This chapter discusses the low-skilled labour migration framework in Korea, whether current policy can meet future needs and safeguard local workers and programme participants. The chapter traces the evolution of the Employment Permit System and options for the future. The different features of the EPS are described and compared with prevailing practice in other OECD countries, highlighting unique features such as a points system for authorising employers to recruit foreign workers and ongoing state management. The programme for ethnic Koreans, which accounts for a large share of foreign workers, is also analysed. The chapter examines whether constraints on mobility suppress wage growth for workers. Compliance measures to reduce overstay and abusive practices by employers are reviewed, including incentives for return and facilitations for mobility and status change. The chapter then concludes with a discussion for the more efficient operation of the system.
Recruiting Immigrant Workers: Korea 2019
Chapter 3. Low-skilled labour migration in Korea
Abstract
The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.
The development of a low-skilled foreign worker programme from trainees to the EPS
Foreign workers started to appear in Korea in the late 1980s. As the immigration flow grew during the 1980s, the Korean government decided to simplify entry and departure formalities. In addition to simplifications in the administrative process, the government made efforts to join the globalising world and attract more foreign companies and investors to Korea. Visitor numbers also increased following the Asian Games in 1986 and the Olympic Games in 1988. Along with the increased inflow of temporary visitors, concern grew over the need for appropriate measures to prevent foreigners from overstaying their visa. Many of the foreign residents did not leave at the end of their stay, finding illegal employment opportunities.
In 1991, the first regulated system for low-skilled workers was created, under the form of an Industrial Technical Training visa. The programme, the Overseas Investment Firm Industrial Trainee System (ITS) was nominally intended to admit foreigners to work in Korean forms in order to acquire skills they could then bring back to their home countries. ITS was originally oriented towards firms with factories abroad: the system allowed those companies to bring workers from potential market countries to Korea to educate them as trainees and send them back to their countries to work for the same firm. In this, it mirrored the Industrial Training visa introduced in Japan in the 1960s. As in Japan, however, it was used largely as a means to fill demand for low-skilled labour. ITS was expanded in 1993 to allow all SMEs to request “trainees” (again mirroring a similar extension in Japan in 1990). Following this decision, the numbers of so-called “trainees” in manufacturing rose sharply. ITS was based on a ceiling of workers; in April 1993, this was set at 10 000 foreign “trainees” to designated 3D industries every year. A few months later, an additional 20 000 trainees were added to the programme. The total number of trainees reached about 90 000 in 1997. The ITS ceiling reached 145 000 in 2002.
Trainees were not covered by labour law and were particularly vulnerable to illegal employment practices. Further, high fees imposed in the recruitment process in origin countries meant that trainees were often indebted and under pressure to accept illegal employment practices and to violate their visa conditions. Overstay was thus high among ITS visa-holders: the rate of unregistered workers reached almost 64% of the total foreign workers during the late 1990s. In 2000, ITS was modified to allow participants who completed two years of traineeship to undergo a skills test (including a language test) and work for one more year under labour law (similar reforms had been implemented in Japan). The number of trainees approached 98 000 in 1999, while the number of foreign workers in violation of their visa rose to 135 000 (OECD, 2001[1]).
The channels opened in the 1990s also led to a growing foreign population. By the end of 1997, the number of foreign nationals staying more than 90 days (and registered as required under the Emigration and Immigration Act) was 177 000, still less than 0.5% of the total Korean population. During the Asian financial crisis of 1998 the number fell by 16% but increased by 28% in 1999 alone, to just over 189 000. Indeed, by 2001, foreign workers of various status, including irregular workers, accounted for just over 1% of the total workforce. They were composed principally of Chinese, Taipei Chinese, Japanese, Filipino and Vietnamese nationals (OECD, 2001[1]).
Many of the workers under ITS were ethnic Koreans from China; as they spoke Korean, they were able to find work not only in the manufacturing sector but also in the service sector, even if the latter was not authorised under ITS or other visa programmes. Recognising this state of affairs, Korea introduced the Employment Management System (EMS) in 2002, which authorised ethnic Korean Chinese to work in additional sectors, subject to registration, a short training course and sector restrictions.
The limits of ITS were clear to the government: trainees were taking on debts to pay rents to unscrupulous middlemen, were vulnerable to exploitation in the workplace, had a high rate of violation of visa conditions and overstay, and often worked in sectors for which they were not authorised. Korea decided in 2003 to phase out the programme. At that point, there were 103 000 legally resident trainees, as well as numerous overstayers. The 2003 Act on the Employment of Foreign Workers took effect with the introduction of the Employment Permit System (EPS) in mid-2004. EPS recognised foreign workers as workers. ITS was phased out by 2007, with all workers shifted into the EPS for the remaining duration of their ITS stay. The introduction of EPS also included a regularisation for overstayers, who were allowed to shift into EPS. In 2002, prior to EPS, undocumented workers accounted for 80% of the total; this was brought sharply down in 2005 through the opportunities to acquire an initial extension of stay under EPS.
Non-professional employment visas under the EPS, the E-9 visas, began to be issued in 2005. The objective of EPS was, and remains, to address the labour shortage in low-skilled occupations in firms with certain characteristics (initially, sector and size, as well as level of demand), while maintaining the temporary status of workers and protecting their rights prior to, and during, the employment period. Recruitment occurred through bilateral agreements and with employers offered a roster of potential candidates, reducing recruitment fees substantially. EPS will be described in more detail in the next section. When first introduced, the E-9 visa had a duration of three years maximum. This was extended to four years ten months when the first workers reached the end of their term in 2008; when the new limit was first reached in 2010, provisions were introduced to allow some workers to be admitted for a second employment period after a return to their home country.
Initally, EPS subsumed the Employment Management System (EMS). While EMS was originally only for ethnic Chinese with family ties, it was transformed in 2007 into a Visit Work Visa (the H-2 visa), available to ethnic Koreans from China, Russia, Mongolia and Uzbekistan, regardless of whether they had family ties in Korea. The H-2 visa was capped at 303 000 residents, and had the mixed policy objective of re-establishing ties with Koreans overseas, and supplying labour to sectors of the Korean economy which were clamouring for additional workers. The H-2 visa rapidly reached its ceiling. H-2 visa holders were originally subject to some training requirements and reporting requirements, but these have been gradually lifted. Further, in 2010, the important decision was taken to allow status change from H-2 to a permanent residence status (F-4), an option which was immediately utilised by many H-2 visa holders. The number of F‑4 holders rose from 51 000 in 2009 to 129 000 in 2010 alone, and continued to rise sharply in the following years. By 2016, the total number of F-4 visa holders had reached 373 000.
Box 3.1. Key actors in Korean labour migration policy
A number of actors play a key role in managing labour migration in Korea.
The Ministry of Employment and Labour (MoEL) has a focus on addressing labour shortage faced by SMEs and preventing irregular and overstaying migrant workers. MoEL conducts surveys to analyse the reasons why Koreans avoid such jobs and employers’ preferred solutions to the shortage. The MoEL adopted the EPS and signed MOUs with the partner countries to import workers. MoEL is involved in the selection process and job referral.
The MoEL delegates specific tasks to Human Resource Development (HRD) Korea, which is an affiliated agency of the Ministry. HRD branches exist in each partner country to manage local tasks of the EPS. They guide applicants and operate the EPS-TOPIK language exam. HRD also provides pre-departure and post-arrival training sessions to selected EPS job seekers and support services during their employment in Korea. HRD also provides training to ethnic Koreans under the H-2 Work Visit permit.
The MoEL is also responsible for commissioning research regarding foreign manpower policy. Research may cover labour shortages, conditions and status of foreign workers, employer satisfaction, adaptation of foreign workers, and other issues related to recruitment of foreign workers. MoEL may also commission public agencies to conduct research on these topics.
The Korea Employment Information Service (KEIS) is responsible for supporting people to find jobs, improving their skills, conducting relevant research and operating employment information systems including the job matching portal Work-Net and the HRD-Net training portal. KEIS offers policy recommendation along with the labour market forecasts. KEIS conducts labour market testing and ranking of employers wishing to hire foreign workers under EPS.
The Ministry of Justice (MoJ) enforces the immigration policy and foreign workers policy. The MoJ and MoEL are jointly responsible for the EPS and programme for overseas Koreans. Under the MoJ, the Korea Immigration Service (KIS) is responsibility for controlling the formalities of entries and departures, issuing visas and work permits for migrant workers and keeping records on their length of stay, overstays, status changes and re-entries. The MoJ inspects worksites to evaluate the implementation of foreign worker regulations.
EPS: A general framework for low skilled labour migration
The main programme for temporary low-skilled work in Korea is the Employment Permit System (EPS). EPS is the largest temporary foreign worker programme operating on a bilateral basis among OECD countries, and has become a model of reference for practices in this field. This section examines the structure of the EPS.
In 2003, the Ministry of Employment and Labour announced a plan to introduce an “employment permit system” for temporary foreign workers under which they are granted greater labour rights than previously, and legal protection equivalent to their Korean peers. The EPS framework for labour migration was laid out in 2004. Under the Act on the Employment of Foreign Workers, the EPS was the first official provision for temporary labour migration, offering low-skilled foreign workers two types of visas. Initially, the nonprofessional Employment Visa (E-9) was offered; the Working visit Visa (H-2) was created in 2007. While foreign workers already accounted for about 2% of total civilian employment, EPS was designed specifically to ease labour shortage in SMEs while tackling the shortcomings of the previous systems. It allowed employers, in manufacturing, agriculture, livestock, fishery and construction industries, to request temporary foreign workers, who would be selected, trained and brought through a government-to-government bilateral programme.
The EPS matches employers in Korea with workers in origin countries (Figure 3.1). Candidates age 18 to 39 take a basic Korean language exam, the Test of Proficiency in Korean for EPS (EPS-TOPIK), developed specifically for the programme. Those who pass are admitted to a pool for consideration by the home country agency, which reviews their qualifications. EPS-TOPIK test does not guarantee the employment in Korea. After passing EPS-TOPIK a medical exam is conducted to screen for officially designated communicable diseases. After the language test, candidates have two years to apply. The sending agency keeps the application in the pool for one year, sending information to (the “roster”) to HRD Korea. HRD Korea translates the job applications and checks and approves the qualification of job applicants. HRD Korea and the Job Centre manage the roster.
On the Korean side, HRD Korea and the Job Centre manage Korean small and medium sized enterprises which want to hire foreign workers due to labour shortage. To hire foreign workers enterprise must request and receive permission. Prior to asking for foreign workers, the companies have obligation to make efforts to hire native workers for certain periods – normally over 14 days or seven days with announcement through the mass media such as the advertisement on newspaper or broadcast – as a labour market test to ensure that local workers are not adversely affected. If recruitment is unsuccessful, it has three months to submit an application to the Job Centre. KEIS ranks employers on a number of different criteria and assigns employment permits to firms. For each permit, the Job Centre identifies and sends three possible candidates. The separate pools eliminate opportunities for rent‑taking in the recruitment procedure: no actor in the process can guarantee to the candidate that selection will occur.
Employers choose workers from this list of candidates. A Standard Labour Contract is drawn up respecting the conditions specified in the original Employment Permit application form the employer had previously submitted. The contract specifies working conditions including wage, working hours, holidays and workplace, etc. HRD Korea receives and forwards the Standard Labour Contract to the sending agency in the origin country (through an online system). The sending agency provides the contract information to the candidates and ascertains whether they want to sign the labour contract with the firm offering employment. If candidates agree to job offer and the Standard Labour Contract, the sending agency reconfirms its conditions and sends it back to HRD Korea electronically. Candidates are allowed to reject a proposed contract only once; a second refusal to accept a job offer excludes them from the active roster for a full year. If the candidate accepts the contract, both sides sign. Any problems which emerge in this phase, such as discrepancy of conditions in the contract between the employer and foreign worker or misinformation about foreign workers, are addressed by HRD Korea, which can verify and modify the conditions or the information.
EPS is a temporary programme; originally, the maximum duration of stay was limited to three years. An extension in 2010 brought this to four years and ten months. The E-9 visa granted to participants does not allow them to bring family members to Korea. In its original implementation, it was not intended to allow status change to residence permits allowing indefinite stay.
In terms of treatment of workers under Korean labour and social security law, EPS grants equal conditions to Korean nationals. Under the EPS scheme, migrant workers are guaranteed the same basic labour rights as Korean nationals, with the exception of job mobility, and are eligible for the same social insurance benefits and labour rights as domestic workers, although not the same health insurance scheme. Like other foreign nationals, they are not eligible for social support such as Basic Livelihood Security (BLS) or the Earned Income Tax Credit (EITC). They are covered by four different types of insurance: Departure Guarantee Insurance, national health insurance, return cost insurance, wage payment guarantee insurance and national pension.
EPS has evolved considerably since its inception to incorporate new developments in labour migration management policy and to react to programme evaluation as well as changing profiles of demand in Korea.
Figure 3.1. EPS selection winnows down the pool of candidates and employers
Source: OECD Secretariat based on HRD Korea.
Bilateral agreements
The recruitment process for the E-9 visa starts with the Ministry of Employment and Labour signing Memoranda of Understanding (MOUs) with governments of sending countries. Since the EPS was launched, the government has signed the MOUs with 16 partner countries to import workers (Table 3.1). The partner countries are Bangladesh, Cambodia, China, East Timor, Indonesia, Kyrgyzstan, Mongolia, Myanmar, Nepal, Pakistan, Sri Lanka, Thailand, the Philippines, Uzbekistan and Vietnam, and PDR Laos. The government bodies in these countries are directly involved and responsible for the selection and admission process of the foreign workers to guarantee transparency and fairness.
The largest supplier of labour force to Korea since the programme began until 2018 is Viet Nam, followed by Thailand and Indonesia. In terms of the number of active participants, in 2016 Viet Nam was the first, with 14.5% of all permit holders, followed by Cambodia (13.5%), Indonesia (11.5%) and Nepal (10.6%).
Table 3.1. EPS is based on a growing number of bilateral agreements
Countries with which Korea has bilateral agreements (MoUs) for labour migration under the EPS.
Source: Ministry of Employment and Labour, Ministry of Justice, HRD Korea.
While the contents of the bilateral agreements are confidentially negotiated and not disclosed, there is no indefinite commitment to receive nationals of the participating countries, nor is there a fixed annual quota on admissions from any partner country. This gives Korea some leverage to ensure compliance with programme regulations, quality control and to react to spikes in overstay by workers from individual partner countries. Since the introduction of EPS, recruitment has been suspended from certain countries due to concern over illegal overstay among nationals from these countries. This was the case for Viet Nam in 2013, for example. Since origin countries consider the possibility to deploy workers to Korea as very desirable, recruitment suspensions have led origin countries to strengthen integrity measures in order to restore the bilateral recruitment mechanism. Measures taken by origin countries to improve compliance have included, for example, suspending access to EPS in regions where high overstay rates have been noted. Measures taken by Korea have included disqualifying relatives of overstayers from eligibility for EPS.
