Since the inauguration of the Roh Moo Hyun government, critics have been vocal in pointing out that industrial relations in Korea have impeded corporate restructuring, getting in the way of FDI and undermining national competitiveness. However, there has not been sufficient research into the economic effects caused by trade unions. This study aims first to analyze empirically the impact of Korean labor unions on worsening corporate performance to assess whether unions maintain rational behavior

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... when faced with impending corporate insolvency given the hostile industrial relations in Korea. If labor unions are a significant factor in worsening corporate performance leading to insolvency and ultimately rising odds of bankruptcy, the unions in fact weakening company competitiveness and destroying jobs to the detriment of the labor movement. The policy implication would thus be that the overall function of the labor union should be enhanced. The second purpose of the paper is to define the improvements needed to the Korean labor legislation to minimize the negative impact of the unions on the resuscitation of ailing companies. Existing research on the rehabilitation of weak enterprises was limited to studying amendments to labor laws to ensure the comprehensive succession of union and member rights in the event of corporate change. The recommendations made in this paper depart from the current labor law-centered literature in three ways. First, it examines ways to improve labor legislation based on empirical analysis. Second, it aims to suggest amendments to the legal system to enhance economic efficiency through mutually beneficial industrial relations, not simply pursuing the protection of union or worker rights. Third, the paper approaches labor market flexibility by recognizing that restructuring of struggling companies via mergers, acquisitions and transfers must take place before easing the criteria for legal layoffs at healthy companies.