{"id":2206219,"date":"2024-08-20T17:52:38","date_gmt":"2024-08-20T08:52:38","guid":{"rendered":"https:\/\/koreapro.org\/?p=2206219"},"modified":"2024-08-21T16:30:45","modified_gmt":"2024-08-21T07:30:45","slug":"aging-workforce-threatens-to-dull-south-korean-conglomerates-competitive-edge","status":"publish","type":"post","link":"https:\/\/koreapro.org\/2024\/08\/aging-workforce-threatens-to-dull-south-korean-conglomerates-competitive-edge\/","title":{"rendered":"Aging workforce threatens to dull South Korean conglomerates\u2019 competitive edge"},"content":{"rendered":"

Employees at South Korea\u2019s top conglomerates are aging at an alarming rate, according to a <\/span>report<\/span><\/a> from Leaders Index, a research institute that focuses on corporate analysis. Over the past two years, the number of employees under 30 has fallen by nearly 5%, while those over 50 have surged by almost 10%.<\/span><\/p>\n

This demographic shift poses a serious threat to South Korea\u2019s chaebol \u2014 large family-owned conglomerates that include Samsung, Hyundai, LG and SK Group. As the pool of young workers shrinks, these companies risk losing the innovation and agility needed to maintain their competitive edge in a rapidly evolving global market.<\/span><\/p>\n

Meanwhile, the growing number of older employees is driving up costs \u2014 salaries, pensions and health care \u2014 putting strain on financial resources. If unchecked, this trend could destabilize the foundations of South Korea\u2019s economic powerhouses.<\/span><\/p>\n

SHIFTING DEMOGRAPHICS AND HIRING PRACTICES<\/b><\/p>\n

South Korea\u2019s birth rate has been on the decline for decades, falling to <\/span>0.72<\/span><\/a> in 2023 and becoming one of the lowest in the world. At the same time, South Korea\u2019s life expectancy is <\/span>83.64 years<\/span><\/a>, a 0.16% increase from 2023. As a result, about <\/span>60%<\/span><\/a> of the country\u2019s senior citizens are either employed or actively seeking employment.<\/span><\/p>\n

These demographic trends are having a significant impact on the workforce, particularly within the country\u2019s largest conglomerates.<\/span><\/p>\n

According to the Leaders Index report, the number of employees under 30 in South Korea\u2019s top 500 companies decreased by 4.9% between 2021 and 2023. During the same period, the proportion of employees over 50 surged by 9.7%.<\/span><\/p>\n

This shift is most evident in industries like information technology (IT), electronics and finance, where young talent has traditionally played a critical role in driving innovation. The report highlights that sectors such as IT and electronics saw the proportion of employees under 30 drop from 34.2% to 28.9%, while those over 50 increased from 16.6% to 19.8%.<\/span><\/p>\n

Historically, chaebol companies have relied heavily on <\/span>large-scale recruitment<\/span><\/a> of young graduates, often through public exams and strong ties with universities. This approach allowed them to build a dynamic and loyal workforce that fueled the rapid expansion during South Korea\u2019s economic boom.<\/span><\/p>\n

However, this hiring model has begun to shift. As the population ages and the pool of young talent diminishes, the Leaders Index report notes that chaebol companies are increasingly moving away from mass recruitment and instead favoring experienced hires over young graduates.<\/span><\/p>\n

As the balance tilts toward an older, more experienced workforce, these companies may face challenges in maintaining the innovative edge that has been central to their global competitiveness.<\/span><\/p>\n

\"\"

South Korean 50,000 won bank notes overlayed by a graph | Image: Canva, edited by Korea Pro<\/em><\/p><\/div>\n

WORKFORCE AND COMPETITIVE RISKS<\/b><\/p>\n

Younger employees typically drive digital transformation and are more adept at adapting to new technologies.<\/span><\/p>\n

With fewer young recruits, chaebol face an emerging skills gap where older employees, though experienced, may lack the digital and technical skills necessary for new business areas.<\/span><\/p>\n

Further, the aging workforce will likely continue to drive up operational costs for chaebol. Older employees command higher salaries, and companies must also account for increasing pension obligations and health care costs.<\/span><\/p>\n

