The labor productivity per capita in Korea's service industry is only 40% of that in manufacturing. This level is lower than the average of the Organisation for Economic Co-operation and Development (OECD). The Bank of Korea advised that a comprehensive control tower should be established to refine the laws and systems related to the development of the service industry. It also suggested that synergies should be maximized through the integration of manufacturing and service industries.
On the 3rd, the Bank of Korea published a report titled 'Evaluation of the productivity of Korea's service industry and policy responses' that includes this information. The authors are Vice Administrator Jeong Seon-young and Director Choi Jun, and researcher Ahn Byeong-tak from the Bank's Economic Analysis Team.
According to the research team, excluding public administration and defense, the scale of private service economy in Korea expanded to 44% of last year's nominal gross domestic product (GDP) and 65% of employment. In particular, it appears to be gradually advancing, focusing on high-value-added services and business-to-business (B2B) services.
However, growth has stagnated in qualitative terms. The labor productivity per capita, calculated by dividing the real value-added by the number of employees, stands at 39.7 when manufacturing is considered 100, which does not even exceed 40%. If 2000 is set to 100, last year the labor productivity in manufacturing was 258, but in private services, it was only 164.
Compared to major countries, it is also underperforming. When the U.S. (100) serves as a benchmark, Korea's labor productivity in the service industry is only 51.1. This is lower than the OECD (59.9), Japan (56.0), and Germany (59.2), contrasting with manufacturing productivity (86.6), which exceeds OECD (71.9), Japan (68.3), and Germany (68.7).
The research team pointed out that the underperformance in productivity is due to the service industry merely playing a complementary role in supporting the manufacturing industry. According to the research team, as of 2020, about 32% of total output in the service industry is linked to product exports, indicating a weak independent demand base. Social perception has also viewed it more as public goods or free provision rather than creating value-added.
The knowledge services recognized as high value-added also see approximately 98% of total sales of corporations concentrated in transactions with the government, public sector, domestic corporations, and consumers. According to the research team, as of 2021, only 2.2% of knowledge service corporations in Korea have experience in entering overseas markets.
The research team believes that to develop Korea's services, it is necessary to refine laws and systems that reflect the trend of integrating manufacturing and services. They advised that to achieve this, a comprehensive control tower framework should be established, and the 'Basic Law for Service Industry Development' should be promoted, incorporating the establishment of common foundations like digital infrastructure, standardization, and data linkage.
It was noted that high value-added services such as content and digital healthcare should leverage the strengths of manufacturing to compensate for their limitations. The suggestion is that the intellectual assets accumulated in manufacturing can be converted into AI and data-driven industrial services, and areas with high global demand like content and digital healthcare can increase value-added by combining with manufacturing technology.