Most EPS partner countries deploy temporary workers to a wide range of destinations in the Gulf Countries and among Southeast Asian developed economies, with flows to Korea comprising only a small share of total deployment (OECD/ADBI/ILO, 2018[2]). In 2015, Korea was the destination for fewer than 2% of workers deployed from Nepal, and 10% of workers deployed by Viet Nam. Yet wages are much higher in Korea than in other destinations, and fair recruitment means that workers pay much lower fees for recruitment and are able to remit a larger share of their earnings to their families, making EPS one of the most attractive programmes for partner countries and workers.1
Box 3.2. An origin country perspective: EPS in Nepal
As one of the partner countries, Nepal sends a labour force with rather high education within the country to Korea. Labour migration occurred even in the 1980s, when Nepali workers used brokers to receive a short-term trainee visa through an invitation letter from a Korean SME, remaining to work in agriculture, livestock and manufacturing. The brokerage system was expensive – accessible only to wealthier Nepalis – and illegal. The trainee programme reduced costs, but the insecure working status as trainees often led to illegal employment. In fact, protest by Nepali interns in 1995 over abuse of human and labour rights in workplaces under the trainee programme drew government attention to the issue.
When the EPS was adopted, Nepali job seekers flocked to Korean language institutions to prepare for the TOPIK. 31 000 sat for the exam in 2008, and 36 000 in 2010. However, interest in the programme has fluctuated due to the difficulties in passing the exam, changes in the recruitment quota and financial barriers. The pass rate was 21.7% in 2008 and 11.5% in 2010. Nonetheless, TOPIK participants and EPS applicants remain high, and 4 000 to 6 000 Nepali workers arrive annually in Korea.
The HRD Korea local branch is in charge of all practical affairs in Nepal including registration, execution and grading of TOPIK, selecting top scored applicants, conducting skills test and a medical check-up. It also works in close collaboration with sending agencies, other institutions and NGOs promoting Korean language education. Another governmental body, KOICA, contributes indirectly by sending high-skilled Korean officers to national universities in Nepal to teach various areas of expertise including Korean language and culture. All these efforts add up to attract more applicants to the EPS.
The exam remains a barrier. Attaining a score above 80 on the EPS-TOPIK requires a strong commitment to studying Korean and often taking Korean language courses in on of the expensive private language institutions which have cropped up since EPS was introduced. Migrant workers selected through EPS still belong mostly to relatively wealthy families and have higher education.
The government hopes to increase the placement quota for Nepali workers gradually. It hopes to influence the preference of employers for Nepali workers and counteract previous negative perception due to their visible participation in protests. As the reputation of previous workers by nationality indeed affects the recruitment quotas in the future, HRD Korea in Nepal works to inform potential workers about their impact on the future inflow of Nepali workers to Korea.
Annual quotas by sector
The Foreign Workforce Policy Committee (FWPC) under the Prime Minister’s office, an interministerial working group, determines the inflows of low-skilled foreign workers, including the ceiling on the total number, industry of employment and countries of origin every year.2 Before the FWPC is held, the Foreign Workforce Employment Committee in the Ministry of Employment and Labour previews the agenda brought to the FWPC. A “Working Committee for Policy on Foreign Human Resources” under the FWPC meets prior to the FWPC. The “Working Committee” comprises up to 25 representatives of social partners (employees and employers), public interest members such as NGOs, and high-level government officials responsible for foreign worker issues. It is chaired by the Vice Minister of Employment and Labor. This “Committee” functions as a consultation mechanism in determining policy, including quotas. Following input from this committee, the FWPC examines demand from employers and considers the need to protect resident workers, as well as the overstay rate of foreign workers of sending countries. In general, the quota is set after subtracting the number of returning workers and adding the estimated number of additional manpower in need. The FWPC also decides the permitted work sectors which can hire foreign workers with an E-9 visa. The main sector which receives employment permits is manufacturing (Figure 3.2).
Figure 3.2. Annual quotas have largely favoured the manufacturing sector
Note: Returning workers have been admitted since 2012 with sector assignment. “Flexible” workers may be allocated to sectors during the year depending on demand.
Source: Ministry of Employment and Labour.
The quotas have varied from year to year, with a sharp cutback in 2009 with the global financial crisis and the drop in employment. Since 2011, admission numbers have been fairly stable. Since 2011, returning workers under the two provisions for returns have been included in the quota, with a certain set-aside based on the expected number of returns under the “diligent worker” provision, and with a ceiling placed on re-admission based on the advanced Korean language test. Since 2014, a small part of the annual quota has been kept in reserve to allocate to sectors where demand is particularly acute during the year.
Demand has historically been higher than the quotas, so that not all employers receive work permits. In the agricultural sector, for example, applications stood at 26 000 in 2014 and rose to 29 500 in 2016, compared with about 6 000 permits authorised under the quota.
Box 3.3. Quotas and caps in labour migration programmes
Many OECD countries use quotas and caps as a management tool for labour migration programmes. Methodologies for setting quotas vary, as do their policy objectives. The overall objective of placing a ceiling on entries within temporary labour programmes is to restrict entries below demand of employers, in order to protect the resident labour market from negative effects if not distortion. As a consequence of their objectives, the form taken by quotas and caps varies. They can be general (e.g., Hungary, Estonia), for temporary renewable skilled worker programmes (e.g., United Kingdom, the United States), for temporary unskilled programmes (e.g., Italy, Israel, the United States) and for seasonal programmes (e.g., Italy, Spain, New Zealand, United States).
Korea is unusual among OECD countries for setting sector-specific quotas for the manufacturing industry. While caps on seasonal agricultural workers are in place in a number of countries, most temporary programmes for lower-skilled workers are labour-market tested rather than capped.
Ceilings may also be applied to youth mobility programmes such as working holiday makers, and to pilot programmes during the testing phase. Countries with permanent economic admission programmes (e.g., Australia, Canada, New Zealand, the United States) also set caps. In the case of permanent migration, caps may also be meant to limit the effect on labour markets, but may also relate to processing capacity or broader objectives of supplying labour force, as well as ensuring that no occupation dominates entries. From the late 2000s until the mid-2010s, Canada set occupation-specific quotas within its Federal Skilled Worker permanent migration stream to ensure that certain occupations did not dominate inflows. Australia similarly applies an annual occupational ceiling to applications its SkillSelect permanent migration stream.
Some quotas are set relative to total employment. In Estonia, the inflow quota, from which there are numerous exemptions, is set relative to total population, and has stood at 0.1% since 2007. Between 1990 and 2013, foreign employment in Austria was capped relative to total employment, with the ceiling first set at 10% of total employment, and later lowered with the expansion of exemptions (OECD, 2014[3]).The quota was of the stock of work permits – similar to the stock quota used for H-2 in Korea – and when reached, no new permits would be issued.
While the form of the EPS quota for E-9 and H-2 workers is unlike that in other OECD countries, the process for assessing the level is similar. Empirical data on vacancies and labour supply are taken into account, and stakeholder consultation plays a major role in negotiation, leading to a compromise.
When temporary labour migration programmes have quotas, these are generally set through bargaining between interest groups, with employers usually pushing for higher allocations. Empirical analysis generally provides the background for discussion, with final allocation based on negotiation (Chaloff, 2014[4]). In some cases, expert bodies or planning commissions are created to determine quotas. Italy’s 1998 labour migration law foresaw a triennial planning document, based on empirical analysis, to establish entry quotas.
The TOPIK language test
The second screening criteria for foreign candidates is the Test of Proficiency in Korean (TOPIK) for the EPS. TOPIK is a standardised Korean language test, based on levels of proficiency, developed by the National Institute for International Education (NIIED) in 1997 as the benchmark assessment of language skills. When a language test was added to the EPS system in 2005, the basic existing TOPIK level was not appropriate for the non-professional jobs targeted under EPS, requiring the development of a new test. The EPS-TOPIK evaluates Korean language proficiency and understanding of Korean culture. The questions consist of 25 listening questions and 25 reading comprehension questions. They evaluate basic understanding of the Korean society as well as ability to communicate job responsibilities and industrial safety.
The TOPIK result is the basic threshold for eligibility for EPS; applicants must score at least 80 points out of 200. Among the applicants meeting the threshold, the Human Resources Development Service of Korea (HRD Korea) selects the top scoring.
HRD Korea is in charge of all the practical affairs including implementation and registration of TOPIK. The local branches of HRD Korea in partner countries collaborate with public organisations (sending agencies) to operate the examination. The sending agencies publicise the upcoming test on their websites and in local newspapers. Applicants selected through a pre-registration screening process can register for TOPIK online or in person at designated sites; the registration fee is about 24 USD. The test consists of listening and reading parts in the form of multiple choice questions. In preparation for the exam, HRD Korea provides open question books to the applicants explaining about EPS and showing the sample questions of the test. The book and audio files are available on the EPS-TOPIK website. However a large number of applicants take Korean language classes in private institutions. From 2007 to 2017, more than 1.7 million applicants took EPS-TOPIK in the sending countries, far more than were admitted to EPS. Most applicants to the test are men; the pass rate in 2017 was 24.3% (Table 3.1). The pass rate varies between countries and has been higher in the past (32.5% in 2013, for example) but has never exceeded 50%.
Table 3.2. A large number of candidates have taken the EPS-TOPIK
Number of EPS-TOPIK applicants, 2011‑17, and pass rate in 2017
Source: Ministry of Employment and Labour.
The TOPIK result is valid for two years. Passing applicants submit their EPS job application and other required documents to sending agencies as long as the TOPIK result is valid.
Korea is unusual in requiring that candidates for migration submit to a language test. Most OECD countries do not require low-skilled temporary workers to pass a language test. Given that the employment period is for several years, and that workers will be placed in small firms where they will not be able to work without speaking Korean, the test is essential for the success of the programme.
For applicants, the investment in the language test is significant in terms of time, and sometimes in terms of financial expenditures. The TOPIK is also indirectly a screening for the ability of candidates to work with modern technology, since test preparation requires not only basic literacy but also competences in using computers and on-line testing applications. The shift to computer-based testing also ensures that the candidates who pass the test are able to interact with modern user interfaces.
The willingness of candidates to invest in studying for the TOPIK, in light of the low pass rate and the fact that even successful candidates are not assured a place in the EPS, indicates the high value of the programme for workers in origin countries.
The points system for selecting EPS workers
A further innovation in the recruitment system was the introduction of a points system for selection of EPS workers. In the first years of the EPS, selection on the basis of TOPIK scores and qualification on the basis of physical strength was considered sufficient. However, in the pool of TOPIK test participants, some candidates had specific and relevant experience in the fields for which they were applying - especially manufacturing and agriculture - which were not taken into considered. Even if they passed the TOPIK, low scores excluded them from consideration. The points system was introduced in 2014 to allow prior professional experience to be taken into account. For all candidates who pass the TOPIK, and who have specific skills, it is possible to undergo the skills test. Points are given for skill level, work experience, training, qualifications and job capacity. Candidates who only take the Korean language test may score up to 200 points. Candidates who pass the test and take the additional skills test may score up to 100 points for Korean language, 100 for skill levels and 100 for work experience, training and qualifications. The roster takes the top scoring candidates. The system has proven very popular: in 2016, 90% of applicants took the additional skills test (Park and Kim, 2016[5]). As a result, the roster now includes candidates with lower Korean language skills but with specific experience or qualifications. The EPS workers entering from 2017 are therefore better qualified than those who came under the pre-points system.
Building the Candidate Pool and selecting candidates
In origin countries, the basic eligibility requirement is age, between 18 and 39 years of age. The age requirement is, in Korea as well as in other countries, one of the paradoxes of labour migration: countries with age-discrimination legislation for employment of resident workers apply discriminatory policy to the selection of labour migrants. Age is sometimes a factor in ranking and selection of applicants for permanent economic migration (OECD, 2014[6]). The logic for permanent migrants is based on the lifetime contributions expected from immigrants. Temporary workers whose stay is linked to their employment are less often subject to age requirements. For example, there is no age requirement for temporary seasonal workers in Canada or New Zealand.
The sending agencies translate, check and approve the job applications. The government bodies in the sending countries compose a roster with about 2.5 times the applicants of the designated national quota, based on the profiles and TOPIK scores, and provide the rosters to HRD Korea. This allows the Korean authorities to choose candidates based on their characteristics, and prevents anyone in the sending country from determining who will be chosen. As a result, EPS represented a sharp decrease in recruitment costs, which have generally fallen below 1 000 USD, excluding the time spent preparing for the TOPIK exam. Recruitment costs for workers under EPS are very low (Box 3.4).
Box 3.4. Recruitment costs under EPS
EPS was introduced in part to eliminate the high fees paid to intermediaries under other channels used by labour migrants to come to Korea. For example, workers spent more than 3 000 USD in recruitment fees alone to come under the ITS programme which preceded EPS (Kyung, 2013[7]). A survey conducted in 2014 of 119 newly-arrived workers under EPS from three countries (Thailand, Viet Nam and Indonesia) identified the main costs they underwent - an average of USD 1 385 (Abella and Martin, 2014[8]). The average cost of preparing for the language exam was about USD 250. The necessary skills and medical tests under EPS cost less than USD 100.
Candidates are drawn from the roster by the HRD Korea based on the preferences of employers in different sectors, by gender, nationality and age. This means that not everyone on the roster can make it to the pool. In practice, younger male workers of certain nationalities have higher chances to be chosen as candidates.
According to a 2014 MOEL survey of employers, the leading category of preference was nationality (39%), followed by skill (17.4%), gender (11.9%), Korean language level (9.9%), age (8.3%) and physical condition (7.8%). It may be that the selection process addresses the latter three characteristics effectively, by excluding workers with poor physical condition, age above 40 and no language ability, allowing employers to focus their preferences on characteristics not filtered by EPS selection in 2014.
The selection has favoured young candidates (Figure 3.3). Among the candidates who are admitted to the roster for selection, firms tend to pick a younger population of workers. The age limit for admission is 40 years, but 2% are over 40 due to being re-employed after an initial spell.
E-9 participants are fairly well-educated, given that the programme is for non‑professional work. In 2013, an analysis showed that 20% of those selected and admitted to Korea had tertiary level education, 60% at least secondary, and only 20% less than secondary. This higher education level has important implications for their eventual prospects to remain in Korea, since the limited bridges to other visa categories depend in some part on their education level.
Applicants to EPS are mostly men, but selection leads to a smaller share of women among those admitted to Korea. In 2013, 11.8% of test-takers were women, and 11.9% of passers were women. 16.4% of those admitted to the roster were women. Fewer than 10% of those admitted were women in 2013, and by 2016, only 8.6% of the E-9 visa holders in 2016 were women, however.
