Korea's recent strong job growth has been led by the manufacturing sector, contradicting the view that manufacturing jobs will likely decline as a country advances from an emerging to a developed economy. The pickup in manufacturing jobs and the subsequent strength in overall job growth explain steady wage inflation in Korea.

Admittedly, the pickup in manufacturing job growth means slower labour productivity growth, when it does not accompany stronger production growth. The deterioration of labour productivity in the manufacturing sector that accompanies the pickup in jobs is bad news for corporate profit margin and potential GDP growth.

According to the BoK, manufacturing firms' operating profit margin declined from 6.72% in 2010 to 4.21% in 2014. Enhancing labour productivity is crucial to supporting potential GDP growth in Korea. So the slowdown of labour productivity growth leads to the decline in potential GDP growth. BoK recently announced that its estimate on potential growth is as low as 3.0~3.2%, while its projection of output gap suggests even lower potential growth of around 2.8% in 2017.

"The strong manufacturing job growth supports our forecast of no BoK rate cuts in the foreseeable future. Strong job growth reduces the chances of further monetary easing, as it boosts growth as well as inflation pressures. Lower potential GDP growth that comes from weaker productivity growth also does not support the argument for further easing, as it means a more rapid narrowing of negative output gap." said Societe Generale in a report.