Q+A-South Korea's rigid labour market; a brake on investment?

SEOUL, Aug 6 - South Korean automaker Ssangyong Motor Co's management and union struck a tentative deal on Thursday on a layoff plan to try to save the company, ending a violent two-and-a-half month standoff.

More than 600 Ssangyong unionised workers have been occupying the plant, accusing the management of driving the country's smallest automaker into financial crisis. Hardline unionists armed with Molotov cocktails had blockaded themselves in a warehouse storing flammable materials.

Critics of South Korea's labour movement say the siege at the plant, 80 km (50 miles) south of Seoul, is an example of the country's rigid job market and the need to fix it to boost competitiveness. Following are some answers to questions about the labour market in Asia's fourth-largest economy.

WHY IS IT SO HARD TO FIRE WORKERS IN SOUTH KOREA?

Because of the law. An employer must be able to prove "urgent management needs" to lay off workers, according to the Law on Labour Standards. Even if the company is in dire straits, it must "take all available measures" to avoid layoffs.

The union must be consulted where it represents more than half the workforce, but management groups say the law is too vague and that labour unions are rarely flexible to help during times of trouble.

"Labour unions need to understand the simple truth that there will not be jobs or unions unless there are companies and must refrain from unreasonable demands and illegal conflict," the Federation of Korean Industries said in a statement this week.

WILL LABOUR REFORMS STALLED AT PARLIAMENT MAKE IT EASIER?

Yes, but only in by making it more attractive for companies to employ contract workers, who are more simple to lay off. But it will not resolve the difficulties relating to permanent staff.

The labour reform bill due to be voted on by parliament in September deals with contract workers who are not protected by the Law on Labour Standards. Its key element would allow firms to employ contract workers for up to four years, instead of the current two.

Proponents of the bill say it will make the job market more flexible at a time when South Korea wants to shift its focus away from industrial production, where its labour costs are increasingly uncompetitive, to the service sector.

IS THE LABOUR UNION MOVEMENT LOSING ITS POWER?

Possibly. The militant Korean Confederation of Trade Unions (KCTU), a main umbrella labour group, has been in disarray. A senior official is in jail for attempted rape and an ex-president was found guilty of organising an illegal protest.

A number of unions have cut their affiliation with the KCTU, saying it is more focused on political battles with the conservative government than their welfare. The most notable departure was last month by the union at KT, the country's telecom giant and one of the KCTU's biggest source of members.

IS SSANGYONG AN ISOLATED CASE?

No. Other companies have gone to the brink and then toppled over because unions refused to compromise. A polyester fabric maker went bankrupt two years ago after its union refused to agree to a layoff plan in a final effort to save the company.

But the kind of potentially suicidal conflict seen at Ssangyong is rare. This standoff has been seen more as an illustration of inexperience on the part of Ssangyong's union leadership, which missed the chance to take a better deal by insisting that noone be laid off by a company which is under court receivership.

DO TOUGH UNIONS DETER INVESTMENT?

Definitely. Militant unions have been a major obstacle for firms considering opening new plants. Hyundai Motor Co, the country's top automaker with the biggest unionised workforce in the country, has not added a new production plant in more than a decade. It has, however, opened factories in five other countries and plans two more.

Foreign investors have also cited the volatile labour market as deterring investment.