Figure 3.3. Most EPS workers are very young
Note: Primary applicants are EPS-TOPIK passing candidates (not re-entering workers).
Source: Ministry of Employment and Labour, Korean Statistical Information Service.
The labour market test
In Korea, there are two steps for employers who wish to hire workers under EPS: first, submit to a labour market test; second, compete for the limited number of employment permits offered under the annual quotas.
Employment Permits are issued pursuant to a labour market test, which takes the form of a mandatory publication of the vacancy at the public employment centre (Job Centre). When EPS was first set up in 2004, the minimum duration of the listing was set at 30 days. In 2005, this was reduced for certain sectors (identified by the Ministry of Employment) to just seven days listing, or three days if the listing was also posted in newspapers and television). Employers can begin the process by applying for the Employment Permit at Job Centres only after having failed to find a Korean for the job. From 2010, the general requirement was reduced to 14 days. For active media advertisements (TV, magazine or newspaper) for seven days, the Job Centres are likely to authorise the request to hire foreign workers. Job Centres may send local candidates for consideration by the employer. If employers twice refuse to hire candidates the Job Centre deems suitable, the Job Centre may reject the employer’s request for an employment permit for a foreign worker. In practice, the labour market test is nominal, with very few cases of rejection of applications due to failure to hire locally.
In comparison with other OECD countries, the EPS labour market test is relatively short in duration (Figure 3.4), although the requirement to hire workers referred by the Job Centres is on the stricter side of labour market tests. This discretionary mechanism depends on the jobseekers enrolled with the Job Centre and the willingness of caseworkers to consider jobseekers suitable for the jobs advertised. Caseworkers can insist on sending older workers, or workers of a different gender than those preferred by employers, for example. In practice, however, the increasingly segmented labour market for foreign workers is reflected in the predominance of vacancy listings at Job Centres for foreign workers.
Figure 3.4. Korea’s advertising requirement is within the range of most OECD countries
Note: Where countries have varying durations for different visa/permits, the lower end of the range is used. For instance Germany takes up to 14 days for seasonal work, Spanish Seasonal Work takes 25 days and Finland 2‑4 weeks for low-skill work. In some instances, numbers denote the average days used in practice as in New Zealand. Australia, and Denmark have no fixed duration. Estonia, Greece, Israel, and Mexico have no LMT.
Source: OECD Secretariat.
Employers are able to file on-line. At first, prospective employers were required to visit government-designated employment support centres to request state permission to employ foreign workers under EPS. However, starting in 2009, employers have been able to use an online registration system.
Firm-level limits to the number of workers
A firm-level limit applies to employment of E-9 workers (Table 3.3). Businesses were originally limited to 20% of their workforce being comprised of E-9 workers; this was raised to 30% for businesses with fewer than 10 employees, and a bonus E-9 worker was allocated to firms with fewer than 50 employees in “root industries”3. At present, small firms in particular are authorised to have high shares of E-9 workers. Notably, in the manufacturing sector, the limit has increased in firms with 50 employees or less since the introduction of EPS. Firms with six to ten employees and firms with 31 to 50 employees were originally allowed to recruit maximum five and ten E-9 workers respectively; however, the firms now can employ additional two E-9 workers. The threshold leads to some anomalies, such as firms with 11 employees authorised to have 90% of their employees on E‑9 permits, while firms with 10 may only hire five E-9. For small firms wishing to increase their E-9 workforce, it may be worthwhile to expand employment of other workers when applying to EPS, in order to qualify for a higher allotment.
Table 3.3. Smaller firms may employer a larger share of E-9 workers
Firm size and maximum number of E-9 employees in manufacturing, 2018
Note: Total employees refers to the number of national employees enrolled in national employment insurance.
Source: Ministry of Employment and Labour.
Foreign workers employed under other permit categories (e.g., H-2, E-7 or F-4) do not count against the E-9 firm limit, so that a firm can employ as many foreign workers as it wishes, as long as the E-9 visa-holders do not exceed the statutory limit. Layoffs of employees which occur after the E-9 worker is authorised are not necessarily reported to HRD Korea, so the share of E-9 workers may exceed the limit due to layoff of other workers, and not be detected until subsequent applications for E-9 workers.
Points-based system for employers
Since 2012, employers must not only labour-market test vacancies but also score on a points-based workforce allocation system in order to obtain employment permits. Previously, employers were served in a first come, first served order, with employers physically queueing outside of government offices. Under the points-based system, all applications are scored, and the top-ranking are issued permits until the quota is exhausted. Further, since permits are issued during the course of the year, employers with higher scores receive permits earlier, while those with lower scores may have to wait longer. The points-based system includes a number of limits which were already present in the distribution of employment permits.
The initial application is filed with an employment centre, which checks if it meets the basic eligibility (labour market test, sector restrictions, firm size, etc.). The employment centre sends approved requests to the KEIS, which scores the application and awards employment permits three times a year. KEIS informs the employment centres, which then notifies employers by text message that they have been awarded employment permits.
The points system comprises three elements: basic requirements, bonus points, and penalty points (Table 3.1).
Table 3.4. The points system for attributing EPS workers to employers
Note: * Points attributed for manufacturing sector are lower, 0.5 for housing and 0.2 for training. Points are attributed for two years maximum.
Source: Ministry of Employment and Labour.
Basic items in the points system provide a minimum of 77.8 out of 100; bonus points for good practices in programme bring up to 7 (2.7 for manufacturing) points, making the effective range from 77.8 to 107 (102.7 for manufacturing).
Penalties are imposed for violating the regulations of labour law and EPS regulations, for a workplace fatality of a foreign worker, and for causing the departure of an EPS worker due to violence, abuse, harassment or failure to pay wages or other violations of workplace regulations. The maximum penalty is 12.3 points. Employers with many penalties for having lost workers due to abuse may still rank high enough to receive workers if their labour shortages are acute and they score high enough on the basic characteristics of labour demand.4
The attribution of points has changed since the system was first introduced in 2012. The most significant changes occurred in 2014. The number of points for hiring Korean workers was increased sharply; originally there had been little difference between firms hiring no Koreans (18 points) and those hiring six or more (20 points). This changed to 14 points for no hiring and 20 points for those hiring three or more Korean workers. Another change was to offer more points to firms requesting a large number of foreign workers; this was taken as a sign of labour needs, rather than of dependency on foreign workers. Bonus points for quality housing and for offering workplace training were increased for all sectors but manufacturing, to provide agricultural workplaces especially an incentive to improve working conditions.
Penalties for mistreatment and abuse of workers were increased, although employers who have committed such abuses are still allowed to recruit foreign workers if they score high enough.
The introduction of these changes led to the exclusion of many employers in 2014, and to the first time in which the quota was not entirely used due to insufficient eligibility of firms for employment permits.
Box 3.5. Penalties for abusive employers in foreign worker programmes
Most migration management systems have provisions to exclude employers who have abused the conditions of issuance of permits – i.e., have violated migration regulations – from participating in the programme. However, many temporary foreign worker programmes do not have specific provisions for sanctioning abusive employers, beyond the standard civil and criminal penalties for violation of labour law. The possibility of banning, blacklisting or excluding the employer from future recruitment, or withdrawing authorisation for other foreign workers employed by the same employer, is not always among the sanctions possible for cases of physical or sexual abuse and harassment.
The 2014 EU Directive on Seasonal Workers requires Member State to “provide for sanctions against employers who have not fulfilled their obligations under this Directive, including the exclusion of employers who are in serious breach of their obligations under this Directive from employing seasonal workers”.
In Israel, provisions were introduced in 2017 to allow the Ministry of Interior not to grant a permit - or renew a permit - for a permit holder to employ a foreign worker if the employer was convicted of serious offenses against a foreign worker. The Ministry also has discretion to refuse renewal, for up to 18 months, when the employer is suspected of serious offences. Prior to this, no explicit reference to recruitment bans was included.
Canada includes, among possible sanctions for non-compliance with the regulations of the temporary foreign worker programme, a recruitment ban of one to five years. Among the possible grounds for exclusion is failure to ensure that the workplace is free of abuse, including physical, sexual, psychological and financial abuse. This extends, in principle, the liability of the employer to behaviour by other employees at the worksite. In the cases where a ban has been applied, it has generally been for two years.
Similarly, in the United States, violations investigated and confirmed by the Wage and Hour Division (WHD) following complaints from temporary workers regarding may lead WHD to initiate debarment proceedings, which may result in an employer exclusion for one to five years. In the H-2B programme, which does not allow employer change, employers are liable for return costs if the worker leaves for reasons of constructive dismissal, including harassment of different types.
Employer selection of candidates
Employers who have been approved following a labour market test and have been assigned an employment permit are contacted by the Job Centres. Job Centres provide employers a list of qualified candidates; Job Centres give up to three opportunities to employers to choose among EPS candidates. After receiving the list, the employers review the applicants and select based on the provided information on their eligibility and competence of candidates. Once the decision is made, the employer provides an employment contract to the selected applicant. The work contract must contain working conditions including salary, working hours, workplace and holidays. At the final stage, the employers apply for Certificate for Confirmation of Visa Issuance to the Ministry of Justice. When this certificate is sent to the origin countries, the selected applicants receive a working visa at the Korean Embassy. The duration from the start of the process to the arrival of the worker is about four months; given the size of SMEs, variations in labour demand are often related to a sudden contract, requiring workers quickly.
Arrival in Korea and placement in the firm
Workers receive some additional training in the origin country prior to departure: 38 hours of Korean language and seven hours of Korean culture.
Small groups of EPS workers arrive throughout the year. As soon as the workers arrive in Korea, they are met at the airport (flights generally arrive in the early morning). They participate in employment training sessions prior to employment, for three days, including language, the EPS, labour law and relevant information for daily life and for compliance with the obligations of EPS. The technical content of the training courses is determined by the federations of employers. There is also a health examination prior to placement in the firm. At the end of this three-day training, employers pick up the workers.
Many employees live in company dormitories. In 2015, more than 90% of workers had housing provided by their employer; of these, two-thirds of employers paid their housing costs entirely (Seol and Ko, 2015[9]).5 The need to provide separate dormitories for men and women is one explanation for the employer preference for male workers. Employers of one or two workers may rent private accommodation for their workers. The rent paid by workers for employer-provided housing is not regulated by EPS and is subject to private contractual agreement between workers and employers.
During the stay in Korea
All workers arrive with an initial three-year contract. Three months after arrival, there is a follow-up by telephone to check on the adaptation of the worker. In some cases, there are issues which emerge in the workplace: employers may find that the work doesn’t have the physical strength expected, and employees, many of whom are highly educated in their home country, may have difficulty adjusting to the low‑skill job. These issues are mediated by local HRD offices. Workers or employers may request additional training during the stay in Korea, which is provided by the local HRD office; these trainings are paid for by public funds directly to training agencies. Courses are generally short, and held on weekends; this is also a means to keep workers engaged when they are not busy at work. HRD checks with firms twice a year.
To serve foreign workers, the Ministry of Employment and Labour has established nine regional Support Centers for Foreign Workers. These are funded by the government and operated by NGOs.6 The centre offers in-person and telephone support in multiple languages, primarily to E-9 and H-2 workers. Centres offer courses, including Korean language classes and certification. They also organise cultural and sport activities, and in some centres, a medical clinic. HRD Korea also maintains a call centre which serves employers and operates offices around Korea, as well as a pool of interpreters.
After three years in Korea, employers decide whether they wish to extend the contract of the worker for an additional 22 months.
The preparation for return is built into the system. Workers are contacted by direct mail three months prior to return (six months prior to 2018). Two months prior to departure, HRD contacts the worker to provide information on how to recover contributions and benefits, and to propose pre-return and post-return training, the latter supported by HRD in the home country. Contacts with Korean firms in the home country are also provided. Text messages are sent in the months before return. Prior to 2018, visits and consultations were conducted six months prior to return to propose services. From 2018, contacts are made two weeks before return with workers.
The entire process of EPS is funded by the Korean government with almost no costs borne by employers. Employers of foreign workers pay only for the pre‑employment training expenses.7 There are some private agencies assisting companies with the procedures related to requesting foreign workers, and some training provided by employers is only partially reimbursed by HRD Korea, but these expenses are not substantial.
The insurance system for foreign workers
All workers in Korea are guaranteed basic labour right and are eligible for the same social insurance benefits and labour rights. Non-professional foreign workers (E‑9 and H-2) are covered by four major social insurances within the same scheme with Korean workers: Industrial Accident Compensation Insurance, National Health Insurance (NHI), National Pension and Employment Insurance. Among them, all foreign workers and employers who employ them are subject to compulsory subscription to the first two insurances.
Industrial Accident Compensation Insurance applies to all business places that employ workers regardless of their nationality. The premium rate is decided annually at the end of the year, according to occupation category; the employer pays the entire premium. The Korea Workers’ Compensation and Welfare Service is in charge of overall management, application of insurance and collecting premiums. Foreign workers’ health-related risk is also subject to NHI, which covers the whole Korean population. Eligibility for workplace insurance is under the EPS, once employers submit qualification report of employees to the NHI within 14 days of employees’ taking up duty. Both employer and employee pay a premium corresponding to 3.035% (total 6.07% in 2015) of monthly salary. Neither E-9 nor H-2 workers are covered by health insurance when they are between jobs.
In agriculture and fisheries, individual employers are not required to pay health insurance or workplace injury insurance; in small enterprises, there is no disability insurance. Workers employed by individuals or small firms rather than pay the full contributions themselves generally choose not to pay into these schemes and are not covered.
Regarding the national pension scheme, the principle of reciprocity applies: foreign workers’ pension right in Korea would be guaranteed only if the same rule applies to Koreans who reside in their origin country. According to the bilateral social security agreement with sending countries of the EPS, E-9 and H-2 visa holders from eight countries out of 15 countries (China, Kyrgyzstan, Thailand, Mongolia, Uzbekistan, Philippine, Sri Lanka, Indonesia) are eligible for the National Pension benefit. Subscription is obligatory only for foreign workers from those countries and both employee and employer pay a contribution (4.5% of the average amount of monthly income). On the other hand, the principle of reciprocity does not apply regarding the lump sum refund, i.e. National Pension contributions allow cashing out when the foreign workers return to their country, even if the same regulation would not apply to a Korean.
Lastly, foreign workers under the EPS may voluntarily join the Employment Insurance in Korea; insured foreign workers receive unemployment benefits equal to those of native workers. An insurance contract is established by the employer applying to the regional employment centre if the employee wishes to be insured. The premium rate is 0.45% and 0.7% of monthly wage for each employee and employer. The Korea Workers’ Compensation and Welfare Service administers the Employment Insurance as well as Industrial Accident Compensation Insurance. Foreign workers and their employers who are covered by such an insurance policy are subject to each regulation.
