‘Jobs for Life’ in South Korea and Japan to Cushion Virus Blow

A longtime thorn for businesses and productivity in Japan and South Korea is set to prove a bulwark for those economies as the coronavirus threatens millions of jobs around the world.

Mass layoffs are frowned upon and labor laws make it hard for employers to fire workers in the two North Asian nations, helping keep jobless rates low. In February — even as virus cases spread — South Korea’s unemployment rate dropped to 3.3% while Japan’s is set to hold at 2.4%, according to economists surveyed ahead of data due Tuesday.

Although less than before, lifetime employment remains a hallmark of corporate cultures in both countries, with employees at the likes of Samsung Electronics Co., Sony Corp., Hyundai Motor Co. and Panasonic Corp. among beneficiaries. During the 2008-2009 financial crisis, both countries reported much lower jobless rates than the U.S. and eurozone, helping lay the groundwork for their economic recoveries.

“It’s generally in their corporate DNA to make every effort possible to avoid making redundancies, and where everyone in the company embraces the mentality that ‘all of us are in this together’ during tough times,” said Lloyd Chan, an economist at Oxford Economics. “Such a corporate culture also has as much to do with public policies that discourage redundancies and protect employees from termination.”

China, too, may escape European or U.S.-style layoffs, but for a different reason. There, the Communist Party wields enormous influence, meaning the government caninstruct companies not to fire workers.

In good times, the difficulty of laying off workers has generally been viewed as an impediment to productivity as business executives find it harder to restructure their companies. Last year, the World Economic Forumrecommended South Korea and Japan improve their labor market flexibility.

“Various rigidities” undermine Japan’s labor market while South Korea has a rigid two-tier system that is more generous toward permanent employees, it said. During the financial crisis a similar two-tier system in Japan led companies including Toyota to fire temporary workers rather than regular staff. China’s market is undermined by “rigidities in wage determination and redundancy,” the report said.

South Korea has faced criticism from economists and investors for failing to reform its labor market in the face of opposition from militant unions. Government jobs are jokingly referred to as “iron rice bowls” and unionized jobs at some companies have even been called “diamond rice bowls.”

Greater reliance on bonus pay in Japan and South Korea also gives large companies more room to cut wages instead of firing workers. Some conglomerates can also draw on record cash reserves that might otherwise have been used to raise base salaries to help maintain employment levels.

“Again we’re unlikely to see big job cuts by Japanese companies this time,” said Atsushi Takeda, chief economist at Itochu Research Institute. “Culturally it’s just not OK. It’s not like in the U.S. That’s why companies are so hesitant to raise wages and have accumulated so much cash instead.”

Still, government officials are doing their bit to insure against a spike in joblessness in coming months, too. Boosting jobs was a key component of an 11.7 trillion won ($9.6 billion) extra budget South Korea’s government pushed through in March. Japan has already offered payments to workless freelancers, but is still considering wider measures to protect employment.

“Low unemployment could be a factor in helping economies recover somewhat quicker,” Bloomberg economist Justin Jimenez said. “Structural labor market rigidities in economies like South Korea and Japan have historically kept increases in unemployment relatively manageable during times of crisis.”

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