Korea's migrant workers and high unemployment conundrum

Korea is faced with an paradoxical dilemma: it continues to import thousands of migrant workers to fill jobs while its citizens suffer from the highest unemployment rate in a decade.

A recent Reuters story said that "with the lowest birth-rate in the developed world and an aging population, South Korea needs foreign workers to keep its economy going."

A director at Ansan's Migrant Community Service Center echoed the sentiments saying, "foreign workers are a must for this city's survival and for the country's survival."

Can high domestic unemployment coexist with a genuine need for more migrant workers?

Last year, Korea allowed in 34,000 migrant workers; and thousands more illegally. But Kim Yoon-hye of the ministry's foreign work force division asserts that "the main goal is to fix the lack of manpower with small and medium sized enterprises."

Meanwhile, major corporate CEOs pose for photo ops, making empty promises about creating more jobs, record number of young and old are unemployed, and the government promises to pull all stops to boost employment, including foolish "guidelines" to cut worker hours.

Moreover, wage deflation would also indicate too much, not too little, labor supply. Wages are being cut at public companies by an average of 15 percent in 252 public agencies. And unit labor costs overall declined during the third quarter of last year by 1.2 percent and at a faster pace than other major countries, according to a report by JoongAng.

How can these conflicting realities exist in parallel? And if domestic unemployment stand at record levels, why the need for migrant workers?

While opinions vary, neither Keynesians nor Marxists are we. Thus, our best guess as to the answer to the conundrum lies in what is often the problem with economies: heavyhanded government interference in the economy, either through poor monetary policy, high taxation, or overregulation of industry, impeding natural supply/demand dynamics.

Stated differently, the Korean government, which really acts as de facto CEO of Korea Inc, the country, interferes in the economy far too much, subsidizing pet projects, taking tax dollars from one group and "promoting" favored industries, and far too often attempts to shape public behavior through diktat or persuasion.

Logically, when unemployment is high, more migrant workers are not needed. Those who are unemployed should seek employment where demand for labor exists. Many times, that may require retraining and/or wage deflation. While some argue that migrants do the work that natives refuse to do, that is surely a red herring. Given the right price, there is always a buyer. And outside government interference, markets move towards equilibrium. Only when laws forestall a return to balance does systemic and chronic unemployment come to exist.

Indeed, the fact that Korea ranks 33 out of 131 countries in labor productivity is unsurprising. With an overregulated domestic economy that is also tasked with subsidizing exporters and other government pet projects, it's little wonder Korean workers are highly inefficient and sit chronically unemployed.