employee participation and involvement in korea: evidence from a new survey and field research

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Employee participation andinvolvement in korea: evidence from anew survey and field researchTakao Kato a , Ju HO Lee b , Kang-sung Lee c & Jang-soo Ryu da Colgate University and Columbia University , USAb KDI School of Public Policy and Management , Koreac Sahmyook University , Koread Pukyong National University , KoreaPublished online: 15 Aug 2006.

To cite this article: Takao Kato , Ju HO Lee , Kang-sung Lee & Jang-soo Ryu (2005) Employeeparticipation and involvement in korea: evidence from a new survey and field research,International Economic Journal, 19:2, 251-281, DOI: 10.1080/10168730500080923

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Employee Participation andInvolvement in Korea: Evidence from

a New Survey and Field Research

TAKAO KATO�, JU HO LEE��, KANG-SUNG LEE† &JANG-SOO RYU‡

�Colgate University and Columbia University, USA, ��KDI School of Public Policy andManagement, Korea, †Sahmyook University, Korea,

‡Pukyong National University, Korea

ABSTRACT This paper provides evidence on the incidence, scope and nature ofemployee participation in Korea. The key findings include: (i) the incidence of workscouncils (WCs) is higher than in most other countries; (ii) not all WCs are functioningwell with a little less than 70% of Korean firms having functioning WCs; (iii)WCs may be a substitute for traditional collective bargaining; (iv) there arecomplementarities between EI (Employee Involvement) programmes and trade unions(especially FKTU-affiliated unions); between EI programmes and training; andbetween representative participation at the top and direct participation at theshopfloor; (v) there is evidence of dysfunctional and weak quality circles; and (vi)consistent with our hypotheses, firms with EI programmes (especially effective EIprogrammes) are generally larger, more capital intensive, spend more on training andmore productive than other firms. Finally, we use qualitative data from two largemanufacturing firms to explore further the use of employee participation andinvolvement programmes in Korea.

KEY WORDS: Employee participation, works councils, quality circlesJEL CLASSIFICATION: M54, J53, J41, O53

International Economic JournalVol. 19, No. 2, 251–281, June 2005

Correspondence Address: Takao Kato, Colgate University, Hamilton, NY 13346, USA. Email:[email protected]

1016-8737 Print=1743-517X Online/05/020251-31 # 2005 Korea International Economic AssociationDOI: 10.1080=10168730500080923

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Introduction

Many studies have examined the changing nature of industrial relations inmajor industrialized nations during the last thirty years or so. A majortheme is the emergence of new, innovative employment practices, includingmechanisms that provide for employee participation and involvement(such as works council and teams) and various kinds of employee financialparticipation schemes (such as profit sharing, employee stock ownership,stock option and team incentives).1 Outside of major industrialized countries,in particular NICs (Newly Industrialized Countries), however, relativelyfewer studies have studied such practices.2 The paucity of systematicstudies on participatory employment practices in NICs (in particularKorea) is surprising, considering the growing importance of such economies(e.g. Korea is currently the 12th largest economy in the world).

This paper provides much-needed systematic evidence on the incidence,scope and nature of various forms of employee participation and involvementin Korea. We do so by using a new comprehensive survey of publicly tradedfirms in Korea, the Survey on Human Resource Management (SHRM). Thesurvey was conducted by the Korea Labor Institute in August-September in2000. The sample universe of the SHRM was all firms listed in KoreaStock Exchange (KSE) at the time of the survey (approximately 600). Theresponse rate was over 60% which compares very favourably to similarfirm-level surveys conducted in the past in other industrialized countries.3

1For a survey of the literature on employee involvement and participation see Levine (1997) onteams; on information sharing see Kleiner & Han (1997). For a survey of the literature onfinancial participation schemes, see for instance Kruse & Blasi (1997) on employee stockownership and Jones et al. (1997) on profit sharing, gain sharing/team incentives. For aMeta-analysis of the literature, see Doucouliagos (1995). Finally, Gibbons (1997) andPrendergast (1999) provide an insightful survey of the theoretical literature.2The recent English-language literature on NICs includes Cin & Smith (2002) on employeestock ownership in Korea; Kato et al. (2004) on various financial participation schemes inKorea; Nam (2002) on works council and other employee involvement in Korea; Chow(2002), Chow & Ng (2002) on high-performance work practices in Hong Kong, Korea andMalaysia; and Bae & Lawler (2000) on high-performance work system in Korea. In addition,we recently became aware of an exciting ongoing research project on high performance worksystems in Korea. A working paper providing preliminary findings from the project was pre-sented at the IIRA 5th Asian Regional Congress in Seoul, Korea on 23–26 June 2004 (Leeet al., 2004). Our paper is complementary to their working paper. First, we use data from adifferent survey with a higher response rate that focuses more on representative participationthan the survey they used. Second, as a result of the representative participation focus of ourdata, we address important issues of complementarity between representative participation atthe top and direct participation at the bottom; and the role of trade unions in employee par-ticipation in Korea. Third, our paper combines quantitative evidence from the survey datawith qualitative evidence from our own field research.3Freeman et al. (2000), one of the better-known examples of work using firm-level survey data,used the Human Resource Practice Survey of member firms of the Society of Human ResourceManagement in the US and the survey’s response rate was 11%. The Human ResourceManagement Survey of Japanese Firms conducted by Kato & Morishima (2002) receivedabout 20% of all Japanese firms listed in Japan’s three major Stock Exchanges. In addition,in June of 1991, the Rengo Sogo Seikatsu Kaihatsu Kenkyu Jo (Rengo Research Institute of

252 Takao Kato et al.

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The unusually high response rate of the SHRM makes the Korean data par-ticularly appealing.

In addition, to complementing the survey data, in the summer of 2004, weconducted field research at two large manufacturing firms in Korea. We hadwritten to them, asking to locate and assemble some specific data onparticipatory employment practices of their firms, and detailing what kindof questions we intended to ask when we visited them. Such qualitativedata obtained from field research proved to be useful in interpreting ourquantitative analysis of the survey data as well as vividly demonstrating thereality of the use of employee participation and involvement programmes.

In the next section we begin with documenting the incidence, scope andnature of representative participation in Korean firms using our new surveydata. In the section after, we present evidence from the survey data ondirect participation at the shopfloor level. In the fourth section, for all man-ufacturing firms (66% of the sample) we combine the survey data with thecorporate proxy statement database assembled by the KLCA (Korea ListedCompanies Association and shed light on the relationships between firmcharacteristics (including labour productivity, capital/labour ratio, firm sizeand training cost) and the incidence, nature and scope of EI programmes inKorea. The fifth section presents field research evidence. A concludingsection follows.

Representative Participation at the Top: Works Councils

Korean Works Councils (WCs) are perhaps best understood by comparingtheir main features with the better known Japanese WCs (or Joint Labor-Management Committees).4 Unlike Japanese WCs, the establishment ofKorean WCs is obligatory under the current Korean law. In Korea, the orig-inal Korean works council statute mandating the establishment of workscouncils for firms with 100 or more employees was introduced in 1980 asa response to confrontational anti-government union movements (theLabor-Management Council Act). The law was amended in the late 1980sas part of the political and economic liberalization of Korea, extending cover-age to all firms with 50 or more employees in Korea. The Labor-ManagementCouncil Act evolved into the Act Concerning the Promotion of Worker Par-ticipation and Cooperation in 1997, expanding coverage further to includeall firms with 30 or more employees.5

(Continued )General Life Development) in Japan mailed their questionnaire asking questions on labourconditions and employee participation/involvement to 6,800 firms (including both publicand private firms in Japan) and received usable responses from 689 firms (a response rate of10%). In June of 1989, the Japan Productivity Center mailed their questionnaire asking ques-tions on HRMPs to 1,030 firms in Japan and received usable responses from 203 firms(a response rate of 19.7%).4For Japanese WCs, see for example Kato & Morishima (2002) and Kato (2003).5A concise introduction to the legal framework of Korean works councils is available online athttp://www.molab.go.kr:8787/English/ladm/ind_rel_lab.jsp.

Employee Participation 253

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Kleiner & Lee (1997) report that Korean WCs consist of an equal numberof representatives from management and labour. Similar to Japanese WCs,when there is a union, labour-side representatives are usually union represen-tatives (the current law states that for firms with a union representingthe majority of employees, the union can choose employee representatives).In the absence of unions, the current law requires all labour-side councilmembers to be elected by employee vote, which appears to be more demo-cratic (at least on paper) than WCs in Japanese firms without unions whereonly about 70% of labour-side representatives are elected. Thus, labour-side WC members appear to legitimately represent the interests of thefirm’s workforce, at least de jure.

