Expected Impacts

2. Background Current Status and Issues Goals and Strategies Ways to Improve Foreign Workforce Policy Ways to reduce Illegal Workers Expected Impacts

3. Foreign workers who are employed for simple tasks that do not require professional skills and expertise in the fields of manufacturing, construction and other industries Composed of foreign workers who entered under the Employment Permit System(with E-9 visa) and ethnic Korean with foreign nationality who entered under the Employment Management System(with H-2 visa) ※ Industrial Trainee System(1993-2006) was abolished and unified into the Employment Permit System

4. Ⅰ. Background Small and medium-sized enterprises continue to face labor shortage SMEs(with 300 or less employees) 2.9%(04) 3.5%(05) 3.2%(06) 3.7%(07) Demand for labor increases as economy grows Demand for manual workers is expected to grow by 1.5% every year for the next 10 years(mid to long-term prospect for labor supply and demand) Labor forces continue to decrease due to low birth rate & aging population Labor shortage rate by company size Changes in labor population 81.6% 75.0% 4.2% 66.5% 62.6% 3.7% 3.2% Aged from 25 to 49 Aged from 15 to 24 2000 2010 2020 2030 Total With 300 or less employees With 30 or less employees

5. Labor shortage rate of SMEs 7.4% 6.5% 6.2% Shortage rate of skilled workers 5.6% Shortage rate of manual workers 5.5% 4.6% 3.2% 2.9% ’04 ’05 ’06 ’07 Ⅰ. Background Introduction of foreign workers addressed some of labor shortages in SMEs but falls short of meeting changes in labor demand by companies Issues of high employment cost and complicated employment procedures were raised in managing the current foreign workforce policy • Thus,unskilled foreign workforce policy should be pursued • considering supply and demand conditions of national labor forces • utilizing foreign workers efficiently in the areas that face labor shortages • 3. minimizing social costs.

6. Ⅱ. Current Status and Issues Current Status Foreigners residing in Korea number 1.15 million(as of late July 2008) Foreign workers who are employed including skilled, unskilled and illegal workers number 720,000 Total number of foreigners (1,156,287) Number of foreign workers(720,210) Skilled(35,291) Illegal aliens (237,938) Students (436,077) Unskilled(446,981) Foreign workers (150,840) Ethnic Koreans with foreign nationality (296,141) General foreign workers are mainly employed in the manufacturing sector while ethnic Koreans with foreign nationality are mainly employed in the construction sites and restaurants -Average wage is set around \1,140,000 including minimum wage(\850,000) and overtime pay

7. Productivities etc. compared to domestic workers 97% 89% 87% Productivity Wage Total employment cost Ⅱ. Current Status and Issues Issues Labor Market Aspect Numbers of foreign workers to be introduced are determined reflecting the short-term labor shortage only Comprehensive long-term response is yet to be established Concerns are raised about the possible replacement of domestic Workers as increasing number of ethnic Koreans with foreign nationality are introduced Economic Aspect Excessive cost burden not reflecting productivity Complicated employment·report procedures and too frequent request of changing workplaces

8. Ⅱ. Current Status and Issues Issues Social Aspect • Insufficient employment & sojourn support service • for employers and workers • Unresolved conflict between employers and workers leads to • the decrease in productivity and workers’ maladjustment to workplaces Increase in the number of illegal workers Increase in social cost including crime·childbirth·medical service and conflicts Controversy over the violation of human rights and damage to the national image Economic Aspect labor market aspect Social Aspect Cost reduction, productivity increase, and stable labor supply is needed Comfortable living condition needs to be created & crackdown on illegal workers should continue Appropriate number of workers needs to be received from short & long-term perspective

9. Ⅲ.`Goals and Strategies Ensuring Sustainable Growth by Resolving Labor Shortage Harmonizing with domestic labor market Strengthening Business competitiveness Reducing social cost Ensuing user centered employment & sojourn support Supplementing domestic labor market Focusing on employers’ demand Setting reasonable employment cost 1. Receiving foreign workers according to the mid to long-term vision 2. Managing the number of ethnic Korean with foreign nationality and permitted industries 1. Living and food expenses to be born by workers 2. Improving minimum wage 3. Reducing employers’ burden of mandatory insurances 1. Expanding public service of employment & sojourn support 2. Strengthening post employment service considering characteristics of industry 3. Creating comfortable living condition 1. Strengthening employers’ rights to select 2. Placing restraints on the workplace changes 3. Simplifying employment procedures 4. Strengthening employment stability Measures to reduce the number of illegal workers Government-wide efforts Preventing the occurrence of illegal workers Strengthening crackdown on illegal workers

