Phasing Out Zombie Firms Is the Start of Expanding Jobs at Large Companies

Large-company jobs have ground to a halt. Over the past several decades, employment at large companies has remained stagnant, while employment has grown mainly at small and micro enterprises, deepening imbalances in the labor market. Even though young people’s preferences are heavily concentrated on large companies, such jobs account for only about 20% of the total. This is not simply a matter of numbers; structural constraints lie at the heart of the problem.

Zombie firms are a leading cause of stagnation in large-company employment. As firms that should be forced out of the market continue to occupy space, capital and labor fail to move properly into high-productivity sectors. Companies that cannot even cover interest payments with operating profits over a prolonged period survive on support from the government and the financial sector, thereby depriving healthy firms of the capacity to invest and hire.

The excessive concentration of the economy in small and medium-sized enterprises makes the problem even more serious. More than 80% of total employment in Korea comes from SMEs, but these firms show wide gaps with large companies in productivity, wages, and job stability. As the large-company sector that should lead the growth of high-value-added industries contracts, the dual structure of the labor market becomes entrenched, and a structure in which economies of scale do not function undermines the competitiveness of the entire nation.

Government support policies for SMEs deepen these distortions. Policy financing, credit guarantees, tax benefits, and support for technology development are repeatedly provided regardless of performance, allowing low-productivity firms to survive in the market for long periods. This prevents resources from moving to higher-performing firms and slows the pace of innovation across industry. In effect, the government, contrary to its intentions, acts as a “protective shield” for firms, eating away at the opportunities and resources that large companies need to grow.

Now is the time to accelerate the exit of zombie firms. New jobs are created when capital and labor tied up in insolvent firms move to highly productive large companies. A market in which creative destruction does not function cannot avoid falling into stagnation and decline. Preemptive restructuring and an early warning system must be put in place to restore the hiring capacity of healthy firms.

Support policies must be fundamentally reorganized. SMEs should be supported selectively based on performance and innovative capacity, while systems that continuously accumulate insolvency should be scaled back. A performance-based support framework should be introduced, and the budget thus saved should be redirected to highly efficient R&D investment to strengthen industrial dynamism. To create more large-company jobs, the direction of resource allocation must be fundamentally changed.

Securing labor market flexibility is essential. Workers tied to low-productivity zombie firms must be able to move quickly to highly productive large companies. The rigid regular-employment-centered hiring structure should be eased, and diverse forms of employment such as project-based, contract, and part-time work should be institutionally permitted. At the same time, workers from exiting firms should be provided with retraining and job-transition support, opening the way for large companies to secure the talent they need smoothly.

Expanding large-company employment begins with structural reform. We need an industrial ecosystem in which zombie firms exit swiftly and a flexible employment structure that allows skilled talent to move to mid-sized and large companies. Only through such reforms can the job-creation capacity of large companies be restored and the vitality of the Korean economy revived. I hope that more quality jobs will be created in a free and dynamic labor market.

Gyumin Han

Researcher, Center for Free Enterprise (CFE)

---

Original title: 한계기업 퇴출, 대기업 일자리 확대의 시작이다

Author: Gyu-min Han

Date: 2025-09-11

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&idx=28061