Furthermore, all work council members are allowed time off from theirusual work to perform council-related tasks, although there is no additionalcompensation for the members (Kleiner & Lee, 1997). In the case of union-ized firms, similar to Japanese WCs, labour-side representatives are unionleaders, some of whom are full-time union leaders. Unlike Japan, however,those full-time union leaders in Korea are still on their firm’s payroll.

Within works councils, which are mandated to meet at least quarterly,management is required to share information on the financial well-being ofthe firm and future production and employment plans with labour-sidecouncil members. This is in sharp contrast to Japanese WCs wherethe issues discussed during WC meetings are completely up to each firm.In the next section, we will present evidence on the actual scope of WCdiscussion in Korea. The efficacy of works councils is also reported to varyconsiderably among Korean firms (Kleiner & Lee, 1997).

Table 1 shows the incidence of WCs among publicly traded firms in Koreain 2000 (the time of the survey). Owing to the obligatory nature of KoreanWCs, it is hardly surprising that 93% of publicly traded firms in Koreahave WCs and this figure is substantially higher than the proportion of pub-licly traded firms with WCs in Japan (80%) as reported in Kato & Morishima(2002). In fact, theoretically, nearly 100% of publicly traded firms shouldhave WCs in Korea. However, as Table 1 shows, nearly 5% of publiclytraded firms in Korea terminated their WCs, making Korean WCs less thanuniversal among publicly traded firms.

The SHRM further asks each firm whether it has a functioning (oreffective) WC. As Table 1 shows, 67% of Korean firms have effective WCs.To further understand what ‘effective WCs’ entail, we created Table 2where we present findings on the frequency of WC meetings and the scopeand nature of WCs. Overall, the average Korean firm with WCs holds WCmeetings a little over five times a year, more than the minimum number ofmeetings required by the law (four times a year). However, for firms withnon-functioning WCs, the average number of WC meetings barely makesthe statutory requirement (3.9 times a year) whereas for firms with effectiveWCs, it is well over the requirement (5.8 times a year). The frequency ofWC meetings in Korea is considerably lower than Japan. Kato &Morishima (2002) report that Japanese WCs meet almost 12 times a yearon average.


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Table 1. The incidence of EI programmes and unions

All UNION ¼ 1 UNION ¼ 0 FKTU ¼ 1 FKTU ¼ 0

Variable N % N % N % N % N %

% firms with WCs 367 92.64 272�� 94.49 94 87.23 172�� 97.09 96 89.58% firms with effective WCs 361 67.31 268 68.28 92 65.22 172 68.02 93 68.82% firms that terminated WCs 361 4.71 268 3.73 92 7.61 172 3.49 93 4.30% firms with QCs 356 61.52 265 63.77 90 54.44 171�� 68.42 91 53.85% firms with effective QCs 356 46.07 265 47.55 90 41.11 171 49.71 91 42.86% firms that terminated QCs 356 12.92 265 12.45 90 14.44 171 14.62 91 8.79% firms with other PSGs 356 60.39 264 62.12 91 56.04 171 61.40 90 63.33% firms with effective other PSGs 356 49.44 264 51.52 91 43.96 171 49.12 90 56.67% firms that terminated other PSGs 356 19.10 264 19.70 91 16.48 171 21.05 90 17.78% firms with PSGs 353 79.89 262 81.68 90 74.44 170 83.53 89 77.53% firms with effective PSGs 353 65.16 262 66.41 90 61.11 170 65.29 89 68.54% firms that terminated PSGs 353 27.76 262 27.48 90 27.78 170 29.41 89 24.72% firms with OffJT and formal OJT 368 62.23 272 63.60 94 58.51 172 61.63 96 66.67% firms with employee career

development programs such as tuitionbenefits for evening MBAs

368 71.74 272 73.53 94 67.02 172 73.26 96 73.96

Source: Survey on Human Resources Management (SHRM).

Notes: UNION ¼ 1 if the firm is unionized, 0 otherwise; FKTU ¼ 1 if the firm’s union belong to FKTU, 0 otherwise.��Difference in proportion between the two subsamples: statistically significant at the 5% level.

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Table 2. The scope and nature of WCs

All WCEFF ¼ 1 WCEFF ¼ 0

Variable N Mean Std Dev N Mean Std Dev N Mean Std Dev

The number of WC meetings per year 331 5.290 6.377 233 5.841�� 7.38507 94 3.894 2.2311Need for WCs 335 3.113 0.67834 240 3.271�� 0.57637 91 2.692 0.75561(1 ¼ completely unnecessary; 2 ¼ somewhat

unnecessary; 3 ¼ somewhat needed;and 4 ¼ greatly needed)

WCs are used to:

(1 ¼ not at all; 2 ¼ no; 3 ¼ yes; and 4 ¼ strongly yes)1. Share information on managerial plans and

managerial performance325 3.037 0.697 227 3.194�� 0.64311 95 2.642 0.6671

2. Share information on organizational restructuring 326 2.883 0.743 228 3.004�� 0.74205 95 2.579 0.66173. Share information on employment adjustment 321 2.340 0.779 224 2.339�� 0.81525 94 2.309 0.672454. Discuss increase in productivity 328 3.034 0.799 231 3.100�� 0.80948 94 2.872 0.751115. Discuss merit rating and evaluation basis of employees 324 3.287 0.682 225 3.400�� 0.62678 96 3.021 0.739556. Coordinate wage negotiations and collective bargaining 314 2.653 0.748 223 2.771�� 0.76328 91 2.363 0.62397. Collectively bargain wages and employment conditions 317 2.915 0.709 226 3.018�� 0.67964 91 2.659 0.718338. Discuss safety, health, and work environment 311 2.952 0.820 220 3.009�� 0.82756 91 2.813 0.787579. Collectively bargain for fringe benefits 312 3.080 0.688 221 3.208�� 0.64816 91 2.769 0.68438

Source: Survey on Human Resources Management (SHRM).Note: WCEFF ¼ 1 if the firm has an effective WC, 0 otherwise.��Difference in mean between the two subsamples: statistically significant at 5 per cent level.��Difference in mean between the two subsamples: statistically significant at 1 per cent level.

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Table 2 further shows the scope and nature of WCs. The use of WCs as amechanism ‘to discuss merit rating and evaluation basis of employees’ turnedout to be the most agreed upon statement among the nine listed in the table,followed by ‘to collectively bargain for fringe benefits’; ‘to share informationon managerial plans and managerial performance’; and ‘to discuss increase inproductivity’. Relatively less agreed upon statements include ‘to share infor-mation on employment adjustment’ and ‘coordinate wage negotiations andcollective bargaining’. Another noteworthy finding is that Korean firms aremore likely to use WCs as a mechanism to ‘collectively bargain wagesand employment conditions’ than to use WCs as a mechanism to ‘shareinformation on organizational restructuring’; ‘coordinate wage negotiationsand collective bargaining’; and ‘to share information on employmentadjustment’. WCs may be functioning as a substitute for traditional unioncollective bargaining in some instances in Korea. WCs as a substitute fortraditional union bargaining in non-union firms are certainly plausible yet,as shown below – interestingly even in unionized firms – we observe thesame evidence for the use of WCs as a mechanism to collectively bargainwages and bonuses. Kato (2003) reports similar evidence from his casestudies of large manufacturing firms in Japan.

Reassuringly, Table 2 further shows that firms with effective WCs ascompared with other firms are more likely to agree with each of the ninestatements and the differences between the two types of firms are statisticallysignificant at least at the 5% level (except for ‘to share information onemployment adjustment’). In other words, ‘effective WCs’ entail the use ofWCs as mechanisms to achieve at least eight out of the nine objectiveslisted in the table.

Although not a longitudinal survey, the SHRM asks each respondentto recall the nature and scope of WCs three years ago (or 1997). Usingsuch retrospective data, we created Figure 1. Noteworthy changes in thenature and scope of WCs since the Asian crisis are the increased use ofWCs as a device to ‘collectively bargain wages and employment conditions’and the decreased use of WCs as a mechanism to ‘share information onemployment adjustment.’6 It appears as if Korean firms are relying moreon WCs as a collective bargaining device (at least as a means to carry outinitial and informal rounds of collective bargaining in the case of unionizedfirms) since the Asian crisis. On the other hand, the effectiveness of WCs asa mechanism to share information on employment adjustment might bediminishing since the Asian crisis.