The Act on Foreign Workers' Employment regulates mandatory subscription of foreign workers and their employers to four supplementary insurances, based on employment management and protection of the EPS workers: Departure Guarantee Insurance and Trust, Return Cost Insurance and Trust, Guarantee Insurance against Overdue Wages, and Injury Insurance.
First, the Departure Guarantee Insurance aims to have employer compensate superannuation to foreign employees who work more than one year in the same workplace. Subscription is the obligation of every workplace with more than one regular employee; however, employer of H-2 holders in the construction sector is exempt from this plan. As a premium, employees pay 8.3% of regular monthly wage on work permit contract every month and the foreign worker could receive it by reporting departure date to employment centre and applying to insurance company. The amount of insurance money substitutes for statutory superannuation by Guarantee of Workers’ Retirement Benefits Act. However, if the quantity of departure guarantee insurance does not satisfy that of Retirement Benefits Act, the employer should pay the difference to the foreign employee. Departure Guarantee Insurance accrues to the worker, but is forfeited to the employer in two cases: if the employee stays less than 12 months with the employer, or if the worker leaves the employer without justification. This is an unusual arrangement, not employed elsewhere in temporary labour migration programmes, in which the worker must compensate the employer if the contract is broken through no fault of the employer. The amount of the insurance, 8.3% of salary, is not a substantial amount at the beginning of an employment spell but adds up to one month salary at the end of a year, providing a strong disincentive for workers to leave their employer once they have spent some time at the workplace.
EPS requires foreign workers to pay return cost as soon as they arrive in Korea. EPS workers establish an insurance contract through the employment training centre and must pay the premium within the prescribed period. The premium varies according to origin countries, between KRW 400 000 and 600 000, and can be paid in up to three instalments within 80 days from the date of entry into force of the contract. Foreign workers face 800 000 KRW of penalty if they do not subscribe to the plan. The insurance guarantees that workers have the means to pay for their ticket home at the end of their employment.
In the case of accident injury or illness other than occupation accidents, foreign workers have an obligation to be insured to casualty insurance as well. Foreign workers subscribe to the plan through the employment training centre and pay premium immediately in cash. The amount of premium varies according to age and health condition of employees; indicatively, it is about KRW 9 100 per year for 30‑year old men.
Lastly, foreign workers under the EPS are protected from unpaid wage through employer-paid Guarantee Insurance. Employers of a workplace with less than 300 regular employees or where the Wage Claim Guarantee Act is not applied are required to subscribe to this guarantee insurance8, which covers up to KRW two million of unpaid wage. The employer pays KRW 16 000 per year and per foreign employee to the insurance company. The foreign worker could make a claim on a wage to the insurer, in the case the employer delayed payment of wages. The employer could be charged of less than KRW five million of penalty if they do not follow the policy.
Departure guarantee insurance is returned to the worker within 14 days of departure. Starting in 2013, insurance benefits have been paid at Incheon International Airport, so that insurance benefits can be paid – without commission – upon leaving Korea.
Unemployment insurance is not compulsory for foreign workers (E-9 and H-2), although it is possible to sign up on a voluntary basis. Very few, if any, EPS workers pay into the UI system.
Working Visit Permit (H-2) for ethnic Koreans
The H-2 visa, offered since 2007, is a special employment permit for ethnic Koreans whose ancestors emigrated or were deported to foreign countries during the difficult times in modern Korean history prior to 1945. Most of these emigrants are in China, with some in Russia, Mongolia and several former republics of the USSR. The H-2 visa was introduced to replace the Special Case Employment Permit System, itself put in place in the early 2000s to regulate the employment of ethnic Koreans, who were allowed employment in a number of authorised occupations. This occupation list has changed over time and now comprises about 80 occupations (Annex Table 3.A.1). A list of 38 “positive” sectors (including construction) is included in the Emigration and Immigration Act as of 2018. Prior to the introduction of the Special Case EPS, there was no specific programme for ethnic Koreans, who used other available channels to come to Korea. This was in contrast to Japan, where ethnic Japanese from South America were admitted as labourers starting in 1989 (Skrentny et al., 2007[10]). Korea is not the only country to create a privileged channel for persons of national descent in its migration system (Box 3.6).
Ethnic Koreans who wish to work in Korea may apply for an H-2 visa at Korean embassy in their home countries. Ethnic Koreans can receive the visa as long as the total number of permit-holders does not exceed a ceiling; this ceiling has been set at 303 000 since programme introduction; the ceiling was set through consultations between the Ministry of Justice and the Ministry of Employment and Labour without a fixed reference to the labour market, and has not been adjusted since then. Upon receiving a visa and entering Korea, , visa holders must receive three days of training at a HRD Korea centre prior to employment. The training consists of education on Korean language and culture and relevant instructions on the EPS elements applicable to them (insurance) and on Korean labour law. Regardless of the employment status, job seekers with H-2 visa must file an application for foreigner registration within 90 days from entry. They need to notify employment or change in workplace within 14 days of its occurrence.
Box 3.6. Co-ethnic migration programmes in OECD countries
Many OECD countries harbour the goal of embracing far-flung national communities and/or their descendants (OECD, 2014[6]). Measures to include co-ethnic communities from outside national boundaries can also affect labour migration policies, with preference given to co-ethnic communities. Finland has long offered preferential treatment to foreign nationals of Finnish extraction wishing to immigrate. Italy’s labour immigration legislation incorporates a quota of South Americans of Italian origin. Germany grants favourable migration conditions to ethnic Germans living in East European countries, who comprised a large share of immigrants in the 1990s. Greece admitted a large number of Pontian Greeks in the 1990s. In the 1990s, Japan opened up recruitment in less-skilled occupations for South Americans of Japanese descent. Israel proactively encourages Jews abroad to migrate to Israel, where, in the absence of a permanent labour migration stream, recruitment efforts focus on candidates who meet this ethnic preference. Public support in destination countries for such programmes has traditionally been strong and draws on solidarity or a sense of belonging. Challenges to labour market integration have arisen primarily where language skills have been limited.
Under this ethnic-priority scheme, the H-2 visa allows the permit holders to stay and seek jobs freely in Korea. Unlike the E-9 visa, it allows access to jobs in the service and construction sectors, which are otherwise closed to most non-professional foreign workers.
The general presumption of the H-2 programme is that the participants speak Korean, although this is not always the case (especially for participants from CIS countries). At first, H-2 recipients were subject to language requirements if they did not have relatives in Korea, unless they were employed in special employment. Until 2011, overseas Korean guest workers from China without relations in Korea, selected through a visa issuance electronic lottery, had to pass the Test of Proficiency for Business in Korea (B-TOPIK), which is monitored by the Korea Institute for Curriculum and Evaluation. However, in 2011, those eligible were selected through an electronic lottery out of all those that passed the existing tests and since 2012, eligibility has been decided through an electronic lottery only, without any tests. The language requirement has thus effectively expired.
The H-2 visa guarantees three years of stay and can be extended up to four years and 10 months in case an employer wishes to extend the employment of the migrant worker. Extensions must be requested prior to the expiration of the initial permit.
The stock of ethnic Koreans under H-2 visas has not changed drastically, and has stayed largely below the government quota of 303 000. The number of participants in the guest worker programme started off at 226 700 in 2007, and although it peaked at 306 300 in 2009, it declined to 240 200 in 2013 and to 255 000 in 2016. Since there are a number of options for extension of stay and changes of status, the H‑2 visa has not been associated with a high illegal overstay rate. The number of persons overstaying their H-2 visa stood at 6 300 in 2013, 2.6% of the total; this fell below 1% in 2016. An amnesty offered in 2016 allowed H-2 visa holders to exit Korea voluntarily and return with an F‑4 visa.
The employment rate of H-2 visa holders has been high, about 80% from 2012‑16 according to the Foreigners Labour Force Survey. Despite the fact that H-2 workers are able to work in any sector, many (33%) were still working in manufacturing in 2016 (Figure 3.5). Employment was also highly concentrated in wholesale, accommodations and food service (30%), and the construction sector (19%).
Figure 3.5. Most Working Visit (H-2) holders are in manufacturing, construction and hospitality
Source: 2016 Foreign Labour Force Survey.
The construction sector, which has been mostly off-limits to E-9 workers due to a very small quota under EPS, relies more heavily than other sectors on H-2 workers. A large number of ethnic Koreans in the initial period worked in construction. When the H-2 visa was introduced, it was accompanied by sector limits (Annex Table 3.A.2). During the economic downturn in 2008‑2009, concern over the impact of H‑2 workers on construction wages led the government to exclude them from the construction sector. H-2 employment in the construction sector is now contingent on receiving a special authorisation, under the Construction Industry Employment Registration System introduced in 2009. Employment requires a Certificate of Construction Industry Employment Confirmation, issued after employment registration and training. The number of certificates issued is capped; the cap has varied between 55 000 and 60 000 since 2010, although the number can be adjusted during the year.
Also in 2009, incentives were offered to H-2 workers to find employment in SMEs in the manufacturing sector. The incentives proposed included shortening the length of stay required for permanent residency from 10 to five years and favourable treatment when inviting family members to Korea. In addition, in 2009 only, an entry quota was set for H-2 workers, at 17 000 new entries.
Relative to the E-9 visa, for which 92% of permit-holders are men, the H-2 visa is more gender-balanced, with 43% of H-2 holders being women. This also affects the sectors in which they are employed, with many working in hospitality services and domestic work. The fact that they speak Korean also facilitates their employment by families in childcare and eldercare.
H-2 visa holders have average incomes which are comparable to the incomes of Korean nationals with the same characteristics, suggesting that in the labour market they are able to compete.
The H-2 visa, originally developed to provide a specific status for ethnic Koreans abroad, has not only been loosened in terms of eligibility but has also become a major pathway to permanent residence. The F-4 visa for overseas Koreans was originally destined to ethnic Koreans from developed countries such as the United States, and was not issued to Chinese Koreans. This restriction was struck down in 2003. Starting in 2010, three separate grounds were offered for H-2 visa holders to acquire an F-4 permanent resident permit:
First, H-2 visa holders who worked in the same work place in manufacturing in rural areas (population centres with less than 200 000 inhabitants) and agriculture for at least two years were allowed to adjust status. Two years as a baby-sitter also qualified (F-4‑24).
Second, persons over the age of 60 are eligible for status change (F-4‑25).
Third, since the F-4 visa is not meant for low-skilled employment, ethnic Koreans who acquire a professional certification are allowed to change status (F-4‑27).
Professional certification has been the main channel of status change. Since most ethnic Koreans on H-2 visas have lower education levels – about 7% hold tertiary or post-secondary vocational qualifications – the F-4 provision has created a market for professional certification with the sole scope of status change. Private training academies have seized on the market and offer certification courses in a number of occupations, such as hairdressing or certain semi-skilled trades. The list of eligible occupations has been revised by the Ministry of Justice in response to oversubscription by H-2 visa holders. Nonetheless, the number of F-4 permanent residence holders has risen, with 50 000 new F-4 visas issue in 2016 alone (Figure 3.6). About one-third of the new F-4 visa holders in 2015 were changing status from H-2 directly, while others were returning to Korea after a spell in their home country.
Although the F-4 visa is a permanent-type residence visa, restrictions on employment apply. F-4 visa holders are not allowed to be employed as elementary labourers, certain service jobs (such as retail sales) to protect the domestic labour market and to comply with public interest (see Annex Table 3.A.1). The list of non-eligible occupations is drawn up by the Ministry of Justice. The number of occupations on the list have varied since the restrictions have been in place. In 2003 all employment in elementary labour (as well as in potentially problematic occupations related to gambling and nightlife) was prohibited. In 2009 the list specified 62 occupations and in 2010 it decreased to 58, and further decreased to 53 occupations in 2015. According to the current list, from 2015, the number of prohibited occupations to F-4 holders included 41 elementary simple labour (the least skilled), and 12 occupations in service and sales that are deemed to be against the public interest and domestic employment order; employment restriction in gambling and nightlife remain. The violation of this restriction could lead to a refusal of visa renewal and F-4 holders’ expulsion, as well as penalties for employers. F-4 visa holders are eligible for F-5 permanent residence which lifts all restrictions on employment after five years residence; they may also receive the F-2 99 which also lifts restrictions.
Figure 3.6. The stock of overseas Korean permanent residents is rising due to status change from H-2 visas
Source: International Migration Statistics of Statistics Korea for inflows, Korea Immigration Service for stock.
The rising number of F-4 visa holders will have important consequences for the labour market for foreigners. The employment rate of F-4 visa holders has remained at about 60% since 2012, even as the number increases, despite the fact that F-4 visa holders are 52% women. Unlike the H-2 permit, there are no restrictions on total duration of stay, and F-4 visa holders may eventually request Korean nationality. The E-9 visa has more restrictions than either visa for ethnic Koreans, but also provides a legal framework for redressing cases of illegal employment practices. Ethnic Koreans are more exposed to the same low-quality employment as their Korean peers.
The potential scope of the H-2 and F-4 visas are limited only by the number of ethnic Koreans living in China, estimated at most at about three million (Skrentny et al., 2007[10]). This group cannot be relied upon as an inexhaustible pool of workers on which Korea can draw. Already almost half of the ethnic Koreans in Korea are over the age of 50, with low educational attainment and facing the same challenges in the labour market as older Korean workers. Less than 30% of H‑2 visa holders are under age 40. The ethnic Korean population in China is aging along with the rest of the Chinese population, educational attainment of the youth is increasing in line with trends in China, and improved economic conditions in the regions where ethnic Koreans live have reduced the incentive to migrate to Korea to take up lesser skilled employment.
Designing a low-skilled labour migration system for the future
As described in the previous section, Korea’s low-skilled labour migration programme comprises two main pillars. One, EPS, is focused on specific sectors, with temporary stay. The other grants broader labour market access and facilitated access to permanent residence. Together, these programmes are contributing to meet labour demand in less qualified positions.
Korea’s migration policy does not aim to counteract or correct the negative demographic trend affecting the size of the working age population; rather, the temporary labour migration programmes are meant to address immediate and structural demand for labour in specific sectors. The expansion of the ethnic Korean Work Visit programme has had the effect of bringing in a large contingent of permanent residents, but the main objective of the Korean temporary labour migration framework remains meeting short-term needs.
The provision of foreign workers to SMEs reflects a general policy in Korea to promote the survival of small firms, rather than higher productivity (OECD, 2016[11]), and may be considered one of the government policies that boost survival rates of low–productivity firms but are detrimental to long-run efficiency. To the extent that access to non-professional foreign workers is a specific resource provided to SMEs, the generosity of its support to SMEs should be examined carefully (OECD, 2016[11]).
In light of the policy objectives in Korea – to support immediate and structural labour needs in small firms, while limiting potential adverse fiscal and labour market impact on residents – this section examines how other OECD countries have designed labour migration systems.
