Korea grows intoxicated on semiconductor windfall

Lee Hyun-sang The author is a columnist at the JoongAng Ilbo. Korea's semiconductor boom arrived almost overnight. As recently as 2023, Samsung Electronics' Device Solutions division and SK hynix posted operating losses of nearly 15 trillion won ($10 billion) and 8 trillion won, respectively. But the explosive rise of generative AI in the second half of that year rapidly reversed the industry's fortunes. Investments in AI data centers fueled the soaring demand for high bandwidth memory chips, or HBM, turning Korea's memory chipmakers into some of the biggest beneficiaries of the global AI race. Korean semiconductor firms were able to seize the opportunity because they possessed strong technical capabilities. However, it would be difficult to argue that this extraordinary boom resulted solely from their own skill. Luck also played a major role. The enormous bonus demands now emerging from semiconductor workers reflect a growing tendency to mistake favorable circumstances for personal achievement alone. Samsung Electronics' labor union has reportedly demanded that 15 percent of the company's operating profit be institutionalized as employee bonuses. Some estimates suggest memory chip employees could receive a cumulative 2.6 billion won per person over the next three years if the proposal were adopted. Both the scale and distribution of such compensation appear detached from economic reality. Large corporate unions in Korea have long faced criticism for enjoying privileged status, but these demands go beyond that. If realized, they could deepen social tensions and intensify feelings of relative deprivation throughout society. Resistance would likely come not only from shareholders but also from workers in other divisions, as well as subcontractors and nonregular employees. Taiwanese media have already warned that prolonged semiconductor strikes in Korea could damage long-term investment plans and reduce tax revenue — observations that inevitably carry strategic implications from a competing semiconductor economy. In many ways, the current conflict was foreseeable. Last year, SK hynix formally tied bonuses to 10 percent of its operating profit, raising expectations throughout the industry. Competition between Samsung Electronics and SK hynix to secure semiconductor talent encouraged aggressive compensation policies with little consideration for the long-term consequences. What began as a desperate effort to retain engineers amid chronic labor shortages has now become a major risk factor for the industry itself. The government also bears responsibility for failing to cultivate a sufficient pipeline of advanced technical talent. The sense of intoxication is not limited to the semiconductor industry. Policymakers who were once associated with fiscal restraint are also shifting their tone. Kim Yong-beom, the presidential chief policy secretary and a former vice finance minister known for emphasizing sound public finances, recently argued that excess tax revenue generated by AI-driven productivity gains should be redistributed to the public. If today's semiconductor boom and resulting tax revenue surge are truly structural rather than temporary, that would indeed be welcome news. But the evidence remains thin. From the Great Depression of 1929 to the dot-com bubble in 2000 and the global financial crisis in 2008, many economic collapses began with the belief that "this time is different." The presidential office later clarified that Kim's remarks reflected a personal opinion about how excess tax revenue might be used rather than a proposal to redistribute "excess profits." But that explanation misses the broader issue. The government has already drafted a record-high budget this year while planning to issue 110 trillion won in deficit bonds. Deciding how to use unexpected tax revenue is ultimately a policy choice. But economic experts who once emphasized fiscal discipline should approach such windfalls differently from politician...