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Market Scan

Korea Inc. Plans Pay Cuts To Protect Jobs

Vivian Wai-yin Kwok, 02.24.09, 11:56 PM EST

30 South Korean conglomerates have agreed to salary cuts for university graduates of nearly a third.

South Korea Inc. has decided fresh college graduates should pay the price of stabilizing the job market.

Heads of various South Korean business organizations have stressed that they will redouble efforts to increase investment and employment to help the nation get through the economic downturn. Their common target so far: slashing salaries of new hires entering the white-collar workforce.

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The country’s top 30 business conglomerates, including Samsung, Hyundai Motor (other-otc: HYMTF - news - people ) and LG, have agreed to cut annual wages for their newly hired university graduates by as much as 28% this year.

The concerted move is aimed at overcoming the serious crisis in employment and enhancing job-sharing efforts, Yonhap News reported Wednesday, quoting Chung Byung-cheol, vice chairman of the Federation of Korean Industries as saying. The country’s largest business lobby group said the money saved from the wage cuts will be redirected to hire more interns and part-time workers, Yonhap added.

The Korean government has already taken similar steps to preserve jobs rather than protecting pay. The Ministry of Strategy and Finance in Seoul last week announced a so-called job-sharing measure, allowing state-owned and public companies to trim up to 30% from the wages of first-year workers earning more than 20 million won ($13,600) in annual salary. These state-owned companies include Korea Electric Power Corp (nyse: KEP - news - people ), Korea National Housing Corp, Korea Land Corp. and Korea Development Bank.

South Korea, which is widely expected to fall into its first recession in 11 years, has seen its economy hammered as exports have slumped amidst the global economic downturn.

The Seoul government has predicted the economy will shrink by 2% this year, while the International Monetary Fund is even more pessimistic, forecasting the country’s GDP will drop 4%.

In a research report released Wednesday, Citigroup (nyse: C - news - people ) agreed that the outlook is worse than Korea's Blue House expects. “Two consecutive quarters of significant declines in GDP, in the fourth quarter of 2008 and first quarter of 2009, are good reasons for us to expect a contraction in GDP by 4.8% in 2009.” Citigroup assumes a modest recovery from the second quarter of 2009. “But the recovery we expect would be gradual. First, the rebound of exports would be lukewarm in the near-term due to the lack of recovery in global demand. Second, lingering weakness in the job market would weigh on consumption. Third, policymakers’ efforts to maintain credit expansion would hinder the de-leveraging process of households and SMEs,” Citigroup said.


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