Framework for managing low-skilled labour migration in other OECD countries
The central objective of labour migration management in OECD countries is to “help meet those labour market needs which cannot be satisfied through tapping domestic labour supply in a reasonable time frame, without adversely affecting the domestic labour market”; (OECD, 2011[12]). The framework should include the following elements (OECD, 2009[13]):
A means to identify unmet labour needs;
Work permits in numbers commensurate with the extent of labour needs;
Means for matching immigrant workers to jobs, either overseas or in‑country;
Efficient permit processing and delivery procedures;
Means for employers to verify the status of potential employees;
Effective border control and workplace enforcement procedures
Putting the framework in place requires a definition of “needs”, “reasonable time” and of “adverse effects”, three parameters for which there is no absolute measure. The policy settings in OECD countries reflect the range of interpretation of needs, timeframes and adverse effects. In particular, the latter often involves a trade-off between groups which may benefit from labour migration and those which may not.
Lower skilled jobs are seen in most OECD countries as relatively simpler to supply from resident labour due to the low barriers to uptake, and the risk of adverse effects of labour migration to these jobs as higher, due to potential complementarity with residents with low education. For this reason, most OECD countries have subjected labour migration for low-skill jobs – and by low-educated foreigners – to stricter control than migration for higher-skill occupations. Many have limited provisions for low-skilled migration in labour migration channels allowing indefinite stay (OECD, 2014[6]). Indeed, a skill threshold is one of the main constraints on labour migration channels in many countries (OECD/EU, 2016[14]). However, there are a number of OECD countries which do not apply a skill threshold to their labour migration schemes, but use a combination of salary thresholds, labour market tests, and/or numerical limits to govern labour migration (Table 3.5).
Table 3.5. Channels for low skilled labour migration in selected OECD countries
Note: Excludes free movement.
Source: OECD Secretariat.
Although the main labour migration channel allowing potentially indefinite stay may be closed to migrants in low-skilled occupation, most OECD countries have some form of temporary or short-term channel open for less skilled labour migrants. Only a few OECD countries, as noted, exclusively have programmes offering limited-term stay to low-skill labour migrants.
Part of ensuring that there is no adverse effect on the local labour market is to ensure that the cost of foreign workers is at least as high as that of local workers. The labour market test usually takes into account the wage level offered to the foreign worker, benchmarked against a minimum, prevailing or collectively-agreed wage. Following admission, measures must be in place to ensure that the real cost of foreign workers does not fall below that of local workers. When foreign workers, who are already vulnerable due to lack of familiarity with the language and/or legal system of the country of employment, are further made more vulnerable due to their inability to change jobs or sectors, or dependence on their employers for housing, there is a risk of exploitation at a cost lower than that of local workers. To counteract that risk, compliance mechanisms include education and information, inspections (physical and virtual), and financial monitoring measures such as mandatory payments into local bank accounts.
Other measures can also be used to increase the cost of employment of foreign workers. One such measure is to impose and employment levy, or tax (Box 3.10). The idea of levies is one which has been discussed in Korea, and appears as a policy measure to explore in the Third Basic Plan, as a potential measure to “protect national jobs”. Levies have been discussed for some time, with the Foreign Manpower Committee raising this possibility for the first time in 2010, and again in 2012 and 2014, deciding each time not to impose one (KOSBI, 2016[15]). Unsurprisingly, employers have opposed levies, on the grounds that resident labour is not available (Noh, 2015[16]).
The 2016 Economic Plan of the Ministry of Strategy and Finance included the introduction of levies, but the proposal was also withdrawn. One proposal for levies was to limit application to firms which have employed many foreign workers for a long period, e.g., firms with more than 10 EPS workers employed for more than five years (Seol et al., 2015[17]). The objective of such a targeted levy would be to signal to employers that meeting firm-level long-term and structural labour needs is not the objective of the EPS. This signalling effect could be achieved through reducing the firm-level quotas for “dependent” employers (see Box 3.3). Whether this signal is necessary depends on whether EPS is seen as meeting temporary or structural needs.
Is the demand temporary or structural?
One of the key questions driving migration policy design is whether need for labour is structural or temporary. When demand is structural, and there is little complementarity with locally available labour, it is difficult to argue for a temporary labour migration programme if workers are likely to be in demand and remain employable indefinitely. Previous OECD recommendations have noted that temporary labour migration for permanent labour needs is a contradiction (OECD, 2009[13]).
In the Korean case, there is a clear demand, but whether it is truly structural is not evident. At present, demand exceeds supply of foreign workers. While vacancy listings at the PES (Worknet) are not mandatory in general for employers, and do not represent the bulk of all job vacancies, they are a requisite for any employer wishing to hire a foreign worker through EPS. Consequently, vacancy figures reveal both total and foreign vacancies registered through the employment centre by employers. PES in data in Korea, as in other OECD countries where PES listings are obligatory for labour market tests, overrepresent demand for foreigners. However, they do reflect the occupations for which employers wish to hire foreigners and which are covered by the EPS. Vacancy data suggest that there are some occupations for which employers hope to fill a large share of vacancies with foreign workers (Figure 3.7). This is true for agriculture forestry and fisheries (68.4% of vacancies are for foreign workers), but also for manufacturing and construction occupations. Management, accounting, and office work is the most demanded sector in absolute terms; however, few employers opened their vacancy for foreigners– perhaps because the employer or sector was not eligible for the EPS.
Figure 3.7. Vacancies for which employers seek foreign workers are concentrated in a few sectors
Source: Worknet.
Overall, demand is very high for foreign workers. In 2013, there were almost half a million vacancies on Worknet where employers sought foreigners. Of these vacancies, most were for jobs with low qualifications and where the salary was between KRW 1 and 1.5 million per month, or between USD 900 and 1 335 (Figure 3.8).
Figure 3.8. Vacancies for foreign workers are for low-skilled, low wage jobs
Source: Worknet.
Further, smaller firms are the ones which mostly try to recruit foreign workers (Figure 3.9). This is in line with programme design and with the strong labour demand among low-productivity SMEs. The growing number of requests from 2010 to 2013 involved firms of all sizes, but it was the smallest firms where demand grew more quickly at first. The bulk of demand in 2013 was in firms under 30 employees.
Figure 3.9. Foreign workers are mostly recruited by SMEs and micro-enterprises
Source: Worknet.
Demand for foreigners exceeds the ability of firms to find available foreign workers. Between one in ten and one in three positions for foreigners went unfilled between 2008 and 2017 (Figure 3.10).
Figure 3.10. Part of the demand for foreign workers goes unfilled
Note: Establishments with five or more employees.
Source: Occupational Survey of Establishments.
The dual labour market in Korea appears dependent to a certain degree on foreign workers. As was noted in the previous section, about 10% of firms respond to labour shortage by calling on foreign workers. These firms are offering low-quality employment, yet due to the restrictions on importing foreign workers, are unable to fill all the positions they would otherwise wish to fill.
Employers claim that the reason they hire foreign workers is that they are unable to recruit Korean workers (Figure 3.11). This is cited as a much more important reason than the long working hours. Low wages are more of an obstacle to hiring Korean workers in greater Seoul than in the rest of the country. When it comes to reasons why firms have difficulty replacing foreign workers with Korean workers, wages are again cited as a problem, especially in greater Seoul, but other factors - long working hours, a harsh working environment - are also cited.
Figure 3.11. Employers of foreign workers say that Korean workers are hard to find
Note: Multiple responses possible.
Source: KOSBI survey cited in (Noh, 2015[16]).
In the manufacturing industry, the increase in the foreign share of employment has been noteworthy across the OECD in recent years (Figure 3.12). The share of employment in Korea, close to 10%, is among the higher levels in the OECD, but almost all OECD countries have seen a sharp increase in the foreign worker share of manufacturing employment. The example of root industries in Korea (Box 3.7) provides an illustration of the drivers of foreign employment in manufacturing.
Figure 3.12. The increase in foreign employment in the manufacturing sector is common
Note: .Fforeign employment in Korea in 2005 is from the 2005 KIS Statistical yearbook, based on the Industrial Training and the Employment Permit visa.
Source: Europe: LFS or GSOEP (Germany); United States: CPS. For Japan, MHLW survey of employers, October 2016, and 2016 LFS. Korea, FLFS and EAPS, May 2016. Israel, PIBA figures for foreigners and LFS for nationals, 2016.
Box 3.7. “Root Industries” and reliance on foreign workers
Non-professional foreign workers in Korea are concentrated in SMEs in manufacturing. One example is that of “root industries”, which conduct basic manufacturing processes as part of the supply chain to larger firms (Lee et al., 2016[18]). These comprise about 450 000 employees, or 14% of the manufacturing workforce. Larger firms rely on subcontractors for important parts of the production process. Competition among SMEs for contracts is intense and margins are low; the industrial processes in root industries – casting, heating, etc. – make working conditions difficult, and, as with SMEs in manufacturing in general, low wages also contribute to high turnover. Vacancy rates are similar to those in manufacturing in general, but few young people are in the workforce in root industries. Foreign workers comprise about 9% of the root industry workforce; since most are young, they account for a disproportionate share of the root industry workforce (Figure 3.13, Panel B).
Figure 3.13. Root industries have an aging workforce and rely on foreign workers
Source: Survey on the situation of Root Industry 2015‑16 (Lee et al., 2016[18]).
Root industries supply a number of key Korean manufacturing sectors; the clients of these SMEs are primarily in the automotive and machine-tooling sectors, which require proximity of suppliers. The root industry benefits from favourable provisions in its access to workers under EPS.
In agriculture, the reliance on foreign workers in OECD countries varies, although it has been increasing (Figure 3.14). In Korea the share of foreign workers in agriculture is about 3.5%, while the United States and Spain have much higher shares. Further, these figures are based on labour force surveys, which largely exclude the seasonal workers who play an important part in agricultural employment in many OECD countries; they number as many as half a million in Poland, for example, and several hundred thousand in Germany. The structural reliance on temporary foreign workers in agriculture is a common feature of the sector across OECD countries.
Figure 3.14. A few OECD countries rely heavily on foreign workers in agriculture
Note: 1) Due to LFS design, seasonal workers may not be well represented. 2) Foreign employment in Korea in 2005 is from the 2005 KIS Statistical yearbook, based on the Industrial Training and the Employment Permit visa.
Source: Europe: LFS or GSOEP (Germany); United States: CPS. For Japan, MHLW survey of employers, October 2016, and 2016 LFS. Korea, FLFS and EAPS, May 2016. Israel, PIBA figures for foreigners and LFS for nationals, 2016.
The construction sector is a different situation (Figure 3.15). While in Korea the share of employment, 4.6%, is higher than foreigners’ share in overall employment, it is still less than the role of foreigners in most other OECD countries, where large changes have been seen in the past decade. However, the share of foreign workers in construction declined sharply in the European countries hardest hit by the crisis of the late 2000s and the end of the construction boom: Portugal, Spain and Greece. In most other countries it increased.
Figure 3.15. Foreign workers in construction in Korea are a low share in international comparison
Note: Due to LFS design, posted and temporary workers may not be well represented. 2) Foreign employment in Korea in 2005 is from the 2005 KIS Statistical yearbook, based on the Industrial Training and the Employment Permit visa.
Source: Europe: LFS or GSOEP (Germany); United States: CPS. For Japan, MHLW survey of employers, October 2016, and 2016 LFS. Korea, FLFS and EAPS, May 2016. Israel, PIBA figures for foreigners and LFS for nationals, 2016.
Box 3.8. Efforts to bring resident workers into sectors of employment of foreign workers
When occupations are especially reliant on foreign workers, especially temporary labour migrants, there may be a risk that the occupation ceases to be attractive for resident workers, either because it is stigmatised – i.e., loss of prestige due to association with low-status foreign workers (Zimring, 2004[19]) – or because networks leading to employment become weaker for natives. Some OECD countries have tried to attract resident workers into these occupations through subsidies and training initiatives.
To attract resident workers back into employment in sectors where employers recruit from abroad, subsidised training and employment programmes may be proposed. In Israel, a number of programmes since 2010 have attempted this approach in different sectors. In the agricultural sector, a programme begun in 2010 offered employers about USD 200 per person and per month for new workers who come into the sector for employment at least three out of six months, on the assumption that the subsidy would be passed to the worker; takeup was very low (OECD, 2013[20]). A series of projects have provided training to residents for employment in the construction sector, in some cases followed by job subsidies, bringing wages up to 50% above the minimum wage. While this did lead to some take-up, the main occupations relying on foreign workers, are so-called “wet-work”, high paid but onerous jobs in plastering, tiling and sealing. Attempts to train for these jobs have met more difficulty, especially when employers also have access to foreign workers. Stigmatisation is an obstacle (Economic Affairs Committee, 2011[21]). In the health sector, beneficiaries of long-term care subsidies were granted 20% more hours if they hired a resident worker, but take up was minimal, as beneficiaries preferred foreign workers to whom limits on working hours did not effectively apply (OECD, 2011[22]).
National skills funds based on fees imposed on employers of labour migrants may also be used to try to train resident workers to fill jobs. In the United States, the H-1B programme requires employers to contribute to a training fund. Grants from the fund provide training targeted to occupations in demand, to reduce American dependence on foreign labour, although grants bear no relation to the distribution of H-1B workers or their occupations (OECD, 2014[6]). Australia introduced a “Skilling Australian Fund” in 2018 to which employers of temporary foreign workers are required to contribute; there is no statutory link to temporary foreign worker occupations.
In other cases, requiring a one-for-one hiring of local workers and foreign workers may represent an indirect subsidy. In Ireland, for example, a sector‑specific agreement between the Department of Jobs, Enterprise and Innovation and the meat deboners industry granted a quota of work permits on the condition that the sector recruit at least one resident worker from the unemployment rolls for each foreign worker admitted. This approach is possible in Ireland due to the small size of the economy, the concentration of employers and workplaces in the sectors where such agreements are made, and the close monitoring possible.
Does programme design protect the local labour market?
One of the key questions in any labour migration programme is how to ensure that foreign workers do not have a negative effect on local workers. There are a number of safeguards which can be put in place. Some are designed to provide local workers a fair chance to apply for vacancies; this is the logic behind mandatory advertising procedures and periods prior to authorisation. In Korea, the mandatory advertising period serves this function, as does the point system to reward firms which recruit local workers.
However, given the specific characteristics of the less-skilled Korean labour force, the workers who are most likely to be displaced are not younger workers or new labour market entries, but rather older workers – including those who have retired from another job and are in the labour market.
One paradox of the foreign worker programme in Korea is that EPS programme design requires workers to receive at least the minimum Korean wage, since the mandatory contribution framework represents a form of compliance oversight. The gross monthly income of EPS workers is at least the minimum wage (KRW 1.35 million in 2017). In 2017, 58.3% earned more than KRW 2 million while no E-9 workers earned less than KRW 1 million9. At present, participants in EPS are almost universally initially hired at minimum wage; due to overtime their gross monthly wage is above the Korean minimum. The working hours of foreign workers exceed, on average, 260 hours per month, with more than 20 hours per week of overtime (Table 3.6). This is all the more remarkable as it is the average, as reported by employers in 2015. Hours are longer in smaller firms (SMEs with fewer than five employees are exempt from limits on overtime) and firms outside of the capital region. Gross wages of about USD 5.05 were reported, suggesting that E-9 workers employed 40 hours per week would earn about KRW 1 million, or USD 875.
