • Institutional continuity and change • Locating Japan and Korea within the welfare state and VOC frameworks • Structural and Ideational Changes • End of life-time employment and seniority-based wage systems • Shift from regular to irregular employment • Changes in employer and employee attitudes • Political contestations • Labor market and social welfare policy reforms • Conclusion Welfare State Responses in Japan and Korea - 08/06/06

  3. Mainstream welfare state and political economy theories tend to emphasize institutional continuity more than change: Path-dependence literature emphasizes cost associated with and politics against institutional changes (Pierson, 1996). VOC literature also point to institutional complementarities and thus positive feed back (Hall and Soskice, 2001). 1. Introduction Welfare State Responses in Japan and Korea - 08/06/06

  4. Recent scholarship on East Asian welfare states have highlighted policy changes and systems restructuring in the 1990s. • Japan • Evidence of labour market restructuring • Loosening of the life-time employment and seniority base wage system. • Expansion of irregular work, polarization of core and periphery • Evidence of welfare state expansion and major policy reforms • Social expenditure as % of GDP: 11% (1990) – 17% (2000). • Long-term Care Insurance, Angel Plans • Pension, health and employment policy reforms Welfare State Responses in Japan and Korea - 08/06/06

  5. Korea • Evidence of labour market restructuring. • End of job security – employer right to fire workers. • Expansion of irregular work, polarization of core and periphery. • Evidence of significant welfare state expansion and major policy reforms. • Social expenditure as % of GDP: 3% (1990) – 7% (1998). • Universalization of pension and health insurance. • Unemployment insurance reform. • Introduction of National Basic Livelihood Security. • Introduction of Long-term Care Insurance. Welfare State Responses in Japan and Korea - 08/06/06

  6. But these changes are often criticized as not substantial enough to bring about institutional restructuring. • The punctuated equality model of institutional change cannot deal with processes of small incremental changes in between paradigmatic shifts. Welfare State Responses in Japan and Korea - 08/06/06

  7. What East Asian cases tell us: • Considerable tension and movements underneath the apparent institutional continuity. • Are these simply temporary blips? • How important are these changes? Welfare State Responses in Japan and Korea - 08/06/06

  8. New perspective to institutional continuity and change. • Instead of “change” vs “continuity”, focus on “processes” of change. • Attention to “incremental changes leading to transformative results.” • Research question: • How are welfare states changing in Japan and Korea, and what are the factors mediating these changes. Welfare State Responses in Japan and Korea - 08/06/06

  9. 2. Theoretical Framework • Streeck and Thelen’s idea of gradual transformation (Streeck and Thelen, 2005). • Separating processes of change and results of change. • Moving away from the punctuated equilibrium model of change to “incremental change with transformative results”. • Institution as inherently political and constantly negotiated. Welfare State Responses in Japan and Korea - 08/06/06

  10. But Thelen’s newer work on institutional change is still not very political (Thelen and Kume, 2006). • Politics = employer strategies • My perspective to institutional change: • Structural change leading to economic efficiency problem. • Employer strategies + ideational shift • Redistributive politics Welfare State Responses in Japan and Korea - 08/06/06

  11. 2.ii. Locating Japan and Korea • Welfare state literature • Japan and Korea both fall within the parameter of conservative welfare states • Japan and Korea share much similarities with Southern European welfare states, e.g. Italy. • Familialism • Regionalistic, clientelistic politics • Core and periphery divide • Gender inequality leading to fertility / ageing problems Welfare State Responses in Japan and Korea - 08/06/06

  12. Varieties of Capitalism literature • Japan and Korea, are both Coordinated Market Economies. • Dense network of firms: cross-shareholding, cross-appointments, and vertical and horizontal firm networks, e.g. Keiretsu, Chaebol. • Industrial relations – reasonably harmonious. • Firm specific skills training – **Japan • Life-time (long-term) employment and seniority based wage system. • Enterprise-based union • Employer-based welfare Welfare State Responses in Japan and Korea - 08/06/06

  13. 3. Structural and Ideational Changes • End of life-time employment and seniority-based wage systems • Shift from regular to irregular employment • Changes in employer and employee attitudes Welfare State Responses in Japan and Korea - 08/06/06

  14. i. End of life-time employment and seniority-based wage systems • Japan – Erosion of life-time employment • Increase in honorary retirement and layoffs. • 1.25% (1995) – 4.5% (2002) • Turn-over rate for companies >1,000 empl. • 13.2% (1999) – 15.1% (2001) • Increase in dismissal rate over the 1990s. • 1.9% (1989) – 3.8% (2001) • Increase in unemployment rate: • 2.2% (1990) – 5.6% (2002) Welfare State Responses in Japan and Korea - 08/06/06

  15. Japan – Erosion of Seniority-based wage • 2004 survey of wage determination system (JIL) show approximately 70% of companies have adopted performance related pay, and increasing the proportion of performance related wages in total calculation. • Wage curve for full time male workers show 70% decline in peak wage. • 530.2% (1990) – 385.0% (2004) • Erosion of life-time employment and seniority-based wage systems – but continuity as well as change. Welfare State Responses in Japan and Korea - 08/06/06

