The government is again pushing to enact the long-stalled Framework Act on Service Industry Development, a bill that has failed to clear the National Assembly for 15 years. First introduced in 2011 to foster the service sector in a systematic way, the legislation has been delayed by conflicts of interest, including disputes over whether to include health care. With South Korea running a services account deficit for 26 straight years, calls are growing for a comprehensive strategy and a stronger policy-coordination system for the sector.
According to the Ministry of Finance and Economy and the Public Procurement Service on Saturday, the ministry on April 22 issued a tender for a research project to assess preparations for enacting the bill and began selecting a contractor. The study is intended to secure baseline data and set policy direction for a more structured rollout of service-sector policy after the law is enacted, aiming to minimize early policy gaps and improve execution.
In its request for proposals, the ministry said the service sector is a core growth engine but its share of value added remains low compared with major advanced economies, requiring continued industrial upgrading and productivity gains.
Bank of Korea data from its Economic Statistics System (ECOS) show the services account posted a $34.5 billion deficit last year. It has not turned to surplus even once since 2000, and the cumulative deficit over 26 years has exceeded $360 billion.
The underlying problem, the article said, is weak productivity. Services account for 71.6% of total employment, but only 61.9% of value added, reflecting low efficiency relative to the sector’s role in the economy.
By OECD rankings, South Korea’s manufacturing labor productivity stood sixth in 2023, while services ranked 26th. The ratio of service-sector productivity to manufacturing also fell to 47.5% in 2024 from 51.5% in 2020, widening the gap.
With productivity low and service exports less competitive, overseas consumption of services has risen while exports remain limited, reinforcing the structural deficit, the article said.
Investment patterns are also weak. The service sector invests less in research and development than manufacturing, and productivity gains from export growth are limited. Polarization has also become entrenched, with a wide productivity gap between large firms and small and midsize companies. The National Assembly Budget Office estimated that a 1% rise in exports lifts labor productivity by 0.07% in manufacturing, compared with 0.02% in services.
The stagnation in service-sector competitiveness could weigh on national growth, the article said, as the long-term contribution of labor productivity declines and adds downward pressure on potential growth.
The government plans to address these structural limits through the bill. If passed, it would provide a basis for a mid- to long-term plan for the service sector, along with tax and financial support, workforce training, expanded R&D and the design of a policy implementation body.
A National Assembly Budget Office official said the government has pursued policies to raise service-sector labor productivity, but has fallen short of structural innovation and the results have not met expectations. “To boost service-sector labor productivity, it is time to build a legal and institutional foundation for expanded service R&D investment tailored to industry characteristics, digital transformation and adoption of AI technologies, and revitalizing service exports,” the official said.
* This article has been translated by AI.
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