Table 3.6. Extensive overtime raises monthly income of E-9 workers
Working hours and wages and employer cost (USD) for E-9 workers, by region and firm characteristics, July 2015.
Note: Overtime is calculated based on gross wage, assuming 40 hours weekly at hourly wage and overtime at 1.5 times hourly wage. Exchange rate is KRW/USD for July 2015, the survey period.
Source: Survey of 620 SMEs employing E-9 workers conducted by the Ministry of Public Administration and Home Affairs, Current Status and Improvement Plan of Foreign Workers, SME Researcher, 2015) cited in (KOSBI, 2016[15]).
The same cannot be said for Korean workers, many of whom earn less than the statutory wage. Raising the wages for foreign workers might make it more attractive to hire local workers, as long as the compliance framework remains in place. However, overtime among Korean workers is below the level of foreign workers.
As a result of extensive overtime, the estimated wage distribution of all foreigners in Korea shows a concentration around the minimum wage level and around the maximum monthly earnings for minimum-wage workers employed for the maximum time allowed (in 2015, 68 hours weekly) (Figure 3.16). This figure shows all foreigners, so includes those such as H-2 workers who may work fewer monthly hours, and higher-paid technicians. Some E-9 and H-2 workers however clearly earn above the minimum wage, even taking into account the overtime hours. The income distribution for Koreans is shifted significantly toward higher income.
Figure 3.16. Foreigner income is concentrated around minimum wage and minimum wage with maximum overtime
Note: MW = Minimum Wage. (1) MW 2015 for 68h/week is calculated based on 50% overtime bonus for 12 hours during weekdays and eight hours in weekend/holiday and 100% overtime bonus for more than eight hours in weekend. (2) MW 2018 calculation for 52h/week assumes 50% overtime bonus for 12 hours on condition of less than eight hours in weekend/holiday. Wage above KRW 5 000 is not shown. Based on a sample of all foreigners employed.
Source: Unofficial estimates by the Ministry of Justice (Ministry of Justice, 2018[23]).
This question will be put to the test in 2018, when the hourly minimum wage increased to KRW 7530, a 16% increase. This will have a disproportionate effect on categories of workers where most are paid minimum wage, as is the case for newly hired EPS workers.
The EPS programme is gradually upskilling, with the addition of the points-based selection mechanism. A rise in minimum wage will also lead firms to expect higher productivity from their foreign workers. In addition, current regulations foresee a decline in the maximum number of working hours, which will fall to 52 hours a week in 2020, in firms with five or more employees.
Box 3.9. Studies on the Labour Market Impact of Migration in Korea
Despite the large inflows, there has been relatively limited literature on the impact of immigration on the Korean labour market due to data constraints. The concentration of foreign workers in certain sectors and firms would suggest that the labour market impact of temporary foreign workers would be felt most in the SMEs in the manufacturing sector. Several studies have attempted to test the employment substitution effect and negative wage effect of foreign workers in this perspective using different econometric methods. A first study analysed the manufacturing business in the Seoul area by firm size and found foreign workers complementary with national workers in elementary labour in businesses under 100 employees (Kwon, Lee and Cho, 1995[24]). Another early study analysed the trend of relative employment rate by skill levels in manufacturing during the Industrial Trainee Program from 1997 to 2001 (Hahn and Choi, 2006[25]). Later results point to the possibility of national male semi-skilled workers, such as machine operators and assembly workers, being displaced by industrial trainees (Hahn and Choi, 2006[25]). However, these results in the early phase of temporary labour migration policy in Korea are difficult to generalise because of methodological issues - and weak evidence of impact on wage was found in both studies.
More recently, research has been conducted with the increased inflow of foreign workers and cumulated administrative data. One study using the employment insurance database investigated the impact of foreign worker inflow on national worker employment in August 2004 and December 2005, the period during which employment insurance was mandatory for EPS workers (Kim, 2009[26]). This analysis estimated that a 10% increase of foreign worker employment rate increased national worker unemployment risk by 0.12‑0.24% in the same occupation, with a stronger effect on national workers with a middle school education or less. By industry, the substitution effect was not found in manufacturing, while it was in the service sector on business unit analysis. Looking at the period from 2004 to 2008, during which employment of Koreans in most sectors fell while employment of foreign workers increased, one analysis reported the same findings as the previous study; employment of foreign workers had a negative effect on Korean worker employment, mainly in construction and in the restaurant industry (Lee and Park, 2008[27]). A study applying the aggregate factor proportions approach to the labour force survey and population census tested foreign worker’s impact on national male workers’ wage, in which skill level is defined by educational attainment and work experience (Choi, 2013[28]). This study found that the inflow of foreign workers since the 2000s reduced wage increase of the low skilled youth (25‑34) by 20%. Due to data constraints, none of the above studies examining EPS program effects look separately at the effect of E-9 and H-2 workers.
A recent study combining EPS and the employment insurance database is the most comprehensive analysis to date on the EPS program separating temporary foreign workers into E-9 and H-2 workers over the time period between 2004‑13 (Lee et al., 2016[29]). The analysis found that by industry the complementary effect exists between national and foreign workers in manufacturing (not significant since 2012) and that the substitution effect in the service sector intensified since the 2009 global economic crisis. The results also found that women, more than men, and older male workers were more vulnerable in terms of job competition with foreign workers. When looking at wage, a 1% increase in the share of foreign workers decreases wages of Koreans by 0.2‑1.1%. The wages of domestic female workers are more affected by the employment of foreign workers than the wages of male workers. Since the wages of older Korean workers are higher than those of other age groups, the impact was found to be more negative on older workers. The change in employment of E-9 and H-2 visa holders were not significant factors. Lastly, this study compared the turnover rate of national workers in business with and without foreign workers using propensity score matching. The results also demonstrated that businesses employing foreign workers had a higher turnover rate of national workers and shorter-term employees. The labour market exit rate of national workers was 2.7% higher in businesses with foreign workers than that of businesses without foreign workers. As implied in this report, the national worker’s higher turnover rate needs to be interpreted with caution; whether job instability in businesses hiring foreign workers can be attributed to substitution effects induced by foreign workers, or to unfavourable working conditions of the business, or the interaction of the two factors needs to be further examined.
More recent studies have also examined the broader aspects of the introduction of foreign workers as well as the firm-level labour market impact. A study on the business panel analysis from 2007‑11 on manufacturing in the Incheon area found that the employment of foreign workers substituted national workers in small firms with less than 50 employees while no significant effect was found in the larger firms. No wage effect was found regardless of firm size (Oh, 2017[30]). A study using the Korean Workplace Panel Data investigated firm performance impact of foreign workers in SMEs from 2009 to 2011 (Nho and Hur, 2017[31]). The workers were a mix of EPS and H-2 workers as well as other foreign workers. The study found that temporary immigration has a positive impact on firm profitability. Presence of foreign workers had a positive effect on labour productivity, and weak effects of lowering the wage of low-skilled native workers and of reducing labour shortage.
Most analyses above examined the total foreign population rather than the impact of specific programmes. For more viable policy implication of labour migration policy in Korea, the effects of other category of foreign workers should be taken into account considering that most F-4 and F‑5 holders work in same sector as EPS workers. Future analyses should look at firm level effects of employment of different categories of foreign workers. Particularly useful would be studies comparing firms eligible for E-9 workers, but not assigned E-9 workers, with those which employ E‑9 workers.
Balancing rights of workers with those of employers
Binding workers to employers, sectors and regions
Korea has, as noted, a mix of different labour migration channels. The extent to which foreign workers are bound to their employers or sectors varies, with the E‑9 workers facing the most strict conditions, bound to employment in a specific sector and with their job changes conditional on employer approval, illegal employment practices by their employer, layoffs or firm closure. Most other work permits require an employer but allow changes to any other eligible employer as long as the conditions of the visa are respected. A number of permits, such as the F-2 or the F-5 and F-6 permits, do not impose any restrictions on the type of employment.
The E-9 programme, when first introduced, allowed four grounds for job change:
The employment contract is annulled (e.g., the worker arrives but the firm no longer requires the worker) or ends (e.g., the contract was for one year)
The business closes or shuts down temporarily
The business loses its right to employ the foreign worker
Workplace injury or disability
Workers were allowed three changes of employer over the course of their employment period, not counting those changes cited above where they were not at fault. Unemployed workers had two months to find a new employer, or their permit was withdrawn. During the economic downturn in 2008, the number of E-9 workers who were laid off and seeking employment reached 14 700 from 8 500 in 2007.
The constitutional court considered the question of job-change restrictions in 2010 and left the restrictions standing; if it had abolished them, the sector restrictions would also have been abolished, allowing full labour market access to E-9 workers and throwing into question the Employment Permit-based scheme. The court justified the restrictions by linking admission to the labour market test and the need to protect resident workers. This justification explains why foreign workers are only allowed to occupy jobs for which vacancies are demonstrated, but does not address the question of job mobility among firms which have demonstrated labour shortages which cannot be filled by locally available labour.
The system for matching dismissed E-9 workers to new employers was changed in 2012. Until then, workers could be sent to new employers, or given a list of ten potential employers, which workers could contact directly. If no match was found, a second list of ten could be requested, and so on. Since many workers did not have language skills or capacity to contact employers, unlicensed brokers stepped in and often mediated, taking rents and leading some workers to lose legal status. From 2012, the employment centre has taken on the role of placing unemployed E‑9 workers, offering three months job-search support. Based on worker preference for the region, conditions and occupation, text messages with contact of employers are sent; the employment centre also hosts interviews and provides translation if necessary. If the job seeker fails to find a job after two months, the centre proposes at least five employers.
On the employee side, job mobility is of enormous interest; call-centres serving foreign workers in Korea report that job-mobility is the top question they receive from EPS workers. On the employer side, mobility is seen as one of the negative aspects of the programme. Employers are concerned that employers who fail to authorise mobility will see their foreign workers lose motivation and productivity until they are let go.
In practice, job changes are not infrequent. The number of E-9 changes has tripled over time, from 19 000 (12% of E-9 workers) in 2006 to 56 500 in 2015 (about one in five workers). During 2016, 25.4% of E-9 workers applied for workplace change; the MOEL approved 94.3% of them. Most of these are voluntary job changes; involuntary job changes represented just 16% (MOEL, 2017[32]). The rate of change reflects survey data on the intention of workers. According to the survey results of the 2017 Survey on Immigrant’s Living Conditions and Labour Force, 24.4% of E-9 workers wanted to change their current job, of which 32.2% cited the low wage as a reason to change the job.
This rate of job change is also reflected in the employer survey. About 40% of employers of E-9 workers had management difficulty due to the job change of their workers. Among those who had difficulty, the main response measure to retain workers was to raise the wage (49%). Improvement of work environment and accommodation followed (Noh, 2015[16]). About one in four employers facing retention difficulty was unable to take any step to retain workers.
It is surprising that employers would raise wage and improve conditions for retention, since low wages and poor conditions were among the main reasons for which, in the same survey, it was difficult to recruit local manpower (Noh, 2015[16]). The voluntary turnover rate is surprising given the high value assigned to diligent worker status by E-9 workers. In the 2017 FLFS, 77% of E-9 workers intend to stay in Korea after visa expiration, of which 87% cited visa extension (i.e., the returning migrant status) as a way to stay in Korea. To be eligible to be a returning diligent migrant, there should be no voluntary job change during the entire four years and 10 months of stay, and this policy plays a considerable role to prevent E‑9 workers from voluntary job change of the employer to which they are originally assigned.
The Employment Permit System makes efforts to find the equilibrium point between employers and foreign worker’s sides by rewarding workers when they do not change job, while creating and improving the arbitration system in case where the job change is deemed to be necessary. The fact that neither worker nor employer are fully satisfied with current provisions suggests that the system is a successful compromise.
Temporary work programmes in OECD countries are always conditional on an initial job offer with a specific employer, but job mobility is generally granted. Few European OECD countries restrict workers to a sector or employer. In European countries, workers have labour market mobility among employers, as long as the new job offered meets the requirements of the work permit. In Spain, foreign workers must remain in the region and sector for which they were recruited for the first year, although they may change employers; after one year, they have full labour market access. In Italy, foreign workers have full access to the labour market immediately, and are not required to start employment with the employer who sponsored them. However, outside Europe a number of temporary work programmes do bind workers to sectors and employers. This is true in the H-2A and the H-2B programmes in the United States, and the temporary foreign worker programme for lower-skilled workers in Canada, where workers are bound to the employers who admitted them as long as their job continues and the employer respects the terms of the contract. Australia’s temporary 457 programme bound workers to employers but allowed some occupational change within the workplace; its 2018 revision (into the 482 programme) further specifies that workers may only work in the nominated position. As neither Canada nor Australia impose numerical limits, job change is subject to the same requirements as initial admission. In Israel, workers must remain in the sector for which they were recruited, but may change among authorised employers or employment agencies. In numerically limited sectors – agriculture and construction – there are more authorised employers than workers, so there is some competition among employers. Ireland included numerical limits in a pilot for lower-wage employment introduced in 2018, targeted at horticulture, meat-packing and dairy. Workers are required to remain within the sector, but may change among employers and positions meeting the programme requirements.
The challenge in these programmes is to find a balance between the acute labour needs of the employer, which justify recruitment from abroad, and the ability of the worker to maintain bargaining power to reduce the chance for exploitation. Binding can be more attractive for employers: employers are less likely to participate in a labour migration scheme if they suspect they will lose their workers to competitors offering more favourable working conditions or higher salary. Further, when admission is meant to provide labour to a specific sector or region, allowing workers to leave for other sectors undermines the labour market test or shortage which justified their admission.
The awarding of employment permits to firms in Korea under the EPS is an example where the logic of the shortage decrees that workers only be able to change among employers holding employment permits. Indeed, authorisation is not for employment in a specific sector but for employment in specific authorised positions. Issuing a higher number of employment permits to firms than workers admitted would however lead to a degree of competition. Restrictions could be placed on sectors and regions of employment, as in other countries, without binding workers to a single firm. The “diligent worker” provisions are an alternative incentive for workers to stay with their employer, so as to return for a second five year spell of employment.
Strengthening the ability of workers to improve compliance
Under EPS, there are no requirements for employers or workers to report effective payment of salaries.
Korea has a high use of internet and high penetration and use of smartphones. The foreign worker programme is no exception and Korea is using new technology to allow foreign workers to monitor their employers’ compliance with labour law and to track their own salary and contributions. Participants in EPS can use an app developed by HRD Korea to monitor their rights, including to calculate the accumulation of severance pay (Departure Guarantee Insurance). However, the weakness of this application is that it relies on the self-reported pay.
