Frozen Hiring and De Facto Export Contraction Lay Bare South Korea’s Economic Constraints

Six consecutive half-years of declining hiring, deepening employment contraction among SMEs
Exports hit $700 billion, yet semiconductor dependence remains entrenched
Chinese offensive erodes manufacturing competitiveness, heightening urgency for corporate restructuring

Planned hiring by South Korean companies has declined for six consecutive half-years, amplifying warning signals across the labor market. While exports reached a record high this year, excluding semiconductors, automobiles, and shipbuilding—the so-called “big three” export sectors—overall performance amounts to a near contraction, underscoring a weakening industrial base. With manufacturing expected to face intensifying pressure from China’s aggressive global expansion next year, analysts argue that restoring economic vitality will require urgent improvements in corporate fundamentals and innovation capacity.

Labor Market Slump as Both Job Openings and Hiring Decline

According to the Ministry of Employment and Labor’s “Establishment Labor Demand Survey by Occupation for the Second Half of 2025,” released on the 30th, the number of workers South Korean firms plan to hire in the fourth quarter of this year and the first quarter of next year stands at 329,000, down 44,000, or 11.7%, from the same period a year earlier. The decline in planned hiring has persisted for six consecutive half-years since the first half of 2023. Although the pace of decline narrowed briefly in the second half of last year, it has widened again since the first half of this year. The survey estimates are based on a sample survey conducted as of October 1, covering approximately 72,000 workplaces with five or more employees nationwide.

The findings indicate that companies view current business conditions as challenging, with limited prospects for near-term improvement. A more specific signal emerges from the “labor shortage” metric, which reflects the number of additional workers firms believe they need to operate efficiently and typically rises when economic conditions improve. As growth expectations strengthen and investment expands, labor demand usually outpaces actual hiring. However, over the past three years, labor shortages fell from 385,000 in the second half of 2023—dropping below the 400,000 mark—to just 308,000 in the second half of this year.

By company size, the impact is particularly severe among small and medium-sized enterprises. Firms with fewer than 300 employees reported a 14.4% year-on-year decline in planned hiring, compared with a 9.2% increase among companies with 300 or more employees. In the third quarter, both job openings and actual hires fell by 8.4% and 7.3%, respectively. The labor ministry explained that while a decline in unfilled positions driven by rising job openings would be a positive sign, a simultaneous drop in openings and hiring reflects economic weakness, adding that conditions among smaller firms are particularly strained.

Only Four of Top 10 Export Items Post Growth

The shadow over the economy is also evident in export performance. South Korea achieved a record annual export value of $700 billion for the first time, yet excluding semiconductors riding a supercycle, the overall picture resembles contraction. Removing semiconductors, automobiles, and shipbuilding further underscores the fragility of the export structure. Last month, cumulative exports excluding semiconductors totaled $543 billion, down 1.5% from a year earlier. Of the top 10 export items this year, only semiconductors, automobiles, shipbuilding, and computers recorded positive growth. Excluding the three flagship sectors, total exports would have declined 3.7% from last year.

Semiconductor concentration is also evident in industrial activity indicators. According to Statistics Korea, the overall industrial production index in October stood at 112.9 (2020=100), down 2.5% from the previous month—the steepest monthly drop since February 2020. The decline was largely driven by a 26.5% month-on-month plunge in semiconductor output, reflecting a base effect following a record high in September and a reduction in volume indices amid rising semiconductor prices. While statistical distortions played a role, the figures also highlight the structural vulnerability stemming from excessive reliance on semiconductors.

Meanwhile, China’s aggressive expansion into global markets to circumvent U.S. tariff barriers is intensifying concerns over South Korea’s manufacturing competitiveness. In a recent report, the Bank of Korea warned that China has rapidly redirected exports away from the U.S. following the tariff war, strengthening its manufacturing dominance and potentially dealing a direct blow to competing economies such as South Korea. Although Chinese exports were initially expected to suffer heavily from U.S. tariffs, the central bank noted that declines in shipments to the U.S. have been largely offset by increased exports to other markets.

Exiting Zombie Firms Could Lift GDP by 0.4–0.5%

Improving corporate fundamentals has emerged as an urgent task. In its recent report, “Why Has Our Growth Structurally Declined Since the Economic Crisis,” the Bank of Korea stressed the need to enhance overall economic health by facilitating the exit of heavily indebted marginal firms, often referred to as zombie companies. The report estimates that if high-risk firms had exited and been replaced by healthier companies during the post-global financial crisis recovery period of 2014–2019 and the post-pandemic recovery phase of 2022–2024, domestic investment would have risen by 3.3% and 2.8%, respectively. Gross domestic product would also have been higher by 0.5% and 0.4% during those periods.

In reality, corporate exits fell well short of these potential levels. From 2014 to 2019, high-risk firms accounted for about 4% of all companies, yet only half—2%—actually exited the market. From 2022 to 2024, high-risk firms represented 3.8% of the total, but only 0.4% were restructured or closed. Repeated financial support and policy funding during crises delayed restructuring by propping up marginal firms. In contrast, major economies such as the United States experienced higher closure rates during downturns, allowing low-productivity firms to be replaced more rapidly. In nominal GDP terms, South Korea effectively forfeited growth opportunities worth roughly $7.7 billion last year.

An analysis of around 2,200 externally audited firms by Bank of Korea researchers reinforces this assessment. Since the 2008 global financial crisis, investment by the top 0.1% of ultra-large firms—roughly two to three companies—has remained relatively stable, while investment across most other firms stagnated or declined. The primary driver of investment contraction was deteriorating profitability rather than financial constraints such as liquidity shortages or collateral limits. The researchers emphasized that economic growth depends on competition in which firms with new technologies replace incumbents, while existing companies pursue innovation to survive, arguing that policy priorities should shift away from sustaining individual firms toward restoring dynamism rooted in productivity and innovation.