Although chaebol have <\/span>historically<\/span><\/a> resorted to pushing their employees, particularly women and older workers, to apply for early retirement to cut costs, the country\u2019s rapid demographic change will likely reduce the frequency of such measures. As a result, chaebol may have to absorb more of these increased labor costs going forward.<\/span><\/p>\n

Companies have already started to feel the financial burden of these rising costs. Major Korean firms\u2019 aggregate labor costs rose nearly <\/span>13%<\/span><\/a> in 2021 from the previous year. With wages and benefits for employees over 50 increasing due to seniority-based pay structures, chaebol may find themselves with less capital to invest in innovation and growth.<\/span><\/p>\n

The broader economic and strategic risks are equally concerning, as reliance on an older, experienced workforce may limit opportunities for younger generations, exacerbating youth unemployment and creating long-term socioeconomic challenges.<\/span><\/p>\n

\"\"

A close-up of two hands of people engaged in a tug-of-war match | Image: Korea Pro<\/em><\/p><\/div>\n

CHALLENGES AHEAD<\/b><\/p>\n

As South Korean chaebol grapple with an aging workforce, they will likely turn to automation and digital transformation to maintain productivity and offset the declining number of younger employees.\u00a0<\/span><\/p>\n

For instance, <\/span>LG Electronics<\/span><\/a> is actively investing in artificial intelligence (AI) and deep-tech startups, as demonstrated by its recent participation in the $130 million Alpha Intelligence Fund. This fund focuses on startups with high growth potential in AI, deep tech and robotics.<\/span><\/p>\n

Such efforts reflect a broader trend among chaebol to leverage advanced technologies to compensate for the shrinking pool of young talent. However, this push toward automation may inadvertently reduce the need for younger hires, perpetuating a cycle that exacerbates the existing demographic imbalance.<\/span><\/p>\n

Employment data from March<\/span><\/a> reveals that although the youth population declined by 218,000 in February, the youth employment rate reached a record high of 46% and the youth unemployment rate fell to a record low of 6.5%. Despite these positive indicators, the shrinking youth population suggests that the labor market is tightening.<\/span><\/p>\n

Given these dynamics, the South Korean government may implement policy interventions to encourage youth employment and retrain older workers to align with modern, tech-driven industries. Potential government measures may include incentives for hiring younger workers and job training initiatives for older workers.<\/span><\/p>\n

If the government fails to address these risks proactively, South Korea\u2019s chaebol may experience a gradual decline in their dominance, both domestically and globally, especially as Chinese companies <\/span>rapidly overtake<\/span><\/a> South Korea\u2019s high-tech manufacturing sector.<\/span><\/p>\n

The combined pressures of rising operational costs, a shrinking pool of innovative talent and the challenges of maintaining competitiveness in a rapidly changing global market could destabilize these economic powerhouses, with long-term consequences for South Korea\u2019s economic future.<\/span><\/p>\n

Edited by Alannah Hill<\/span><\/i><\/p>\n

Business & Economy<\/span><\/a>Culture & Society<\/span><\/a>Domestic Politics<\/span><\/a><\/div>","protected":false},"excerpt":{"rendered":"

Employees at South Korea\u2019s top conglomerates are aging at an alarming rate, according to a report from Leaders Index, a research institute that focuses on corporate analysis. Over the past two years, the number of employees under 30 has fallen by nearly 5%, while those over 50 have surged by almost 10%. This demographic shift […]<\/p>\n","protected":false},"author":10407,"featured_media":2206220,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[21],"tags":[24,25,27],"class_list":["post-2206219","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-analysis","tag-business-economy","tag-culture-society","tag-domestic-politics"],"yoast_head":"\nAging workforce threatens to dull South Korean conglomerates\u2019 competitive edge - KOREA PRO<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/koreapro.org\/2024\/08\/aging-workforce-threatens-to-dull-south-korean-conglomerates-competitive-edge\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Aging workforce threatens to dull South Korean conglomerates\u2019 competitive edge - KOREA PRO\" \/>\n<meta property=\"og:description\" content=\"Employees at South Korea\u2019s top conglomerates are aging at an alarming rate, according to a report from Leaders Index, a research institute that focuses on corporate analysis. 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