10. Ⅳ. Ways to Improve Foreign Workforce Policy Supplementing domestic labor market Focusing on Employers’ demand Setting reasonable Employment cost Ensuring user centered Employment & sojourn support Receiving foreign workers according to the mid to long-term vision Aappropriate number of foreign workers are to be received reflecting changes in demographics, domestic labor market condition, and industrial demand 10 year-term prospect for labor supply and demand will be drawn up and the appropriate number of workers to be introduced will be determined every year Foreign workforce is to be managed with an appropriate number Considering domestic labor market Foreign workforce is expected to increase Expected number of foreign workers(eg.) Proportion of foreign workers to the total employees among OECD member countries Economic growth rate : 5-7% Proportion of foreign workers : 3-4% 9.3% 750,000~ 1,030,000 5.4% 3.4% 3.0% 720,000 0.3% present Five years later Korea UK Germany Japan Netherlands

11. SMEs in manufacturing in rural area Agricultural & fishing industry Service Industry Construction industry Providing incentives (Inviting family member, Granting permanent resident status) Ⅳ. Ways to Improve Foreign Workforce Policy Supplementing domestic labor market Focusing on Employers’ demand Setting reasonable Employment cost Ensuring user centered Employment & sojourn support Managing the number of ethnic Korean with Foreign Nationality and permitted industries Number of ethnic Korean with foreign nationality to be received will be determined considering the possibility of replacing domestic workers, business demand, and employment results Number of ethnic Korean to be invited by relatives in Korea will be limited (less then 3 persons per 1 relative) Inducing employment to industries that face labor shortages For construction sector, measures requiring specialized training before employed will be established(Dec. 2008)

12. Ⅳ. Ways to Improve Foreign Workforce Policy Focusing on employers’ demand Supplementing Domestic labor market Setting reasonable Employment cost Ensuring user centered Employment & sojourn support Strengthening employers’ rights to select Present Improvement KLT grade+skill test grade (specified by industry) Those who departed voluntarily after sojourn period in Korea Pool of available workers Korean Language Test(KLT) passers Manual workers: current selection process will be maintained Workers with simple skill: selection training job placement Manual workers: selected based on the job seekers’ roster Selection Process Placing restraints on the workplace changes Strict restriction on workplace changes will be stipulated on the labor contract and highlighted during job orientation Reason for changing workplace will be notified to new employers In case workers leave workplace without employer’s fault, the limit on the number of workers allowed to hire of the concerned employer will be eased

13. Ⅳ. Ways to Improve Foreign Workforce Policy Focusing on employers’ demand Supplementing Domestic labor market Setting reasonable Employment cost Ensuring user centered Employment & sojourn support Simplifying Employment Procedure Present Improvement Applying for employment permit (The rest will be processed automatically) Applying for employment permit Selecting agency(in charge of receiving procedure including labor contract) Applying for Certificate for Confirmation of Visa Issuance ※one-stop service is being implemented (to be completed in Feb. 2009) Current receiving period of 37~41days will be reduced to 21~30 days Creating stable employment condition Improvement Present Signing contract autonomously within 3 year limit Abolishing mandatory departure of 1 month employment up to five years(3 + within 2) Contract period: renewed every year Reemployment: 3 year Requirement (1 month departure) 3 year To prevent labor force vacuum due to sojourn expiration, employers can apply for employment of foreign workers 4 month prior to the expiration of sojourn period (reported on June, 2008 and implemented from July)

14. Improving standard labor contract stipulating whether living and food expenses to be provided or not Standard for living and food expenses to be charged will be established by Kbiz and to be used by employers Minimum Wage Act will be revised to set reasonable minimum wage including the adjustment of the limit on deductible amount for living and food expenses from wage and probation period. Probation period will be adjusted considering language difficulty and adjustment to the workplace To be legislated in the first half of 2009 after gathering experts’ opinions from Oct. to Dec. of 2008 Ⅳ. Ways to Improve Foreign Workforce Policy Setting reasonable employment cost Supplementing Domestic labor market Focusing on Employers’ demand Ensuring user centered Employment & sojourn support Living and food expenses to be born by workers Standard will be set at a reasonable rate by labor and management organizations and experts Improving minimum wage system

15. Employers are required to subscribe social insurances and EPS insurances Departure Guarantee Insurance: 70,700 won/month Guarantee Insurance: 1,300 won/month Ⅳ. Ways to Improve Foreign Workforce Policy Setting reasonable employment cost Supplementing Domestic labor market Focusing on Employers’ demand Ensuring user centered Employment & sojourn support Employers’ burden of mandatory insurances to be reduced Social insurances(National Pension, National Health Insurance, Industrial Accident Compensation Insurance), EPS insurances(Departure Guarantee Insurance, Guarantee Insurance) Employers’ burden of insurances will be relieved by allowing them to subscribe Departure Guarantee Insurance and Guarantee Insurance on voluntary basis On voluntary basis Measures of persuading foreign workers to apply for national pension in their own countries will be pursued to reduce the burden on employers ※6 countries including Vietnam and Cambodia are exempted based on the principle of reciprocity Employment insurance will be required for helping foreign workers adjust to workplace and providing expanded sojourn support (only for vocational skill development & employment stabilization project 2,500 won/month)

