Is automation permanently reducing the demand for manufacturing labour in South Korea?

Recent decades have witnessed rapid technological progress in South Korea, particularly through the introduction of advanced industrial robotics and automation. The demand for labour in manufacturing is a derived demand, which depends heavily on the price of the final goods produced, the productivity of workers, and the cost of substitute factors of production like capital. During periods of intense capital deepening, firms frequently replace routine manual tasks with automated systems. Fig. 1 illustrates the theoretical impact on the demand for low-skilled manufacturing labour when firms substitute workers with capital.

Fig. 1 The impact of capital substitution on the demand for manual manufacturing labour

Changes in manufacturing productivity also influence employment levels in related sectors. For example, econometric models of the South Korean technology sector estimate that a 10% increase in productivity in the semiconductor industry leads to an expansion of derived labour demand in the domestic logistics sector, creating an additional 12,000 supply-chain jobs.

While the total volume of manufacturing output has risen, the share of physical assembly tasks performed by human workers is declining. In 2010, human labor accounted for 75% of assembly operations in South Korean automotive plants. By 2020, this had fallen to 45%, and it is projected to fall to 20% by 2030. This transition influences the composition of employment. Fig. 2 shows key data on the number of workers employed in various manufacturing subsectors.

Fig. 2 Manufacturing employment by major sector in South Korea (thousands of workers), 2016–2020

Advocates of automation argue that integrating advanced robotics increases the marginal product of the remaining high-skilled workforce and raises overall safety and cost efficiency. Furthermore, higher capital productivity can make domestic exports more price-competitive, leading to an expansion of output and a subsequent increase in the derived demand for skilled engineers and software designers. With a more skilled workforce, firms can command premium prices in international markets, offsetting the decline in routine assembly jobs.

However, capital-labour substitution imposes downward pressure on the wages of low-skilled workers. If the cost of robotic systems continues to fall, firms face a strong financial incentive to replace human labour. The elasticity of demand for labour determines how severely employment levels react to changes in the market wage. If labour demand is highly wage-elastic, a small increase in wage rates (for example, through statutory minimum wage hikes) can lead to a substantial reduction in the quantity of labour demanded as firms accelerate automation.

To address potential wage inequality, several regional administrations in South Korea have experimented with introducing municipal wage subsidies or higher local minimum wages. These policies, however, have drawn criticism regarding their impact on firm profitability and their potential to accelerate automated substitution. Fig. 3 outlines recent shifts in the national minimum wage in South Korea.

Fig. 3 South Korea National Minimum Wage (Korean Won per hour), 2015–2021

While the growth of high-tech manufacturing continues, there are major concerns for routine-task workers who face technological unemployment. Many older assembly-line workers have low occupational mobility, making it difficult to transition to high-skilled tech jobs. The long-term impact on the labour market depends on structural factors: the ease with which workers can be retrained, the wage elasticity of demand for labour, and whether the expansion of new high-tech industries creates enough complementary job roles to offset structural job losses.