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Korea’s Manufacturing Industry after Catching up Japan

Author Kang Du-Yong Date 2015.09.16 Issue No 619

Since the beginning of industrialization, the manufacturing sector in Korea has grown by taking Japan as a model. But after half-century’s rapid growth, Korean manufacturing industry recently surpassed or came close to that of Japan in terms of labor productivity.  
Per worker value-added of Korean manufacturing industry based on PPP currency is 1.1 times higher than that of Japan in 2013, and among the 10 biggest manufacturing countries, Korea ranked at third following the US and France in terms of per worker productivity
For per hour value-added, it is similar to that of Japan in 2013, but still below average among OECD member countries.

Specifically, productivity of the electric and electronic sector and metal industry surpassed that of Japan by a wide margin, meanwhile productivity of the light industry (excluding textile) and chemical industry is still lower than that of Japan

As per worker productivity of Korean manufacturing reaches nearly the world’s top level and follower’s advantages dissipate, its productivity growth has slowed down significantly.
Productivity growth per worker has slowed down from 7.2% (on annual average of 2000-2010) to 2.2%(from 2010 to 2014) and then to -2.7% in the first half of 2015.  
Productivity per hour has also been slowing down similarly. Recent surge in manufacturing employment implies that this productivity slow-down is not a cyclical phenomenon.

Catching up of per worker productivity and its significant slowdown imply that Korean manufacturing needs a change in development strategy.
It is required to make attempts to change the current input-driven catching up strategies (shown by the longest working time among the OECD) into new development strategies to lead the industrial innovation as a market leader
Along with a reduction in working hours, strategies putting more weight on innovation and creativity are needed both in business management and industrial policy.