Recent studies present evidence for the complementary role of trade unionsin EI programmes. For example, Kato (2003) reports that unions havebeen preventing Japanese WCs from becoming ineffective and dormantby keeping the strong consultative role of WCs during Japan’s prolonged

6We repeated the same analysis for the sub-sample of unionized firms only and found thatthese findings about the changes in the nature and scope of WCs since the Asian crisis arenot sensitive to whether we limit the sample to unionized firms only.


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recession. Black & Lynch (2001) provide econometric evidence that the pro-ductivity-enhancing effects of EI programmes are significant only in union-ized establishments. On the other hand, some unions may consider EIprogrammes a substitute for unions and thus view such programmes as amajor threat to their existence. If this is the case, we expect unions to behostile to EI programmes.

To shed light on the potentially important role of unions in EI programmes,we split the sample firms into the union sample consisting of all unionizedfirms and the non-union sample of all firms without unions, and calculatethe proportion of firms with WCs for these two samples separately inTable 1. Moreover, Korea has two major national centres of labour, theFederation of Korea Trade Unions (FKTU) and the Korean Confederationof Trade Unions (KCTU). To see if the role of unions in EI programmesdiffers significantly between the FKTU and more militant KCTU, we calculatethe proportion of firms with WCs for the sample of firms with unions belong-ing to FKTU and the sample of other unionized firms.7

Table 1 shows that unionized firms are indeed more likely to have WCsthan non-union firms, and moreover among unionized firms, firms withmore moderate FKTU-affiliated unions are more apt to have WCs thanother unionized firms. The differences are statistically significant at the 5%level. However, we failed to have any statistically significant differences inthe incidence of effective WCs and the termination of WCs between firms

Figure 1. Changes in the scope and nature of WCs from 1997–2000

7The sample of other firms includes not only those with unions belonging to the KCTU but alsoa very small number of firms with unions that do not belong to either national centre.


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with and without unions as well as between firms with FKTU-affiliatedunions and other unionized firms.

Trade unions might be related not only to the incidence of WCs but also tothe scope and nature of WCs. Tables 3 and 4 show that there is very littledifference in the scope and nature of WCs between unionized firms andother firms as well as between firms with unions that belongs to moderateFKTU and other unionized firms.8

Shopfloor EI Programmes

In essence, there are two types of shopfloor EI programmes, offline teams andonline teams. Offline teams include not only traditional Quality Circles(QCs), in which small groups at the workplace level voluntarily set plansand goals concerning operations and work together outside of their regularworking hours toward accomplishing these plans and goals, but alsovarious other types of Problem Solving Groups (PSGs), such as task forces,cross-functional project teams that are formed for specific projects and dis-solved upon the completion of the projects. As such, participation in theseprogrammes is not part of their regular daily work although often takingplace during regular hours and thus is of an offline character.

In contrast, some firms restructure their work process so that workers workin self-directed team in their regular daily work. Such teams are on-line and‘cell production’ and ‘modular production’ are good examples of onlineteams.

The SHRM does include questions on both offline teams and online teams.However, our own field research as well as our consultation with researchersat the Korea Labor Institute who administered the SHRM confirm that ques-tions on online teams were not well understood by respondents (whereasquestions on offline teams were actually well understood). Thus, we usedata on offline teams only.9

As shown in Table 1, 62% of publicly traded firms in Korea haveQCs whereas only 46% responded to have ‘effective’ QCs. In otherwords, over 25% of QCs are deemed not effective, an alarming degree of

8In fact, the only statistically significant difference is the use of WCs as a mechanism to shareinformation on employment adjustment, and non-union firms are more likely to agree with theimportance of this function of WCs as compared with non-union firms. Likewise, firms withFKTU-affiliated unions are less likely to agree with the importance of this function as com-pared with firms with more militant unions.9Much of the recent literature in the US as well as in Europe tends to focus on these online andoffline teams. For estimates of their incidence in the US based on establishment-level surveys,see for example Osterman (1994), Black & Lynch (2000) and Cappelli & Neumark (2001).For the estimates based on firm-level surveys in the US, see for example Freeman et al.(2000). For estimates based on worker surveys in the US, see for example Freeman &Rogers (1999). For Japan, see for instance Kato & Morishima (2002) and Kato (2003); andfor Europe, see for example Gill & Krieger (1999), Sisson (2000), Benders & Huijgen(2001), and Poutsma et al. (2003).


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Table 3. The nature and scope of WCs and unions

UNION ¼ 1 UNION ¼ 0

Variable N Mean Std Dev N Mean Std Dev

The number of WC meetings per year 249 5.01205 3.85156 81 6.20988 10.969Need for WCs 253 3.083 0.67629 82 3.20732 0.68019(1 ¼ completely unnecessary; 2 ¼ somewhat

unnecessary; 3 ¼ somewhat needed; and4 ¼ greatly needed)

WCs are used to: (1 ¼ not at all; 2 ¼ no; 3 ¼ yes;and 4 ¼ strongly yes)

1. Share information on managerial plans andmanagerial performance

246 3.04472 0.67766 78 3.02564 0.75549

2. Share information on organizational restructuring 249 2.91968 0.70251 76 2.78947 0.837713. Share information on employment adjustment 243 2.2963� 0.75697 77 2.49351 0.821164. Discuss increase in productivity 247 3.01215 0.78337 80 3.1 0.850915. Discuss merit rating and evaluation basis of employees 244 3.30738 0.6603 79 3.22785 0.75026. Coordinate wage negotiations and collective bargaining 237 2.67932 0.68775 76 2.59211 0.897077. Collectively bargain wages and employment conditions 239 2.91213 0.67099 77 2.92208 0.823448. Discuss safety, health, and work environment 236 2.94915 0.79195 74 2.97297 0.906199. Collectively bargain for fringe benefits 236 3.10169 0.67022 75 3.01333 0.74423


Notes: UNION ¼ 1 if the firm is unionized, 0 otherwise; FKTU ¼ 1 if the firm’s union belong to FKTU 0 otherwise.�Difference in mean between the two subsamples: statistically significant at the 10% level.

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Table 4. The nature and scope of WCs and types of unions

FKTU ¼ 1 FKTU ¼ 0

Variable N Mean Std Dev N Mean Std Dev

The number of WC meetings per year 162 4.81481 3.24606 83 5.3494 4.8324Need for WCs 164 3.12805 0.66605 85 3.01176 0.68128(1 ¼ completely unnecessary; 2 ¼ somewhat

unnecessary; 3 ¼ somewhat needed;and 4 ¼ greatly needed)

WCs are used to: (1 ¼ not at all; 2 ¼ no; 3 ¼ yes;and 4 ¼ strongly yes)

1. Share information on managerial plans andmanagerial performance

159 3.00629 0.6797 83 3.09639 0.6738

2. Share information on organizational restructuring 160 2.9375 0.70655 85 2.87059 0.703533. Share information on employment adjustment 158 2.18987 0.74996�� 81 2.48148 0.743494. Discuss increase in productivity 158 3.02532 0.73102 85 2.97647 0.886095. Discuss merit rating and evaluation basis of employees 157 3.35032 0.61879 83 3.22892 0.737926. Coordinate wage negotiations and collective bargaining 160 2.65 0.67479 75 2.73333 0.722867. Collectively bargain wages and employment conditions 160 2.95625 0.67616 77 2.81818 0.663478. Discuss safety, health, and work environment 157 2.98089 0.74654 77 2.88312 0.888149. Collectively bargain for fringe benefits 156 3.14744 0.63046 78 3.01282 0.74718

Source: Survey on Human Resources Management (SHRM).Notes: UNION ¼ 1 if the firm is unionized, 0 otherwise; FKTU ¼ 1 if the firm’s union belong to FKTU 0 otherwise.��Difference in mean between the two subsamples: statistically significant at the 5% level.

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dysfunctional QCs.10 Furthermore, Table 1 shows a non-trivial degree ofattrition of QCs, or 13% of firms in Korea terminated QCs.

The incidence of other types of PSGs is quite similar to that of QCs. Thus,such PSGs are used by 60% of Korean firms and 49% of Korean firms haveeffective PSGs. PSGs were terminated by almost 20% of firms.