In the case of dispute between employers and workers on the amount of severance pay and DGI, the burden is on the employer to prove the actual amount paid.
The use of apps to increase compliance and oversight can be expanded. One example is the “Record my Hours” application developed by the Australian Fair Work Ombudsman, which records arrival and departure time from the workplace using geofencing technology. Manual recording is also possible when there is no connectivity. The multilingual app also assists recording shifts, photographing and saving pay slips, and cloud backup of work diaries. “Record My Hours” is not meant to substitute employer record-keeping, but to allow workers to track their hours and address discrepancies between employee claims and employer records.10 However, geolocation is not as reliable a means for recording working hours when workers live on site, as is often the case with E-9 workers whose housing is provided by the employer.
Within the agricultural sector, compliance issues are more of a concern, due to relative isolation of workplaces, the on-site lodging in often low-quality barracks, and lack of coverage of the Labour Act’s provisions on working hours, rest times and vacations11. In order to address this, a proposal is to grant agricultural workers the right to change employer if housing is considered substandard, or if room and board deductions are excessive or occur without a signed agreement. This provision, if adopted, would create competition among employers to respect minimum standards and improve housing quality, as well as lower housing deductions, as long as sufficient alternatives exist for E-9 workers in agriculture.
A further means for improving the position of workers is to offer training. HRD Korea has offered training to EPS workers during their stay in Korea. From 2010 to 2017, it offered 25 600 places to workers, for 48 hours training, held on Saturdays through job training centres across the country. Training comprises basic and advanced vocational programs, based on the sector of employment. Advanced courses, for the manufacturing sector, focused on technical skills such as automotive repair and welding. The objective of the courses was to improve productivity; additional skills also allow workers a chance at higher-wage jobs within their firms and the transition to E-7 visas. Since 2014, the number of courses offered by HRD Korea and the number of participants fell. However, employers organise training through direct contracting with training institutes. Relative to the total number of EPS workers, take up of training opportunities is fairly limited (about 3% of EPS workers participate).
Box 3.10. The use of employer levies in managing labour migration
One mechanism used to increase the cost of use of foreign workers, to encourage employers to invest in capital or hire resident workers rather than recruit from abroad, is the employment levy. Employment levies are regular taxes imposed on employment of foreign workers throughout their period of employment. Levies can be a fixed monthly or annual fee, or a percentage of gross wages. While levies are used in many non‑OECD Asian countries such as Singapore and Malaysia, they are not used in OECD countries with the exception of Israel.
In Israel, the use of levies and annual fees has varied over time. A payroll levy is imposed on workers in agriculture (10%, but suspended from 2016 to 2020), construction (15%) and other sectors (20%), with the sole exception of care, where no levy is imposed. This levy was introduced in 2003 and increased in later years, with the 20% levy extended to employment of asylum seekers. In addition to the levy, there is also an annual fee which varies among sectors (NIS 7 130, about USD 2 000, in construction, NIS 1 190 in agriculture and NIS 9 500, or USD 2 700, for experts). This fee is in addition to the initial hiring fee, which also varies. Due to lower wages and to fewer social contributions, the average total cost to employers of foreign workers remains below that of Israeli employees even with the levy.
Annual fees may be similar to levies. Australia’s Temporary Skills Shortage (TSS) Visa, introduced in 2018, imposes an annual AUD 1 800 fee on employers. Similarly, while not a levy, Canada imposes a CAD 1 000 fee on employers of foreign workers subject to labour market test; since the labour market test must be renewed annually, the fee amounts to an annual tax on continued employment of the foreign worker.
Alternatives to levies include requiring employers to pay at or above the prevailing wage. In Estonia, for example, through 2017 foreign workers were authorised only if their salary was 1.24 times the national average; this was lowered to the average in 2018. In the United States, the H-1B and H-2B visas both impose the “prevailing wage rate for the occupational classification in the area of employment”. A public benchmark is calculated, and employers can also ask to use a private wage survey.
The levy is meant to increase the cost of employment to the employer. However, a statutory wage increase can achieve the same effect, with the added benefit of increasing the perceived wage in the workplace by resident workers. The risk of government levies is that if compliance and enforcement are insufficient, employers will be able to extract the additional cost from foreign workers themselves through illegal employment practices such as unpaid overtime. Further, levies, once in place, can come to represent a revenue stream of such importance that policy makers are reluctant to reduce the size of the foreign worker programme.
When applied to non-labour migrants, levies raising the cost of employment may indeed discourage employment. Switzerland imposed a 10% tax on annual income of certain categories of refugees and asylum seekers during the first ten years of residence in Switzerland, as a means of reimbursing social costs related to their stay. This tax was eliminated in 2018 due to its negative effect on employment of people in this category.
If the objective of the levy is to protect national jobs, as is stated in the Third Basic Plan in Korea, raising the cost of employing foreign workers can be achieved through market mechanisms – with higher wages accruing to workers – rather than regulatory surcharges.
Reducing overstay
One of the main concerns in the programme is workers overstaying the end of their permit and becoming irregular. This is a frequent problem in temporary labour migration programmes for less-skilled workers in OECD countries. In 2002, the foreign workers were able to complete one year as a trainee and then remain two years of employment. That year, the government increased the number of industrial trainees by 20 000 to 145 000 (Park, 2004). Although this scheme guaranteed their labour rights for a longer period, it could not entirely overcome the limited scope of the original trainee programme. As the programme kept generating problems, it became a prominent social issue. It escalated the debates as the number of undocumented foreigners who were assumed to be working illegally continued to rise to 290 000 in 2002 (Park, 2013). At the end of 2008, foreigners living in Korea without authorisation amounted to 200 000, a 10% decrease from the previous year. In 2016, overstayers amounted to about 10% of the total foreign population, but most were overstaying short-term visiting and tourist visas, rather than work visas. The only longer-term visas with a large number of overstayers, and a high overstay rate relative to the number of visa-holders, were the E-9 visa and, to some extent, sailors (E-10 visa holders), and students who came to Korea to study in Korean language institutions and not in tertiary educational institutions (D‑4).
Overstay within the EPS programme was initially very high, as the first group of regularised interns reached the end of their work extension, but fell until 2009 (Figure 3.17). When the first cohorts of EPS workers reached the end of their five-year work term in 2009, the overstay rate began to tick upwards. Recruitment halts and greater co-operation with countries of origin from 2012 led to a decline in the share of overstayers. Overstay – which includes workers abandoning their authorised employers – is higher in sectors where working conditions are relatively poor, such as fisheries (38%) and waste treatment services, but also construction. Overstay of workers admitted into the manufacturing sector was below 12% in 2017, substantially lower than in other sectors. The manufacturing sector also has far more employers than other sectors, giving workers who are unhappy with employment more opportunity to change jobs.12
Figure 3.17. The EPS programme has grown, while overstay rates have declined
Source: Panel A: Korea Immigration Statistics. Panel B: HRD Korea (Woo, 2018[33]).
There is a strong desire among E-9 workers to extend their stay in Korea (Figure 3.18). In 2017, only 23.3% said they would prefer to return to their home countries after the end of their stay in Korea, while more than 67% said they would like to extend their stay under the same status. These shares have been constant since the question was first asked in 2012. For other categories of workers and residents, the intention to remain was high. The intention to extend stay or acquire nationality was high among ethnic Koreans (H-2 and F-4 permits). Intentions have been constant for most other groups in the past six years, although the share of working visit (H-2) permit holders hoping to naturalise or acquire permanent residence has declined, in part due to the fact that many of those eligible have changed status to F-4.
Figure 3.18. Most foreign workers would like to extend their stay
Source: Survey on Immigrant’s Living Conditions and Labour Force, 2017.
The high level of intention to remain among E-9 workers (at least, those covered under the survey) suggests that they are not only satisfied with the programme and their job opportunities in Korea but that they are willing to remain under the same programme conditions during an extension.
Overstay is also an issue because of the large pool of employers willing to hire foreign workers without legal status. Many of the former EPS workers have acquired experience and language skills sought by employers; in addition, as overstayers, they do not require dormitories. Some firms have been excluded from EPS due to the PBS distribution, and can only hire foreign workers illegally. If a clear path back to access to EPS is provided, some of these employers may return to legal hiring.
The overstay rate in EPS has been declining, and represents a substantial improvement over the overstay rates of previous labour migration channels. The rate was 16.9% in 2014, 15% in 2015, and 14.1% in 2016, although it increased slightly in 2017 (14.5% in October 2017).
This can be compared with overstay rates in some other temporary labour migration programmes (Box 3.11).
Box 3.11. Overstay rates and contrasting measures in employment programmes in other OECD countries
It is difficult to establish a benchmark for the expected rate of overstay of temporary work programmes. Not all countries are able to accurately report overstay rates for labour migration programmes. In countries with double-card (entry-exit) visa controls, it is possible to determine if a foreign worker has overstayed or – with administrative checks – if the worker is still in the country but no longer legally employed by an authorised employer.
For example, in Israel at the end of 2017, the overstay rate was 20.9% for workers admitted for the long-term care sector, 6.9% for foreign construction workers, and 5.3% for foreign agricultural workers. The rate has been increasing in agriculture and declining in construction, while it has been historically steady in the long-term care sector.
In the United States, estimates for overstay were produced for Fiscal Year 2015 and 2016 (Department of Homeland Security, 2017[34]). While temporary workers (H visas) were only one of many categories included in the calculation of overstay rates (for “other in-scope nonimmigrant classes”), rates for the main nationalities of temporary workers were generally between 5% and 10%, although some approached 20%.
In Japan, the total rate of overstayers relative to legal residents was under 3% in 2017. Overstay rate by admission category is not available. However, in additional to illegal overstay, an emerging issue has been opportunistic asylum applications by workers whose trainee period of employment expired – such applicants do not appear as overstayers, as they are granted temporary leave to remain and, until early 2018, were also granted employment access while awaiting a decision on their application.
In seasonal programmes, ensuring that workers can return the following season is one measure used with success to reduce the risk of overstay (Merwood, 2012[35]). Indeed, overstay rates in New Zealand’s seasonal programme are around 1% (Gibson and McKenzie, 2014[36]). New Zealand employers in the seasonal scheme pay the costs of removal (up to NZD 3 000) for each worker who overstays; this encourages employers to select workers likely to return. In Spain, employers with many overstayers lose their right to recruit in the future, providing an incentive to select workers likely to return and to make efforts such as provide transportation to the point of departure at the end of their stay (OECD, 2008[37]). In Italy, any employer sponsoring a work permit (seasonal or non; first, renewal or change of employer) must assume responsibility for the return costs of foreign workers. The interpretation of this 2002 requirement, however, is that it applies only to forced returns and in the event that the state requests reimbursement of related costs; no such requests have ever been made. Partner countries in bilateral agreements may also apply their own measures; Samoa, for example, excludes relatives of overstayers from participation in the bilateral seasonal work programme with New Zealand.
HRD offers training in the home country after return. In 2014, about 8.5% of all EPS workers who went home participated in training following their return to the home country. HRD also puts ex-EPS workers in contact with Korean companies in the origin country seeking foremen and local staff managers for their operations in the country. These opportunities are a powerful incentive to return, since a quality job where their new skills can be used is valuable for workers. The opportunities are primarily available where Korean companies have a strong presence, such as Viet Nam, Indonesia, Cambodia and Mongolia.
To ensure the quality of home-country post-migration training, providers are paid in full only if at least 45% of participants find employment; this encourages good co-operation between training institutes and Korean companies.
HRD also supports successful ex-EPS workers to serve as representatives in their home countries to speak with the local community, to encourage quality candidates and to provide evidence that return can be positive. For this purpose, HRD Korea maintains a database on returned workers. It also issues work experience certificates to departing workers.
How long is too long?
Two considerations underlie the restriction on stay in EPS. First, the indefinite need for the worker is not demonstrated in a context where the long-term need for non‑professional labour is not known with certainty. The second is the restriction on family reunification, which makes an indefinite stay difficult to reconcile with family life. The restriction on family reunification is in turn justified by the low wages paid for the jobs filled by EPS workers, which are not enough to support a family without assistance from benefit programmes. Further, the gruelling working hours of E-9 workers – consistently averaging 20 hours weekly overtime (as seen in Table 3.6) – are incompatible with a sustained rhythm of employment.
The maximum stay under the EPS is 10 years (more precisely, nine years and eight months), a limit which was reached by the first cohort of workers in 2017, covering those who returned after five years. There are two separate grounds for returning workers after their first five year period: the diligent worker option and the language exam. Diligent workers are those who stay with their employer for the entire period in which they are in Korea; SMEs with fewer than 100 employees (50 employees prior to 2019) may request their return. The advanced language exam is administered in the country of origin and successful applicants may return to Korea for a second period of employment, with a new employer or with their old employer. It was decided in 2017 that these cannot be cumulative, capping stay at 10 years.
The number of workers allowed to return is set annually as part of the quota-setting exercise (Figure 3.2), and has been around 10 000 since 2011. Most go back into manufacturing sector jobs. About 6.2% of returning EPS workers are women.
This is the longest stay allowed in any temporary labour programme for low-skilled in OECD countries. In the United States, the maximum stay is three years, for example. Canada eliminated its four-year limit for temporary workers in 2016. In Israel, the maximum stay is five years (although care workers may extend their stay for the lifetime of their patient).
Box 3.12. Maximum duration in temporary work programmes
The maximum duration of stay in temporary work programmes may reflect different and competing policy objectives.
In the United States, the maximum stay is three years, for example, in the H-2B programme, although the permit must be renewed annually. After three years, there is a three-month required exit before applying for re-entry. Canada eliminated its four-year limit for temporary workers in 2016, at the same time as additional restrictions were imposed on recruitment for the programme. The elimination of the limit was related to the situation of specific industries with chronic difficulty in recruitment (especially seafood processors) in certain regions of the country. In Israel, the maximum stay is five years (although care workers may extend their stay for the lifetime of their patient). In Japan, the maximum stay period in the technical intern and industrial trainee programme was set at three years until 2017, when it was increased to five years.
In most European countries, two EU directives constrain the ability to limit stay: a right to family reunification and a right to permanent residence. First, the family reunification directive (2003/86/EC) grants a right of family reunification – subject to conditions - “where the sponsor is holding a residence permit issued by a Member State for a period of validity of one year or more who has reasonable prospects of obtaining the right of permanent residence”. The directive allows countries to impose a maximum two year stay before eligibility. The second constraint is the long-term residents directive (2003/109/EC) which requires a possibility of permanent residence after five years legal stay. While conditions may be imposed on family reunification and qualification for permanent residence, in practice most EU countries cannot offer permits which, in the persistence of original grounds for admission, require departure after a stay of several years.
