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’s services account remaining in deficit for 26 straight years, calls are growing for a comprehensive development strategy and a stronger system to coordinate service-sector policy.
According to the Ministry of Finance and Economy and the Public Procurement Service on May 3, the ministry on April 22 put out a research tender for a fact-finding study to prepare for the bill’s enactment and began selecting a contractor. The study is intended to secure baseline data and set policy direction so the government can implement service-sector policy more systematically once the law is in place, while minimizing early policy gaps and improving execution.
In its request for proposals, the ministry said the service sector is a key growth engine but its share of value added remains low compared with major advanced economies, requiring continued efforts to upgrade the industrial structure and raise productivity.
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 article attributed the persistent deficit mainly to 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 was sixth in 2023, while services ranked 26th. The ratio of service-sector productivity to manufacturing also fell from 51.5% in 2020 to 47.5% in 2024, widening the gap.
With productivity low and service exports less competitive, overseas consumption of services has increased while exports remain limited, reinforcing a structural deficit, the article said.
Investment patterns were also described as weak. The service sector invests less in research and development than manufacturing, and productivity gains from export growth are limited. Polarization between large companies and small and midsize firms has also become entrenched, with wide productivity gaps. The National Assembly Budget Office said a 1% rise in exports lifts labor productivity by 0.07% in manufacturing, compared with 0.02% in services.
The article warned that stagnant service-sector competitiveness could weigh on national growth, as the long-term contribution of labor productivity declines and adds downward pressure on potential growth.
The government plans to use the bill to address these structural limits. If passed, it would provide a basis for mid- to long-term planning for the service sector, along with tax and financial support, workforce development, expanded R&D, and the design of policy implementation bodies.
An official at the National Assembly Budget Office 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. “It is time to build a legal and institutional foundation to boost service-sector labor productivity, including expanded service R&D investment tailored by industry, digital transformation and adoption of AI technologies, and measures to promote service exports,” the official said.
* This article has been translated by AI.
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