Finally, we consider a broader measure of the incidence of shopfloor EIprogrammes. The proportion of publicly traded firms in Korea with anytype of PSGs is 80%, as shown in Table 1. Effective PSGs are used in 65%of firms and 28% of firms have terminated a PSG.

Finally, the literature often stresses the complementary role of employeetraining in EI programmes. For example, even if they are well motivated toparticipate in various EI programmes, no discernible productivity gains willresult if employees lack the necessary skills to be an active and productivemember of EI programmes.11 To this end, we also add the incidence of train-ing programmes to Table 1. According to the SHRM, 62% of publicly tradedfirms in Korea have a formal training programme, such as Off-JT and formalOJT.12 Employee career development programs such as tuition benefits forevening MBA programs are even more widespread with over 70% ofKorean firms with such employee career development programmes.

Table 1 shows the incidence of shopfloor EI programmes (and training pro-grammes) for firms with unions and other firms separately as well as for firmswith FKTU-affiliated unions and other unionized firms separately. The onlystatistically significant difference is the difference in the incidence of QCsbetween FKTU-affiliated unions and other unionized firms. Specifically,firms with unions that belong to more moderate FKTU are more likely touse QCs than other unionized firms, suggesting that FKTU unions are lesshostile to shopfloor EI programmes than more militant KTCU unions.We interpret the difference in the use of shopfloor EI programmes betweenmilitant KTCU-affiliated unions and moderate FKTU-affiliated unions asfollows. Due to the generally adversarial and less trusting relations thatthey tend to have with management, militant KTCU unions are more likelyto view management-initiated shopfloor EI programmes (such as QCs) asyet another example of management’s effort to weaken unions. Managementprovides regular union members with shopfloor EI programmes as an alterna-tive (and more individualized) voice mechanism to unions and thus makesthem feel less need for unions. In other words, KTCU unions, which areless trusting of management in the first place, are more apt to view shopfloor

10Weakening QCs in recent years are not necessarily unique to Korea. Chuma et al. (2005)report a similar finding for Japan.11See, for instance, MacDuffie (1995) and Ichniowski et al. (1997) for the complementaritybetween training programmes and EI programs.12Off-JT programmes are defined as education programmes operated by a training organiz-ation within or outside the company where the employee temporarily leaves his/her dutieswhereas formal OJT programmes are defined as a short-term or continuous education pro-gramme that requires a detailed planned proposal to the supervisor and assumes that trainingoccurs while each employee performs his/her duty.


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EI programmes as a substitute rather than a complement to unions. As such,they are more hostile to such EI programmes.

The literature sometimes purports that shopfloor EI programmes workbetter when effective representative participation mechanisms at the top(such as WCs) are present. For example, Kato (2003) presents qualitativeevidence from his field research at large Japanese firms that shopfloor EIprogrammes facilitate a wide dissemination of information shared via repre-sentative participation at the top and thus make the goal alignment effect ofrepresentative participation more complete. Moreover, shopfloor EI pro-grammes make top-level representative participation more grounded in thereality of workplaces by channelling front-line employees’ voice to the top.13

To this end, in Table 5, we divide the whole sample into firms with andwithout WCs and calculated the proportion of firms with shopfloor EI pro-grammes for the two sub-samples separately. Indeed, firms with WCs aremore likely to have not only QCs but also effective QCs than firms withoutWCs and the differences are statistically significant at least at the 5% level.On the other hand, the differences in the proportion of firms with otherforms of PSGs as well as with any form of PSGs are shown to be statisticallyinsignificant at the 10% level.

When we slice the data by the presence of effective WCs, however, we findstronger evidence for the complementarity between representative partici-pation and shopfloor participation. Specifically, nearly 70% of firms witheffective WCs also have QCs whereas only 50% of firms without effectiveWCs have QCs, and the difference is statistically significant at the 1%level. For effective QCs, among firms with effective WCs, one in two firmshas effective QCs. However, among firms without effective WCs, only onein four firms has effective QCs.

For other forms of PSGs, we observe the same pattern. Firms with effectiveWCs are more likely to have other forms of PSGs than other firms, and suchPSGs are more effective in firms with effective WCs than other firms. Thedifferences are statistically significant at least at the 10% level.

When we consider a broader definition of the incidence of shopfloor EI pro-gramme, or having any form of PSGs, the difference in the proportion of firmswith a terminated PSG between firms with and without effective WCs is nowstatistically significant, in addition to the differences in the proportion offirms with PSGs and effective PSGs. Specifically, firms with effective represen-tative participation are more likely to resist the termination of PSGs thanfirms without such effective representative participation.

In sum, Table 5 provides evidence that shopfloor EI programmes tend to beused in concert with representative participation at the top (WCs), especiallyeffective representative participation at the top.

Finally, as discussed earlier, employee training programmes can be animportant complementary practice for shopfloor EI programmes. Table 6shows the incidence of shopfloor EI programmes for firms with and

13Kato & Morishima (2002) provide quantitative evidence for such complementarity in Japan.


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Table 5. The relationship between direct EI programme and representative EI programmes

WC ¼ 1 WC ¼ 0 WCEFF ¼ 1 WCEFF ¼ 0

Variable N % N % N % N %

% firms with QCs 331�� 64.05 25 28.00 240�� 67.08 116 50.00% firms with effective QCs 331�� 47.73 25 24.00 240�� 55.42 116 26.72% firms that terminated QCs 331 12.69 25 16.00 240 11.25 116 16.38% firms with other PSGs 332 59.94 24 66.67 239� 63.60 117 53.85% firms with effective other PSGs 332 49.10 24 54.17 239�� 54.81 117 38.46% firms that terminated other PSGs 332 19.28 24 16.67 239 18.41 117 20.51% firms with PSGs 329 80.55 24 70.83 238� 83.19 115 73.04% firms with effective PSGs 329 65.05 24 66.67 238�� 72.69 115 49.57% firms that terminated PSGs 329 27.36 24 33.33 238� 24.79 115 33.91


Notes: WC ¼ 1 if the firm has a WC 0 otherwise; and WCEFF ¼ 1 if the firm has an effective WC 0 otherwise.�Difference in proportion between the two subsamples: statistically significant at the 10% level.��Difference in proportion between the two subsamples: statistically significant at the 5% level.��Difference in proportion between the two subsamples: statistically significant at the 1% level.

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Table 6. The relationship between direct EI programme and training programmes

FTRAIN ¼ 1 FTRAIN ¼ 0 ATRAIN ¼ 1 ATRAIN ¼ 0

Variable N % N % N % N %

% firms with QCs 217�� 67.28 139 52.52 252�� 65.87 104 50.96% firms with effective QCs 217�� 55.76 139 30.94 252�� 53.17 104 28.85% firms that terminated QCs 217� 10.14 139 17.27 252�� 9.13 104 22.12% firms with other PSGs 218�� 67.89 138 48.55 253�� 68.77 103 39.81% firms with effective other PSGs 218�� 57.80 138 36.23 253�� 57.31 103 30.10% firms that terminated other PSGs 218�� 14.22 138 26.81 253� 16.60 103 25.24% firms with PSGs 215�� 84.19 138 73.19 250�� 85.20 103 66.99% firms with effective PSGs 215�� 72.56 138 53.62 250�� 73.20 103 45.63% firms that terminated PSGs 215�� 20.47 138 39.13 250�� 22.80 103 39.81


Notes: FTRAIN ¼ 1 if the firm has a formal company training program such as an OffJT and formal OJT program 0 otherwise; and ATRAIN ¼ 1 if the firm hasemployee career development programs such as tuition benefits for evening MBAs, 0 otherwise.�Difference in proportion between the two subsamples: statistically significant at the 10% level.��Difference in proportion between the two subsamples: statistically significant at the 5% level.��Difference in proportion between the two subsamples: statistically significant at the 1% level.

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without training programmes separately. The table provides consistentevidence for the complementarity between training and shopfloor EIprogrammes.

Thus, the proportion of firms with QCs is 67% among firms with OffJTand formal OJT programmes, whereas only 53% among firms withoutsuch training programmes. Likewise, 56% of firms with OffJT and formalOJT programmes have effective QCs while only 31% of firms without suchtraining programmes have effective QCs. Moreover, 17% of firms withoutOffJT and formal OJT terminated QCs and only 10% of firms with suchtraining programmes did. All these differences are statistically significant atleast at the 10% level. As shown in columns labelled ATRAIN ¼ 1 andATRAIN ¼ 0 of Table 6, similar results are also obtained when we consideremployee career development programmes. Finally, even if we considerother forms of PSGs or use a broad definition of the incidence of EIprogrammes (or any form of PSGs), the same pattern is found. Firms withtraining programmes are significantly more likely to have shopfloor EIprogrammes.

