South Korea's New Law Limiting Work Hours Could Trim Economic Growth, Goldman Says

(Bloomberg) -- Relief for Asia’s most overworked country doesn’t come easy.

South Korea’s new legal limit on working hours -- down to 52 hours per week from 68 -- can shave as much as 0.3 percentage point off economic growth in 2020, according to Goldman Sachs Group Inc.

“The new work-hour limit comes against the backdrop of slowing growth, highlighting the risk that Korean companies may not be able to quickly fill in the productivity gap left by the reduced work hours,” Goldman economists including Irene Choi wrote in a report dated June 27. Goldman currently sees the economy growing 2.3% in 2020.

Fewer working hours was a key part of President Moon Jae-in’s agenda. After years of battles among lawmakers, labor unions and businesses, the law was passed in February 2018. The restriction was applied from July 2018 to a limited number of bigger companies, and the net will be widened from July 1. Smaller companies are exempted until 2020 and 2021.

South Koreans worked an average 2,024 hours in 2017, the second-most after Mexico among members of the Organisation for Economic Co-operation and Development.

“Conservatively assuming that labor productivity does not improve sharply over the short term, we believe the lower work-hour limit will likely reduce corporate margins through higher labor cost burdens or reduced revenues,” Goldman economists wrote.

To contact the reporter on this story: Jiyeun Lee in Hong Kong at jlee1029@bloomberg.net

To contact the editors responsible for this story: Malcolm Scott at mscott23@bloomberg.net, Henry Hoenig, Peter Pae

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