EU countries not covered by the directives have time-bound permits. The Tier 2 (General) skilled visa in the UK, for example, can be held for up to six years, although holders are potentially eligible for settlement after five years, subject to certain conditions.
Seasonal programmes may allow, and even encourage, repeat returns. Most seasonal programmes have high repeat rates, whether the H-2 programmes in the USA, the Canadian seasonal programme, or European programmes. In some cases, continued compliance with seasonal work allows transfer to regular residence (after as little as two seasons, in Italy). Until June 2002, Switzerland had a seasonal workers programme that allowed foreigners who were employed at least 36 months in four consecutive years under nine-month seasonal permits to “earn” an annual - and eventually a permanent – residence permit. This entitlement to status change was a particular feature of Swiss immigration policy, and meant that most labour migrants were low-skilled former seasonal workers (Martin, Abella and Kuptsch, 2006[38]).
Intra-company transfer permits may be subject to maximum duration of stay without extension in many countries. In the UK, maximum stay depends on the level of remuneration and role. Under the EU intra-corporate transfer directive (2014/66/EU), the maximum duration is one or three years, depending on the level, with a cool-down period (mandatory absence) of up to six months, but change of status is allowed. In the United States, the L-1 visa for intra-company transfers is valid for up to seven years, and requires a one-year period of employment outside the country before a new visa can be issued. It allows in-country status change, however.
In practice, there is some evidence that E-9 workers form families in Korea (although if they have children with other E-9 workers, the children do not have a right to a residence status), or bring their spouse from their home country through other means.
Can seasonal workers be a response?
The decline and aging of the rural workforce and the agricultural workforce have driven the increase in the use of foreign workers in the agriculture and livestock sector. Seasonal workers were not considered for many years. Seasonal work programmes are widely used in OECD countries to meet the needs of the agricultural and tourism sectors in particular, where labour demand is regular and seasonal and local labour in rural areas is not always readily available. In Korea, the national authorities were reluctant to create a seasonal agricultural programme out of fear of overstay due to the difficulty of seasonal workers to recoup their costs. EPS is not designed for seasonal stay. Nonetheless, local governments pushed for a pilot to test the programme, and in 2015, Korea introduced a pilot for seasonal workers. Unlike most countries, where selection occurs through agencies and is mediated or overseen by the regional government, Korea’s pilot used two channels, in both cases through local municipalities, either through direct relations between rural municipalities in Korea and towns in the origin countries of workers; or through contact with workers through the “marriage migrants” who identify family members in their countries of origin and propose that the local authority sponsor them. Initial findings of the pilot with 150 workers have been favourable in terms of limited overstay, although the short-stay programme (less than three months) provides few guarantees to workers (Choi and Lee, 2016[39]).
Short-term seasonal work programmes do not give workers the opportunity to earn large amounts, so the use of channels such as family ties where the risk of rent‑taking and abuse is reduced is a positive step. The Korean pilot applies to single employers, but it may be useful to consider allowing local agricultural consortia to employ seasonal workers more effectively during their stay. Similarly, allowing employers to rehire previous workers and allowing workers to return each season can be a means to ensure compliance with programme rules.
Options for permanent migration
The temporary labour migration programmes for non-professional workers introduced in the 2000s were meant to be temporary, with no explicit pathway to permanent residence. Employers, however, expressed interest in retaining the most talented and reliable foreign workers. Further, a solution had to be found for the ethnic Koreans who were nearing the expiration of their stay and were well settled, especially those who were working in regions or occupations in demand.
For the first group, a provision was put in place offering a small window for status change from E-9 to E-7. The increase in E-7 visas, however, cannot be attributed to this, since few E-9 holders met these strict conditions. The requirements were eased in 2015. There were 249 status changes from E-9 to E-7 in 2015, a small number compared with the number of expiring E-9 visas. The vast majority of E-9 visa holders do not qualify for the bridge to E-7. They are more likely to qualify for an F visa due to marriage with a Korean national; indeed, in 2015, 428 E-9 workers acquired permanent residence through this channel.
In mid-2017, a second provision for bridging from E-9, E-10 and H-2 visas to the E-7 visa was created, using a points-based system. This visa, the E-7‑4, allows candidates to qualify by scoring points on different criteria (work experience, income, age, Korean language proficiency and level of education, as well as considerations such as employment in “root” industries). The E-7‑4 was introduced as a pilot scheme and capped at 300 visas, which were immediately taken up; a further 300 were made available for 2017. Only SMEs with fewer than 150 employees may sponsor a change, unless they are in root industries. A firm‑level limit on status change is imposed, with firms only allowed one or two changes to E-7‑4 per round, depending on the firm size and sector: root industry firms with five employees or more are allowed to sponsor a status change for one employee; other firms must have at least 10 employees. Firms with 50 to 149 employees may sponsor two employees. Root industry firms may sponsor additional E-7‑4 applications, up to five according to firm size.
In light of the complexity of the PBS used for E-7‑4 (Annex Table 3.A.4), and the requirement to remain in the same employment, careful monitoring of beneficiaries will be necessary in the first years of the pilot to ensure that income levels remain at the level initially considered in the PBS. Evaluation of the outcomes of these visa-holders, in terms of their later status change behaviour, their family reunification patterns and the outcomes of their family members, will be important to adjust the PBS and decide whether to lift caps. This is particularly relevant if the E-7‑4 PBS replaces the previous E-7‑1 bridge.
A further provision is available for E-9 workers, the F-2‑6 visa. This visa, also open to E-10 and H-2 visa holders, is available for workers who have worked for at least three years in the manufacturing, construction, agriculture and fishery sector. It requires a salary above the national average for the previous two years; about USD 18 000 in liquid assets, and a medium level of Korean language ability (TOPIK 3). A language exemption is available for those who have a skill certificate.
What prospects do low-wage foreign workers have for settlement?
Most but not all OECD countries offer much more generous possibilities for temporary labour migrants to acquire permanent residence status. This is also true for low-skilled temporary labour migrants in those EU countries where such migrants are admitted from outside the EU. In addition, most OECD countries allow temporary workers to bring family members, especially if their stay is over a year and they meet income and housing requirements. Korea thus stands out in its policy setting; only Israel imposes a similarly rigid temporary labour migration system for long-staying labour migrants.13
A strong argument against allowing E-9 workers to bring their families – even temporarily – is that the family would be in a situation of likely social exclusion and extreme vulnerability. Unlike Korean families, foreign workers do not benefit from existing capital in the country (neither social, in terms of networks, nor financial, in terms of household wealth) nor are they eligible for the social transfers which represent an important share of the income for low-wage Korean families. Further, for workers with children, it could be difficult to bear the additional expenses most Korean families invest in supplementary private education services for their children, putting their children at a disadvantage. According to the Private Education Expenditure Survey, in 2017, on average, 70.5% of all students pay for supplementary education service in privation institutions in Korea, of which their family spend KRW 384 000 per month and per child. This amount is equivalent to 21% of the average monthly gross wage level of E-9 workers – KRW 1.8 million (Noh, 2016[40]). Assuming one breadwinner in four-person household, a household with KRW 1.8 million would be eligible for the housing and education benefit under Basic Livelihood scheme, which is not the case for a household composed of only foreigners.
In practice, the prospect of permanent residence already granted by the chance of status change is a powerful incentive to achieve certain goals and to encourage workers to make an investment in their own human capital. It is not clear whether E-9 workers who aim to qualify for this status change are motivated by a desire to stay longer in Korea, remitting to their families at home, or to bring their families and settle. In the latter case, prospects appear poor without access to integration support.
Working Holiday Makers
Korea has signed Working Holiday Agreements with 20 countries, although outflows from Korea are much higher than inflows. Korea had about 4 500 WHMs incoming in 2015, a decline from the peak year of 2014, when inflows stood at 6 400 (Kang, 2016[41]). Most are Japanese, followed by Chinese Taipei and Hong Kong. Most came to learn Korean, rather than to earn money. Due to their generally low level of Korean language skills, the job opportunities of WHMs in Korea are more constrained than in the English-language destination countries of WHMs. While WHMs might be able to play a minor role in certain jobs – and changes of status towards for example language teaching or students should be examined more closely – this channel is not intended to - and not likely to - address labour shortages.
Conclusions
The EPS is working very efficiently to meet its objectives, but a number of questions remain.
The success of a low-skill and low-wage temporary foreign worker programme lies in ensuring that there is equal pay for equal work with resident workers. In turn, this requires means to enforce respect of wages and working hours, including contract conditions. Most low-wage temporary work programmes are considered high-risk for abuse by unscrupulous employers, due to the vulnerability of the worker. EPS, by providing a framework for training and support has put in place a number of safeguards. However, the sector of employment is one where Koreans face poor working conditions.
In the selection process for foreign workers, there remains some margin for discriminatory behaviour by employers, especially as regards age, gender and nationality. It is important that the candidates proposed by the Job Centres include profiles which reflect the characteristics of the roster, in terms of gender, age and nationality.
Korea’s EPS is designed to provide workers at the lowest possible wage level to specific types of firms in certain sectors of the economy which suffer from low productivity and low quality jobs. The demand for this labour is driven by persistent demand in these firms – which are characterized by a high mortality rate – due to the collapse in the low-educated cohorts entering the labour market and the declining productivity and rapid turnover among the available workers. EPS – and more specifically, the E-9 visa – is a form of support to firms which would otherwise be forced to invest in physical or human capital, raising wages and productivity, or move production to lower-cost foreign locations.
Consequently, the objective to maintain low labour costs within the foreign worker programme constrains its ability to give workers more bargaining power – e.g., by allowing them more mobility among authorized employers – since the scope of the programme is to provide low-cost labour. Imminent increases in the minimum wage may put to the test the demand for foreign workers as the impact will be strongly felt in firms hiring EPS workers. Introducing employer levies would also undermine the objective of providing low-cost labour; in any case, favouring mechanisms such as mobility or assigning workers to higher-paying firms would be more effective than levies in increasing employer costs.
The programme has been successful in achieving its objective of temporary stay. Although the programme is expected to remain in place, due to a presumed structural need for labour in these sectors and firms, Korea does not allow workers to stay in the country indefinitely. There is an implicit element of EPS that if demand should dry up for low wage non-professional workers, the programme could be quickly curtailed or even expire. Meanwhile, restricting family reunification also ensures that workers do not face the need to support their families in Korea on minimum wage income, without income support.
The question of the impact on resident workers has not been resolved. One issue in the EPS is that it is a large programme targeted at a very small sector of the labour market, so that the positive and negative effects are concentrated on a relatively limited area. The absence of job mobility may be thought to limit spillover effects in non-authorised employment sectors, but what may be occurring is rather a spill-over effect on lower wage workers as they are forced out of these jobs. More analysis at firm level would be necessary to understand the impact of the programme in firms dependent on EPS workers.
Indeed, the mandatory advertising period – which functions in other countries as an additional safeguard against adverse impact on resident workers – is of little relevance when wages are below the local reservation wage.
Since programme design limits the possibility for E-9 workers to use high demand to bargain for higher wages, the principal safeguard against a negative impact of the programme on resident workers is the quota system. The quota applies to the industry as a whole, rather than individual firms. EPS allows firms, in principle, to be entirely dependent on E-9 workers for their non-professional labour needs. This is in contrast to the firm-level ceiling which applies to skilled workers holding E‑7 permits (see Box 4.2 in the next section). A firm-level ceiling could be established to ensure that firms which survive only due to temporary foreign workers are pressured to reorganise.
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Annex 3.A. Supplementary tables
Annex Table 3.A.1. Occupations open to participants in the H-2 Visa, 2018
Source: Ministry of Justice.
Annex Table 3.A.2. Sector limits imposed on ethnic Koreans only in the late 2000s have expired
Sectors of employment – ceilings on H-2 Work Visit employment.
Source: Ministry of Employment and Labour.
Annex Table 3.A.3. Occupations not allowed under the F-4 visa, 2018
Occupations which are ineligible for holders of the F-4 permits
Source: Ministry of Justice.
Annex Table 3.A.4. Points Grid for Status Change to E-7‑4, 2018
Note: Community Service is more than one year with at least 200 hours of volunteer. Recognition is from the local authority.
Source: Ministry of Justice.
Notes
← 1. EPS workers remit, on average, 63.5% of their earnings in 2010 and 69.1% in 2013 (Kang, 2014[74]). More than 90% of E-9 workers remit. The figure was lower for H-2 workers, about 56% in 2013.
← 2. The FWPC is chaired by the Minister of the Prime Minister’s Office and consists of the Vice Minister of the Ministry of Strategy and Finance, the Ministry of Foreign Affairs and Trade, the Ministry of Justice, the Ministry of Knowledge Economy, the Ministry of Employment and Labour (MoEL), Administrator of the Small and Medium Business Administration, Vice Ministers of other related central government administrative agencies (the Ministry of Culture, Sports and Tourism, the Ministry for Food, Agriculture, Forestry and Fisheries, the Ministry of Health and Welfare and the Ministry of Land, Transport and Maritime Affairs) and other related experts.
← 3. “Root industries” are SMEs in basic manufacturing industries, defined as using one of six process technologies (casting, die, welding, surface treatment, plastic processing, and heat treatment), under the Root Industry Law of 2012. Until 2014, the firm size was determinant of root industry firms. From 2015, annual sales volume is the criteria; firms with less than 150bn KRW (about USD 135m) in sales qualify.
← 4. Individuals convicted for sexual violence may not sponsor visas for five years following completion or suspension of the sentence.
← 5. From February 2017, employers can choose whether they will charge the costs of food and lodging to E-9 workers. Utilities costs may not be charged to workers, but may be included as gross labour cost by employers.
← 6. In contrast to practices in many OECD countries, contracts for the centres are not awarded through tenders but through direct award (Surak, 2017[73])
← 7. One-time training costs borne by employers are below USD 150 per worker. Amounts vary by industry: employers pay KRW 195 000 in manufacturing, KRW 210 000 in agriculture and fisheries, and KRW 224 000 in construction.
← 8. Construction sector employers of H-2 visa holders are exempt.
← 9. These figures are taken from the public data on 2017 Survey on Immigrant’s Living Conditions and Labour Force which report income in increments of 1 million RW.
← 10. https://www.fairwork.gov.au/how-we-will-help/how-we-help-you/record-my-hours-app
← 11. Article 63 of the Korean Labour Standards Act stipulates that workers in agriculture, livestock and fishery are not subject to the regulations on rest time and vacations. This applies to foreign and Korean workers alike.
← 12. Workers may shift from manufacturing into agriculture, but not vice versa.
← 13. Some OECD countries may restrict labour market access for family members of temporary labour migrants, as in the United States for the H-4 Family Members of temporary workers. In EU countries covered by the EU framework on legal migration, eligibility for family reunification is granted – subject to conditions – and family members are given labour market access (OECD/EU, 2016[29]).