Characteristics of Participatory Firms

To conclude our exploratory analysis of the survey data, we compare key firmcharacteristics such as firm size, labour productivity, capital/labour ratio andtraining costs between firms with and without a certain EI programme.

First, as shown in Table 7, we find no statistically significant difference in keyfirm characteristics between firms with and without WCs. However, we do findstatistically significant differences between firms with and without effectiveWCs. Specifically, firms with effective WCs are over 200% larger (measuredby employment) and about 50% more capital intensive than firms withouteffective WCs. Furthermore, firms with effective WCs spent substantiallymore on training than firms without effective WCs (almost 500% more onOffJT and formal OJT and about 300% more on employee career developmentprogrammes). Finally, workers in firms with effective WCs are on averageabout 25% more productive than those in firms without effective WCs.

Second, turning to shopfloor EI programmes, firms with QCs are found tobe nearly 300% larger and almost 50% more capital intensive than firmswithout QCs. The average labour productivity of firms with QCs is alsoclose to 40% higher than that of firms without QCs. These differences arestatistically significant at least at the 10% level. Although we also find thatfirms with QCs spend more on training than other firms, the differences intraining cost turn out to be not statistically significant.

As in the case of WCs, the differences between firms with and withouteffective QCs are even more pronounced and statistically significant. Inparticular, the differences in firm size, capital labour ratio and labourproductivity are all statistically significant at the 1% level and firms witheffective QCs spend 150% more on their employee career development pro-gramme than other firms (and the difference is statistically significant at the10% level).


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Table 7. Firm characteristics of EI firms

WC ¼ 1 WC ¼ 0 WCEFF ¼ 1 WCEFF ¼ 0

Variable N Mean Std Dev N Mean Std Dev N Mean Std Dev N Mean Std Dev

lab00 238 1679 5349.86 11 638.091 449.11 170�� 2083.31 6273.4 76 679.408 696.447

lprod00 181 0.87471 0.58624 10 1.03786 1.4702 134� 0.94055 0.64141 56 0.74863 0.67925klr00 237 307909 373754 11 290520 314106 169�� 344689 417271 76 226646 228966

tctrain 285 75839.6 529209 20 30470 88534.5 205� 98447.5 622160 96 16929.8 46439

atctrain 227 18524.6 69558.3 15 17160 51108.2 162�� 24552.9 81526.2 78 6197.41 23245

QC ¼ 1 QC ¼ 0 QCEFF ¼ 1 QCEFF ¼ 0

lab00 177�� 2077.12 6150.17 67 558.925 527.927 134�� 2504.78 7002.34 110 631.436 704.995

lprod00 141� 0.95179 0.68044 47 0.69179 0.55518 109�� 0.99819 0.72995 79 0.73309 0.51412

klr00 176�� 339158 423021 67 231323 173075 133�� 371765 469432 110 234052 182411tctrain 185 97054.1 653095 113 30908.7 84175.8 137 121566 754864 161 29770.7 95636.5

atctrain 148 20369 76141.5 90 13745.1 53152.8 107� 26640.1 88759.9 131 10696.1 44381.4

OPSG ¼ 1 OPSG ¼ 0 OPSGEFF ¼ 1 OPSGEFF ¼ 0

lab00 133�� 2624.14 7015.3 110 503.564 423.624 105�� 3117.83 7820.57 138 558.196 506.518

lprod00 104� 0.96831 0.73243 83 0.78615 0.5475 83�� 1.01919 0.80262 104 0.78232 0.50196

klr00 132�� 371044 460966 110 236431 212514 105�� 400359 505438 137 240493 205768tctrain 183�� 111648 658026 116 11577 26581.9 150�� 133534 725382 149 11706.8 24372.1

atctrain 151�� 26314.2 84574.3 88 5440.52 19235.7 125� 30878 92251.6 114 5196.96 17531.1

PSG ¼ 1 PSG ¼ 0 PSGEFF ¼ 1 PSGEFF ¼ 0

lab00 198�� 1946.18 5829.57 45 423.533 392.061 156� 2287.75 6519.9 87 546.138 573.607

lprod00 157� 0.92208 0.65472 30 0.70626 0.67777 126�� 0.94695 0.69588 61 0.76456 0.56961klr00 197�� 326474 403347 45 237111 194613 155�� 351229 440853 87 236146 192232

tctrain 239�� 86680.8 577125 58 12387.3 29642.8 193�� 105161 641139 104 10953.7 23315

atctrain 192�� 21473.3 75555.6 45 2667.5 7990.65 158�� 25428 82766.9 79 2851.65 6889.34


Notes: WC ¼ 1 if the firm has a WC; WCEFF ¼ 1 if the firm has an effective WC; QC ¼ 1 if the firm has a QC; QCEFF ¼ 1 if the firm has an effective QC; OPSG ¼ 1

if the firm has an other type of PSGs; OPSGEFF ¼ 1 if the firm has an effective other type of PSGs; and PSG ¼ 1 if the firm has a PSG; PSGEFF ¼ 1 if the firm has aneffective PSG; lab00 ¼ number of employees in 2000; lprod ¼ labor productivity (value added in million won/lab00) in 2000; klr00 ¼ capital/labor ratio (fixed asset

in thousand won/lab); atctrain ¼ The amount of money spent on OffJT and formal OJT in ten thousand won; and atctrain ¼ The total amount of education subsidies

given to employees in ten thousand won.�Difference in mean between the two subsamples: statistically significant at the 10% level.��Difference in mean between the two subsamples: statistically significant at the 5% level.��Difference in mean between the two subsamples: statistically significant at the 1% level.

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For other PSGs, the results are even stronger with statistically significantdifferences in all five firm characteristics between firms with and withoutOPSGs as well as between firms with and without effective OPSGs.

Lastly, we find that firms with any PSGs (including not only QCs but also allother PSGs) are 360% larger and 40% more capital intensive than other firms.They also spend 600% more on OffJT and formal OJT and about 700% moreon employee career development programmes than other firms. Their labourforce is also 30% more productive on average than other firms’ labour force.All these differences are statistically significant at least at the 10% level. Thedifferences are even more statistically significant when we focus on the differ-ences between firms with and without effective PSGs.

In sum, we find evidence that firms with EI programmes (especially effec-tive EI programmes) in Korea are generally larger, more capital intensive,and spend more on training than other firms.

The statistically significant positive correlation between the incidence of EIprogrammes (especially effective EI programmes) and firm size could be inter-preted as follows. The benefit of EI programmes may be greater for largerfirms where it is harder to monitor each employee’s effort and thus peer moni-toring fostered by EI programmes is particularly attractive. Moreover, largerfirms tend to have more resources (both financial and non-financial) todevelop elaborate work practices.

Turning to the observed positive correlation between the incidence of EIprogrammes and capital labour ratio, there are two opposing views (seeJones & Kato, 1993 for example). First, those who focus on the humancapital implication of capital intensive technologies tend to argue that highcapital/labour ratios mean more technically advanced firms with moreskilled labour force, such firms may be apt to use more advanced and elabor-ate work practices to take advantage of their skilled labour force. On theother hand, some argue that high capital labour ratios represent moremachine-paced production methods and thus firms with high capital labourratios are less likely to benefit from EI programmes, since EI programmesthat encourage workers to think on the job are less relevant to workers infirms with machine-paced productive methods. Our evidence supports thefirst view.

The positive correlations between the incidence of EI programmes andtraining cost are consistent with the aforementioned complementaritybetween EI programmes and training. EI programmes rely on workers’problem solving skills, and thus firms with EI programmes (especially effec-tive EI programmes) spend more money on employee training and education.

Lastly, we also find a statistically significant positive correlation betweenthe incidence of EI programmes (in particular effective EI programmes)and labour productivity. This ought not to be viewed as hard evidence onthe positive productivity effect of EI programmes. Such evidence requires arigorous econometric analysis (e.g. fixed effect models).14

14We are currently collecting data that will allow for such an analysis.