16. Complaint-window will be open at the job center of the Ministry of Labor Post employment service by HRD Korea will be expanded to every workplace Foreign worker support center will be expanded from current 3 centers Kbiz and Construction Association of Korea will be in charge of delivering Systematic post employment service for manufacturing and construction Industry respectively Strengthening management and evaluation to enhance the quality of service Ⅳ. Ways to Improve Foreign Workforce Policy Ensuing user centered employment & sojourn support Focusing on Employers’ demand Setting reasonable Employment cost Supplementing Domestic labor market Expanding public service of employment and sojourn support ※To be operated in cooperation with information center for foreign workers of the Ministry of Justice and private sector Strengthening post employment service considering characteristics of industry

17. Enhancing understanding on the Korean culture for job seekers through presentations and media Providing information to the ethnic Koreans about employment situation in Korea Establishing and running community by sending country and hosting cultural events Allowing job placement service for ethnic Koreans to private agencies to facilitate employment Providing training on skills and how to start business to returning workers for stable readjustment Ⅳ. Ways to Improve Foreign Workforce Policy Ensuing user centered employment & sojourn support Focusing on Employers’ demand Setting reasonable Employment cost Supplementing Domestic labor market Creating comfortable living environment enhancing understanding on the employment and living condition in Korea Before entry During staying In Korea Providing support to help workers settle down After Departure Creating network among returnees Maintaining friendly relations with sending country and promoting Korea’s friendly image through workers

18. There are 223,229 Illegal workers, accounting for 19.3% of total number of foreigners residing in Korea Ⅴ. Ways to Reduce Illegal Workers Cause and current status of illegal workers (by status)short-term visitors 48.7%, foreign workers 35.3%, others 16% 223,229 211,988 209,841 308,165 154,342 ’02 ’03 ’04 ’06 ’08.7 Cause From workers’ perspective From employers’ perspective From a social and policy perspective Easy to hire and fire workers, weak punishment for Illegal employment Higher wage compared to their home country, good living standard, etc.. Compassionate culture, lack of consistent crackdown efforts

19. It is difficult to pursue effective foreign workforce policy as illegal workers account for half of legal workers Application for organizing labor union was submitted on June.3rd, 2006, rejected by the Ministry of Labor, lawsuit was filed against the MOL’s decision and is now pending in the Supreme Court Crimes committed by foreign workers increased by 25% on annual average for the past 5 years Measures to grant legal status to 180,000 illegal workers were taken in 2003 Ⅴ. Ways to Reduce Illegal Workers Challenges The trend of ignoring the law is spreading as illegal workers organize labor unions making unreasonable demands National image is undermined due to the increase in crime committed by foreign workers and controversy over the violation of human rights Consistent crack down efforts are insufficient as the cooperation mechanism is not well established among Ministries

20. Reducing illegal workers from the current 19.3% to 10% in 5 years It would be manageable when the rate goes below10% Compared to 29% of the US, 20% of Germany, 8% of Japan, and 5% of Taiwan Reducing the number of illegal workers to 200,000 by late 2008 Strengthening management system on the personal information of illegal workers and foreign criminals Establishing ‘5 year Plans to Reduce Illegal Workers’ and report to Foreign Workforce Policy Committee(Prime Minister) Strengthening cooperation mechanism and sharing information among Ministries Ⅴ. Ways to Reduce Illegal Workers Improvement Measures Goals Establishing government-wide strategies

21. Strengthening immigration procedures including issuing CCVI and Screening at the port of entry Strengthening monitoring on the sending cost preventing informal cost from arising Implementing various programs for encouraging voluntary departure Illegal workers who take the lead in organizing labor unions and staging illegal strikes will be severely cracked down ※At the same time, employers who employ illegal workers will be punished Organizing crackdown squad composed of government officials and crackdown on illegal workers on a regular basis Ⅴ. Ways to Reduce Illegal Workers Preventing the occurrence of illegal workers Strengthening crackdown efforts and punishment for illegal workers Social and national consensus needs to be reached for establishing legal employment practice

22. Supporting sustainable economic growth by establishing supply base for high quality foreign labor Reducing employment cost to meet productivity and saving time and cost taken for following the required procedures Cutting social cost by reducing illegal workers and establishing global network through foreign workers Housing expense of 100,000 won(1/3 of average housing expenses) will be born by workers Visiting cost to be reduced, waiting period to be cut, and mendatory eparture of 1 month to be abolished Ⅵ.Expected Impacts Expected Impacts for each area Cost to be reduced from sharing housing and food expenses by worekrs:156.6 billion won Cost to be reduced from streamlining receiving procedure and Improving reemployment procedure: 51.5 billion won Cost reduction : 208.1 billion won annually(4,160,000 won per company)

23. Efforts will be made to systemetically manage human resources at home and abroad so that foreign workforce can be utilized to supplement domestic labor market and to meet the industrial labor demand which will lead to the sharpening of national competitiveness Efforts will be also made to achieve social integration by creating comfortable living condition