Korea’s productivity in IT and other key manufacturing sectors rapidly loses steam

2019.04.09 16:27:58 | 2019.04.09 16:28:52

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South Korea’s labor productivity growth in key manufacturing sectors including semiconductor and automobile has sharply slowed, reflecting the waning competitiveness of Korean brands and raising alarm for the Korean Inc.

According to data released by the Bank of Korea analyzing changes in labor productivity by industry sector, labor productivity in manufacturing sector increased 2.2 percent on average between 2011 and 2015, compared with 7.9 percent in the 2001-2007 period before the global financial meltdown.

Annual average growth of labor productivity in the high technology sector involving semiconductors and handsets slipped from 14.5 percent to 6.8 percent during the cited period, data showed. In particular, growth slowed down from 13 percent to 4.9 percent in the electronics components sector that includes chips and displays while from 22.1 percent to 14.2 percent in communication and broadcasting equipment that include mobile phones.

Korea’s labor productivity growth in medium- and high- technology manufacturers such as automobiles, vessels, and machinery also slowed down from 6.5 percent to zero percent before and after the global financial crisis period. Growth in transportation equipment that includes vessels, in particular, fell from 5.4 percent to minus 4.2 percent due to sluggish shipbuilding and shipping industries.

The slowdown in labor productivity growth was due to a fall in the growth of total factor productivity, which is output that is not explained by traditional inputs of labor and capital but a measurement of added value and innovation in production. Growth in total factor productivity would slow down when there are fewer innovative firms and labor and capital are inefficiently distributed.

Labor productivity growth in non-traditional areas – information and communication technology (ICT) producer services that include information technology, information service, and telecommunication – also slowed down. Labor productivity growth in ICT producer services sector dropped 5.9 percentage points from 9 percent to 3.1 percent before and after the global financial crisis.

The BOK said that Korea’s key manufacturing sectors are rapidly losing their competitiveness, which in the long term can affect the country’s economy.

By Kim Yeon-joo and Lee Eun-joo

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