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Evidence from Field Research

Field Visits

To demonstrate the reality of the use of employee participation and involve-ment programmes and shed further light on the scope and nature of EIprogrammes in Korea, we conducted field research at two large manufactur-ing firms, Firm A and Firm B.15 Both firms are unionized (their unions belongto FKTU), and stress the importance of job security for blue-collar workers.In the past, Firm A had one incidence of layoffs of blue-collar workers in1997 whereas Firm B has never laid off any blue-collar workers in the past.Wages for blue-collar workers at Firm A are not the highest among its com-petitors whereas Firm B pays the highest wage among all competitors.

Firm A is known for successful representative participation and labour-management cooperation through WCs and Firm B is famous for the use ofself-directed teams. As such, they may not be representative of the populationof Korean firms. On the other hand, they certainly provide real examples ofemployee participation and involvement currently practised by successfulKorean firms. In this sense, what we report may be regarded as a point ofhope for the future of employee participation and involvement in Korea.

On 15 June, Takao Kato and Kang-Sung Lee visited Firm A, a large man-ufacturing firm with sales of over 20 trillion won and employment of over50,000 workers worldwide (close to 30,000 in Korea) in 2003. Firm A wasestablished in 1958. The corporation consists of a headquarters and sevenfactories.

In the morning, we visited one of Firm A’s seven factories and spent anhour observing a number of shopfloors of this factory. We then intervieweda line supervisor who is in charge of an assembly line consisting of 26 oper-ators, one relief worker (utility worker who fills in for any unexpected vacantposition), and two maintenance workers. The interviewee is also a unionrepresentative for the factory and attends WCs at the factory level. The inter-view lasted about 90 minutes, focusing on factory-level WCs and various EIprogrammes at the shopfloor level.

We then visited Firm A’s corporate headquarters in the afternoon and inter-viewed the Director of Industrial Relations and his young subordinate forabout 90 minutes. The Director of Industrial Relations attends headquar-ters-level WC meetings regularly as a management-side council member andwas willing to share his first-hand knowledge of the working of WCs withus. In addition, he also proved to be very knowledgeable about variousfirm-wide HR policies and responded wholeheartedly to a variety of questionsabout the HR policies.16

15Our confidentiality agreements with both firms prohibit us from identifying the specific pro-ducts they produce.16We also gathered much information on financial participation schemes such as profit sharingand team incentives through our field visits. See Kato et al. (2004) for financial participationused by Korean firms.


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Following our interview with the IR Director, we visited the office of FirmA’s trade union, which is located in the firm’s customer service department,and interviewed the Secretary General of the union (No. 2 person in theunion after the President) for about an hour.

Firm A has had a trade union since 1963. Similar to Japan, Korean unionsare organized at the enterprise level.17 However, unlike Japan, only pro-duction workers (including line supervisors) belong to unions. Firm A’sunion is no exception. The current membership of the union is about10,000 production workers. There is no formal union shop agreement, yetin practice all regular production workers employed by Firm A automaticallybecome members of the union. The annual union membership dues for eachunion member amount to 1% of his/her annual base pay, which is calculatedas his/her monthly base salary (excluding overtime pay) times 12 plus his/herregular bonus (which is typically 8 months of his/her monthly base salary).There are 113 union representatives and 33 of them are full-time unionofficers (ten work at the headquarters level and the remaining 23 work atthe factory level). Like many other Korean trade unions, all full time unionofficers of the union are on Firm A’s payroll.18 According to the currentKorean government’s plan, this practice will end nationwide and all full-timeunion officers will be required to be paid from union membership dues,starting from 2007. The General Secretary of the union believes that it willbe very difficult to pay all full time union officers from the current levelof membership dues (1% of base pay) without financial support fromthe firm.

Firm B is also a manufacturer with sales of over 7 billion won andemployment of about 1,600 workers in 2003. The firm has a headquartersand three plants. Although considerably smaller than Firm A, Firm B is aleading manufacturer in terms of its market share in certain products andis known for its use of high performance work systems (in particularself-directed teams).

In the morning of 22 June 2004 Takao Kato, Kang-Sung Lee and Jang-SooRyu visited the corporate headquarters of Firm B, and interviewed the Direc-tor of Human Resources and his young subordinate. The interview lastedabout three hours, including lunch. After lunch, we visited one of theirthree plants and interviewed a line supervisor of the plant for 90 minutes.The plant has ten machines and our supervisor informant is in charge oftwo machines with three operators for each machine (or six operators).Since they use the two-shifts and four-crew system, there are total of 24operators he is in charge of. Finally, we also interviewed a former union pre-sident and founder of the union at Firm B for about 30 minutes. The currentmembership of Firm B’s trade union includes about 900 production workers(including line supervisors). The union is part of FKTU. Owing to the limited

17See, for instance, Kleiner & Lee (1997).18This practice, although illegal, is occasionally observed in small to medium-size firms withunions in Japan according to Kato’s field research in Japanese firms.


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time spent with the former union president, the amount of information weacquired on Firm B’s union is unfortunately more limited than on Firm A’sunion.

The Structure of Works Councils

Both firms have WCs at the headquarters level as well as at the plant level. Inboth firms, the headquarters level WC meets formally every quarter as the lawrequires while the plant-level WC meets formally every month. In addition,Firm B’s headquarters-level WC often holds additional special WC meetings.For example, during the last year Firm B held two additional special WCmeetings to discuss the introduction of the new work system of two shiftsand four crew, in addition to regular quarterly meetings. Headquarters-level WC meetings last 2 to 3 hours in both firms. The plant-level WCmeetings tend to be shorter, often 1 to 2 hours (remember they are heldmore frequently than the headquarters-level WC meetings).

The headquarters-level WC consists of an equal number of managementand labour representatives in both firms, as the law mandates. Firm A’sheadquarters-level WC is larger than Firm B’s, having 20 council membersat Firm A, compared with 14 at Firm B. In both firms, management repre-sentatives for the headquarters-level WC include CEO, Directors in chargeof human resources and industrial relations and plant managers, whereaslabour representatives include headquarters-level union leaders who arefull time union officials, plant-level union leaders and full-time union staffmembers.

The plant-level WC consists of plant manager, plant HR director, andother managers as management representatives, and plant-level unionleaders as labour representatives (line supervisors are often plant-levelunion representatives).

The amount of time spent on WC activities appears to be substantial. Forexample, the General Secretary of Firm A’s trade union revealed that, inaddition to regular WC meetings, the IR Director and his staff hold weeklyinformal meetings with full time union officers at the headquarters level,and much of the groundwork for formal WC meetings is done throughsuch informal and frequent interactions between the IR Department andunion office at the headquarter level.19

Moreover, according to the General Secretary of Firm A’s union, factor-level union leaders, many of whom are not full-time union leaders, spendon average 10 hours a month on preparing for monthly factory-level WCmeetings. The company allows them to do this during their regularworking hours. In other words, like full-time union leaders, these shopfloorunion leaders are also paid for their WC-related activities by the company.

19The importance of such informal and frequent meetings between IR Department and head-quarters union office is also reported for Japan in Kato (2003).


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The Quality of Information Shared and the Degree of EmployeeParticipation in WCs

As shown in the previous sections, the SHRM provides data on the incidenceof WCs and some information on the content of information shared in WCs.However, the Survey tells us little about the degree of employee participationin WCs. For example, if WCs share only superficial information that ispublicly available, they will not help in reducing the information asymmetrybetween labour and management, building the trust relationship betweenlabour and management, and ultimately achieving the goal alignment.Furthermore, if management shares information with labour in WCs yetreceives little input from labour, the degree of employee participation andinvolvement in decision making will be quite limited. To understand thefull impact of WCs, we will need to know the nature of ‘labour-managementconsultation’ in WCs and thus the degree of employee participation andinvolvement in decision making through WCs. Our field research is aimedat shedding light on such important issues.

In both firms, confidential information appears to be shared with labourrepresentatives (at least with the union president). Thus, at Firm A, our IRDirector believes that they do share confidential information with labourrepresentatives. He added, however, that if the information is highlyconfidential – such as mergers and acquisitions, strategic alliance and newproducts – the CEO shares it only with the president of the union, andasks him not to release it to anyone else until it is announced publicly. TheCEO trusts the president of the union who has been reciprocating theCEO’s trust by keeping such highly confidential information in strictconfidence.

The HR Director of Firm B also confirmed that confidential information isshared with labour-side WC members and that no written documents are pro-vided during WC meetings to protect the confidentiality of the informationshared during WC meetings. He added that he is not worried about leakingof the confidential information by union representatives and that there hasnever been any incidence of an information leak by union representatives.As in the case of Firm A, in addition to the information shared during WCmeetings, the union president is allowed to view a 40-minute confidentialvideo created by the CEO every month. Our union informants at bothfirms concurred that they are indeed receiving confidential informationfrom their firms.