  16. Korea – Erosion of long-term employment • The Establishment Survey (2002) show extensive use of retirement and layoffs as forms of restructuring in 2001. • 10.2% honorary retirement • 8.6% layoff • 1.2% contract suspension • 3.8% transfers to affiliate companies • Increase in dismissal rates: • Companies >30 employees: • 1.5% (1996) – 10.2% (1998) – 4.8% (2002) • Companies >1,000 employees: • 0.4% (1996) – 9.1% (1998) – 3.7% (2002) • Increase in unemployment rate: • 2.5% (1997) – 6.8% (1998) – 3.6% (2004) Welfare State Responses in Japan and Korea - 08/06/06

  17. Korea – Erosion of seniority-based wage • Increase in the companies adopting annual wage system. • >100 employees: 1.6% (1996) – 12.7% (1999) • >10 employees: 1.3% (1996) – 7.7% (1999) – 15.1% (2001) • KLI survey (2001): >50% of companies continue to use seniority-based wage system as their main wage system. • Adhesion to seniority-based wage system particularly strong for unionized blue-collar workers. • Evidence of compression in wage relative to length of service. • Evidence of declining employment stability and seniority-based wage system – but continuity as well as change Welfare State Responses in Japan and Korea - 08/06/06

  18. ii. Shift from regular to irregular employment Welfare State Responses in Japan and Korea - 08/06/06

  19. iii. Changes in employer and employee attitudes Japan – Changes in employer attitudes • The rhetoric of “diversified” employment • Changes in corporate views about long-term employment: • Increase in company preference toward not hiring people on the basis of long-term continuous employment. • Increasing employer agreement on the problem of long-term employment system. • Weakening of coordinated wage bargaining system • Toyota abdication of wage bench marking and coordination. Welfare State Responses in Japan and Korea - 08/06/06

  20. Japan – Changes in employee attitudes • Decline in employee commitment to employers. • The rise of the “Friita” phenomenon. • Generational shift in attitudes towards employment and commitment to employers • Some argue that the Friita phenomenon is not simply a reaction to the new labor market condition, but a much more fundamental value shift. Welfare State Responses in Japan and Korea - 08/06/06

  21. Korea - Changes in employer attitudes • Employer lobby for flexible labor market after 1997. • Tripartite council negotiation on labor market restructuring. • Lobby for extension of right to layoff • Hyundai case 1998 • Cutting company welfare • Increasing use of non-standard labor force Welfare State Responses in Japan and Korea - 08/06/06

  22. Korea – Changes in employee attitudes • Labor militancy • New strategy of “Block the Restructuring” • Recent shift towards protection of non-standard workers • Increase in labor disputes/unrest • Total No. Labor disputes: 88 (1995) – 250 (2000) • Total days lost (x1000 days): 393 (1995) – 1,893 (2000) • Strategic shift towards industrial union Welfare State Responses in Japan and Korea - 08/06/06

  23. 4. Political contestations • Japan • New political cleavages along demographic and gender line. • Liberal Party targeting of urban women votes • Breakdown of the development and pork politics within the LDP (Pempel, 2006). • Contradictions of the Koizumi regime • Decline of traditional left parties and rise of civil society activism. • New politics of demographic shift. Welfare State Responses in Japan and Korea - 08/06/06

  24. Korea • New political cleavage along demographic line. • Intensification of the “pro-development” vs. “pro-redistribution” politics. • Using neoliberalism to counter negative legacies of the Korean developmental state. • Chaebol restructuring – Daewoo case • Increasing labor militancy. • New politics of demographic shift Welfare State Responses in Japan and Korea - 08/06/06

  25. 5. Labor market and social welfare policy reforms Labor Market Reforms • Flexible market reforms: • Loosening of layoff practices (Korea) • Loosening of employment regulations on temporary and contract employments. • Deregulation of temporary employment agencies. Welfare State Responses in Japan and Korea - 08/06/06

  26. Social Welfare Expansion • (Un)employment insurance reform • Korea – significant expansion of unemployment coverage • Japan – greater interlocking of unemployment insurance and pension support • Expansion of social care – Japan • Long-term care insurance • Expansion of childcare • Development of social care market • Expansion of income support programs – Korea • National Basic Livelihood Security • Expansion of National Pension Welfare State Responses in Japan and Korea - 08/06/06

  27. O=covered, △=partially covered, X=uncovered. EI = employment insurance; WCI = workers compensation insurance; PI = pension insurance; HI = health insurance. Source: Lee, Hye-Kyung (2005). Welfare State Responses in Japan and Korea - 08/06/06

  28. 6. Conclusion • Evidence from Japan and Korea suggest significant changes underlying apparent continuity. • Adding to the existing institutional theory: • Structural change leading to economic efficiency problem. • Employer strategies + ideational shift • Redistributive politics • Rethinking institutional change • Incremental changes leading to transformative consequences. Welfare State Responses in Japan and Korea - 08/06/06

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