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Promoting Good-Quality Job Creation in the Sector of SMEs

Joo-hoon Kim

No 29, KDI Focus from Korea Development Institute (KDI)

Abstract: Why are low-quality jobs created at SMEs? It is because the large companies hand over labor-intensive production to lower-level companies, causing exponential creation of new businesses amongst the lowest-paying bracket. - Large firms have transferred a portion of their production process to lower-level companies in order to boost their price competitiveness. - Because the jobs created at SMEs today are found in low-level companies, such as those with 5-19 employees, the quality of employment of SMEs as a whole is inevitably low. - The rate of increase in per capita value-added for large firms was made possible by a steep decline in the rate of increase for employment. - After the Asian Financial Crisis, SMEs began to catch up with large firms in terms of the rate of increase in R&D investment. - The fact that Korea has excessive number of companies in comparison with other countries implies that Korean companies are generally smaller in scale than those in other countries. - SMEs that are specialized in terms of key capabilities should establish a new group in which labor is divided on an equal footing. - Lower-tier companies should be able to form business relationships with multiple high-level companies. - The most urgent task is eliminating unfair subcontracting transactions. - Price calculation method must be developed that reflects intangible creative and innovative activity. - Innovative SMEs must be able to establish collaborative relationships with service firms without going through large businesses.

Date: 2015
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