Furthermore, both management informants and union informants at eachfirm claimed that WCs are not a mere information sharing device but some-times go beyond it and serve as a sort of ‘joint determination mechanism’. Tomake sure that we were not given mere lip service, we insisted on some realexamples of the confidential information shared through WCs and the jointdetermination nature of WCs.

The General Secretary of Firm A’s trade union provided us with severalexamples. First, in 1999, Firm A’s management shared its confidentialdecision to sell a factory with 500 employees to another company with


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labour-side WC members at the headquarters level. Management-side WCmembers stressed the fact that the factory was losing money whereaslabour-side WC members expressed their concerns over the job security ofthese 500 employees. After many rounds of labour-management consultationin WC, they jointly decided to keep the factory yet change its main productsto more profitable lines.

Second, Firm A’s management also shared its confidential decision to sellanother factory, with 200 employees, which is at odds with Firm A’s mainproduct lines. Again, after lengthy and serious consultation with labour-side WC members, both management and labour jointly decided to makethis factory a standalone independent firm.

The third and final example provided by the General Secretary of Firm A’sunion involves a recent product recall incident. A serious product defect andreported consumer injuries caused by the defect were revealed to labour-sideWC members before the public disclosure of such potentially devastatinginformation. Labour representatives for WC made two specific proposalsto management representatives: (i) volunteering union representatives tojoin the firm’s recall team as servicemen; and (ii) running a newspaperad apologizing for the product defect. These proposals were accepted bythe firm.

The IR Director of Firm A also shared this example with us as an exampleof successful WC activities. In addition, he also mentioned that the firmshared its confidential decision to outsource a division with 450 employees(200 of them are union members) with labour-side WC members. A seriesof labour-management consultations resulted in the implementation ofthe outsourcing in a more desirable way for employees of the division(some retiring with more desirable early retirement packages and the resttransferred to other divisions of the firm).

Firm B appears to be less participatory in representative participation viaWCs than Firm A (Firm B is, however, a pioneer in direct participationat the shopfloor-level, such as self-directed teams in Korea). Thus, our man-agement informant at Firm B clearly believes that labour is not a partner inmanagement. Apparently labour representatives for WCs rarely ask anyquestions on business information shared during WC meetings. They seemto be neither particularly interested in business matters nor capable of fullyunderstanding such matters. Input from labour representatives appears tofocus on traditional labour matters, such as compensation, benefits andwork environment issues. We suspect that Firm B is perhaps more represen-tative of the population of Korean firms than Firm A in terms of the natureand scope of WCs.

In sum, confidential information appears to be shared with labour repre-sentatives for WCs at both firms. Firm A’s labour representatives seem totake advantage of such information and try to influence the firm’s decisions,more so than those at Firm B. Even for Firm A, which is known for successfulemployee participation through effective WCs, the strong consultative natureof WCs is observed mostly when corporate decision making affects labourdirectly and significantly, such as sales of a plant and outsourcing. Finally,


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both the IR Director and the General Secretary at Firm A stressed that FirmA’s successful current labour-management cooperation was a result ofmanagement’s conscious decision to create more harmonious labour-management relations after destructive labour disputes in 1987 (lasting10 days and costing the firm $190 million) and 1989 (lasting 39 days andcosting the firm $660 million).

Weaker Shopfloor EI Programmes at Firm A

In contrast to its strong representative participation at the corporate level,Firm A is somewhat weaker in the use of shopfloor EI programmes. Likemany other Korean manufacturing firms, there is neither cell productionnor modular production in the factory of Firm A we visited. It is a traditionalassembly line with each operator performing a standardized and routine jobrepetitively (there are six distinct jobs). Operators are not allowed to interactwith each other on the job (actually they are not even allowed to speak toeach other during regular hours), and obviously they do not assist eachother on the job.

There are six jobs in the line and all operators rotate among these six jobsevery three months so that in 18 months a new operator can experience all sixjobs. Our supervisor informant believes that the rotation will serve two pur-poses: (i) making operators eventually multi-skilled so that they can fill in forabsent workers; and (ii) making their jobs less monotonous. Mobilitybetween lines is, however, rare. The average tenure of his 26 operators is4 years, ranging from 0 to 8 years. Most of them are young women withno college education.

Consistent with the traditional assembly line production process, operatorshave very little input in job assignment, work schedule, and rotation order(operators rotate among the six jobs every 3 months). If an operator doesnot like her current assignment, she can talk to the supervisor. Again thesupervisor will work out a solution with her, and none of her co-workerswill get involved.

Furthermore, consistent with the use of the traditional assembly linesystem, operators rarely make suggestions to improve productivity andquality. The supervisor and engineers are expected to find production pro-blems and come up with solutions.

Firm A does have QCs. However, most QCs do not include operators. Forexample, Inspection QCs consist of the supervisor and inspectors with nooperators involved. During the last year, at the line of our line-supervisorinformant, only three or four out of 26 operators participated in QCs andthen only for about two months. They were solicited by the supervisor.Although operators solicited by the supervisor never refuse to participate inQCs, some actually reluctantly participate.

In addition, the line supervisor holds a short coffee meeting with threeor four operators during regular hours every month. The supervisorsolicits different operators to meet with him over coffee every month. Avariety of issues are raised during these coffee meetings, ranging from work


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environment issues to co-workers to purely personal matters, such as familyproblems.

At the factory level there is a monthly factory-level WC meeting with11 union representatives (including our line-supervisor informant) andseven or eight management representatives at the factory level. Themeeting lasts 1–2 hours during regular hours. Detailed production plansare presented by management representatives. However, union representa-tives do not try to change these production plans. Instead, they tend tofocus on figuring out work schedules to achieve the plans jointly with man-agement (e.g. how many holidays should be given up to achieve the plan).During factory-level WC meetings, labour representatives often make sugges-tions on everyday working issues, such as improving the cafeteria menu.

Firm A has been using team incentive pay for at least 16 years. The factorythat we visited has ten assembly lines, which are divided into two leagues(five lines each). Every month based on line performance (consisting of pro-ductivity and quality outcomes as compared with specific targets set by thesupervisor and approved by the plant manager), one line in each leaguewill win and receive 300,000 won (the prize money is increased to 800,000won three times a year). The winning line usually has a dinner party for allmembers. The winner is decided by the plant manager. Our line supervisorinformant believes that the team incentive pay has been a significant moti-vating factor.

High Performance Work System at Firm B

In contrast to its somewhat weaker representative participation throughWCs, Firm B is a pioneer in the use of high performance work systems(in particular self-directed teams).

At the factory of Firm B, we observed that three operators constantly inter-act with each other and work as a team to check the quality of the product themachine is producing. Specifically, there are three jobs in each machine:receiving; assembly; and finish. Each operator is loosely assigned to each ofthe three jobs. However, they change their jobs rather freely as needed.The team is led by the lead operator who is the most experienced operatoramong the three. The lead operator does his/her own assigned job as wellas oversees the operation of the machine. When one of the three operatorsis ill, the team may voluntarily shut down the machine and engage in sometraining activities. In fact, when we were observing the line consisting oftwo machines, we noticed one machine down completely and no operatorwas present. Our line supervisor quickly explained that one of the threeoperators was sick and the remaining two decided to shut down themachine and engage in some training activities.

Our line supervisor informant at Firm B confirmed that once a month allteam members shut down the machine and hold a goal setting workshop.Based on data on consumer complaints, waste, productivity, quality, andsafety during the previous month, the team members jointly set the teamgoals (productivity, quality and cost reduction). The lead operator facilitates


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the goal setting process. The supervisor informant also added that the goalshis team members voluntarily set are often higher than what he expects.

In addition, every month each team member receives considerable training,amounting to over 300 paid hours of training a year.

Every year, seven to eight operators switch between machines to expandthe scope of their experiences and skills. The selection of operators to beswitched to other machines is made after consultation between the line super-visor and operators considered for such transfers.

The line supervisor is selected among all lead operators by the plantmanager. When an operator has a complaint about his/her assigned joband team members, the line supervisor intervenes. If the issue is not resolvedthrough dialogues between the line supervisor and the complaining operator,the line supervisor switches him/her to other machines or lines. Other teammembers rarely get involved with the process.

Unlike self-directed teams in the US, however, Firm B’s self-directed teamsdo not work out their own work schedules by themselves. The work sche-dules are determined jointly by management representatives and labourrepresentatives at the factory-level WCs. As such, there appears to be asynergy between self-directed teams and factory-level WCs. Self-directedteams set team goals voluntarily whereas factory-level WCs take care ofwork schedules.

Firm B used to have QCs. However, QCs were replaced about ten yearsago with the high performance work system (in particular the afore-mentioned self-directed teams and the employee suggestion system inwhich individual operators suggest ways to improve productivity andquality). As a result, there is no longer systematic quality improvementactivities in which operators get involved off line. According to our HRmanager informant at Firm B, the replacement of QCs with the highperformance work system was necessitated by the introduction of new,highly automated machines.

Like Firm A, there is a team incentive system whereby a team or a plant isselected as a winner once a year. The selection of the winner is based on theachievement of the goals set by each team or plant. The CEO ultimatelydecides the winner after consulting with plant managers.

The prize is a multi-day training trip to an attractive resort. For example,last year a plant exceeded its targets set by themselves and won the three-daytraining trip to Je Ju Island. All 300 employees of the plant enjoyed theirthree-day trip to one of the most popular resort islands in Korea.

Our HR manager informant believes that nobody behaves strategically bysetting goals too low so that they can win the prize. It is not the case that thesame team or plant continues to win the prize since winning teams set goalseven higher for the following year.

Conclusions

This paper has provided much-needed systematic evidence on the incidence,scope and nature of various forms of employee participation and involvement


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in Korea. We have done so by using a new comprehensive survey of publiclytraded firms in Korea, the Survey on Human Resource Management(SHRM). The key findings from our analysis of the survey include:

(1) Over 90% of publicly traded firms in Korea have Works Councils(WCs) and this figure is substantially higher than the proportion of pub-licly traded firms with WCs in Japan, which is known for the intensiveuse of WCs despite the absence of the government mandate. Based onthe obligatory nature of Korean WCs, however, the unusually high inci-dence of WCs in Korea is not surprising.

(2) Not all WCs are functioning well in Korea. It turns out that a little lessthan 70% of Korean firms have functioning WCs.

(3) Overall, the average Korean firm with WCs holds WC meetings a littleover five times a year, more than the minimum number of meetingsrequired by the law. However, for firms with non-functioning WCs,the average number of WC meetings barely makes the statutory require-ment (3.9 times a year) whereas for firms with effective WCs, it is wellover the requirement (5.8 times a year).

(4) WCs may be functioning as a substitute for traditional union collectivebargaining in some instances even in unionized firms.

(5) Unionized firms are more likely to have WCs, suggesting a complemen-tary role of unions in WCs.

(6) Over 60% of publicly traded firms in Korea have QCs (traditionaloffline problem solving groups) whereas only 46% responded tohaving functioning QCs, pointing to an alarming degree of dysfunc-tional QCs.

(7) Firms with unions that belong to FKTU (the more moderate nationalcentre of unions) are more likely to use QCs than other unionizedfirms, suggesting that FKTU unions are less hostile to shopfloor EIprogrammes than more militant KTCU unions.

(8) Shopfloor EI programmes tend to be used in concert with representativeparticipation at the top (WCs), especially effective representative par-ticipation at the top, supporting the notion of synergy between represen-tative participation at the top level and direct participation at thegrassroots level.

(9) Likewise, shopfloor EI programmes tend to be used together with train-ing programmes, pointing to complementarity between EI and training.

(10) Consistent with our hypotheses, firms with EI programmes (especiallyeffective EI programmes) in Korea are found to be generally larger;more capital intensive; spend more on training than other firms; andare more productive than other firms.

Finally, to complement the survey data, in summer of 2004 we conductedfield research at two large manufacturing firms in Korea. We have used quali-tative data from our field research and have demonstrated the use ofemployee participation and involvement programmes and have shedfurther light on the scope and nature of EI programmes in Korea.


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We end the paper with a preliminary discussion on public policy impli-cations of our findings. The current Korean industrial relations system isoften viewed as a major hindrance to Korea’s economic competitiveness.20

Public policy responses to the challenges posed by Korea’s current indus-trial relations appear to have had only limited success thus far.21 Ourpaper indicates, however, that there appear to be still successful localinitiatives on employee participation and labour-management cooperation,and thus successful industrial relations in Korea. For instance, as detailedin the previous section, at one of our field visit sites in Korea, both man-agement and labour informants told us independently that managementshares confidential information with labour during their works councilmeetings. Moreover, management occasionally makes important businessdecisions (such as outsourcing, divestiture, and plant closing) jointlywith labour, especially when such decisions will have a significantimpact on labour. This firm is known for its successful employee partici-pation and labour-management cooperation and competes well domesti-cally as well as internationally. As such, it is probably not a typicalKorean firm. Nonetheless, it certainly offers a point of hope for futureemployee participation and labour-management cooperation in Korea,and can be used as a benchmark case for other Korean firms that are striv-ing to adopt and maintain successful employee participation and labour-management cooperation.

The Korean government may wish to sponsor a major benchmarkingproject in which independent researchers conduct detailed case studies oftwo types of Korean firms: (i) high-road firms that adopted and have been sus-taining successful employee participation and labour-managementcooperation; and (ii) low-road firms that tried to establish such labour-management cooperation yet were unable to maintain it. Such a projectwill shed light on some of the most important public policy questions con-cerning employee participation and labour-management cooperation: (i)why some firms can adopt employee participation programmes successfullyand enjoy sustained labour-management cooperation whereas otherscannot; (ii) what would be the most effective way for the government tohelp firms adopt and maintain successful employee participation andlabour-management cooperation; and (iii) how the best firms can take advan-tage of the complementarity of various employee participation programmes(or what cluster of programmes would be most performance-enhancing). Inaddition, the benchmarking project on firms with best practices willnaturally give due recognition to Korean firms with successful employee par-ticipation and labour-management cooperation, and help educate the publicabout the importance of employee participation and labour-managementcooperation.

20See, for instance, Lee (2004b).21See, for instance, Lee (2004a).


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Finally, we suggest the results from the benchmarking project be widelydisseminated to the public (in particular managers and union leaders).Perhaps in collaboration with local colleges and universities, a series ofseminars and workshops can be held at local colleges and universities formanagers and union leaders.

We have found some evidence for the complementary role that unions mayplay in successful employee participation and involvement programmes inKorea. A possibly important source of this synergy between unions and EIprogrammes is the union’s ability to supply well-educated, competent, andcommitted union leaders as labour representatives to key EI programmes,such as the works council.22 Korean unions may not be able to afford torecruit bright and committed young union leaders and provide them withadequate training and education for successful employee participation andlabour-management cooperation. This is due to the relatively limited finan-cial resources available for Korean unions in general and the anticipatedenforcement of the labour law, which will prohibit union leaders from receiv-ing salaries from their firms in the near future. Providing unions with furtherpublic assistance for training and education of their young leaders couldprove to pay for itself in the long run by improving Korean labour-management relations and thus the overall competitiveness of the Koreaneconomy. Such assistance may not always be in the form of direct financialsubsidy. It could be indirect and logistical support. For example, the assist-ance might help colleges and universities (in particular public universities)set up appropriate education programmes with a particular focus onemployee participation and labour-management cooperation for youngunion leaders.

Acknowledgements

The authors are grateful for support from the Korea Labor Institute. The bulkof the paper was written while Kato was Distinguished Visiting Professor atKDI School of Public Policy and Management in the summer of 2004. Kato isthankful for their hospitality. The paper has benefited from comments andsuggestions from conference participants and in particular Dong-Bae Kim,Sam-Su Kim, and Yong-Jin Ro at the Workshop on Employment Practicesin Korea at KDI School in July 2003, as well as participants (especially theauthors’ discussant, Jiman Lee) at the KLI-KDIS Conference, Flexibilityand Performance: International Perspectives on Labor Market Institutions,19–20 July 2004, Seoul, Korea. Jong-Kyu Lee provided excellent researchassistance. Finally, the authors owe their great debt of gratitude to the HRmanagers, line supervisors and union officials of Korean companies whogranted them the opportunities to interview them.

22Kato (2003) provides evidence from Japan for the importance of unions as a supplier oflabour representatives to works councils who can match (sometimes even surpass) manage-ment representatives in their competence, commitment and dedication.


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employee participation and involvement in korea: evidence from a new survey and field research

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