Samsung AI bonus spat tests South Korea’s labour-friendly leader

South Korean President Lee Jae Myung came to power promising stronger labour protection and social cohesion, while vowing to transform the East Asian country into an AI powerhouse competing with the US and China. Now, those ambitions are starting to collide. 

Tens of thousands of workers at Samsung Electronics this week threatened a crippling 18-day walkout over demands for bigger bonuses, after their employer recently posted a 48-fold jump in quarterly profits.

That strike was called off after Samsung and the union announced a tentative deal, which could see workers receive large lump sum payments.

Faced with disruptions to global supply chains, Mr Lee’s government pulled out all the stops to keep production lines humming at the world’s largest memory chip maker. Officials threatened to use emergency measures for the first time in two decades to halt the strike and dispatched the labour minister to mediate.

Mr Lee also made comments suggesting he could not support workers demanding profits that would normally go to shareholders.

It is unlikely to be the last time his government has to balance backing workers’ demands against the interests of the AI giants redrawing his country’s economic path.

“The Samsung pay dispute is testing the limits of the Lee administration’s pro-labour agenda,” said Mr Hyosung Kwon, Korea and Taiwan economist for Bloomberg Economics. The question boils down to whether the government should back bonus demands from highly paid semiconductor workers or prioritise financial stability by keeping chip production running, he added.

Awarding bonuses equivalent to some people’s retirement nest eggs is likely to spark resentment in other parts of the economy. Only about 1.5 per cent of South Korea’s workforce is directly tied to the semiconductor industry, according to Societe Generale SA, even as the sector increasingly drives exports, equity markets and government revenues.

The stand-off reflects Seoul’s emerging position on the front lines of a global debate unfolding about how AI-driven gains should flow back into society. South Korea’s stock market briefly leapfrogged Canada to become the world’s seventh-biggest after outstripping the UK and France on the back of a blistering chip rally, while Samsung is on track to become one of the world’s most profitable firms.

Given Samsung’s status as a bellwether for the national economy, the firm’s seeming move to share more of its AI windfall with workers could trigger similar demands. Had they refused to spread the spoils more equitably, however, it could have stoked social unrest – only in April more than 30,000 people rallied outside Samsung’s main semiconductor complex.

A prolonged strike could shave 0.5 percentage point off South Korea’s gross domestic product in 2026, local media reported citing the Bank of Korea. 

That angst comes at a delicate moment for Mr Lee’s party ahead of local elections in June. One year into office, the president still enjoys relatively strong public support, with his approval rating hovering around 60 per cent. Any failure to quickly resolve the Samsung dispute could have weighed on sentiment in upcoming elections that include a vote on who will become Seoul’s mayor.

Reflecting the concerns about how newfound AI wealth is being shared, presidential policy chief Kim Yong-beom suggested in a Facebook post in May that the country should begin discussing if excess tax revenues generated by the AI boom could someday be used for a “citizen dividend”.

Two giants

Samsung and fellow chipmaker SK Hynix together account for roughly half of the Kospi market’s value – a concentration of economic power with few parallels anywhere in the world. SK Hynix has already issued one-off payouts tied to the AI boom, and pledged to pay bonuses equal to 10 per cent of operating profit, putting pressure on its competitor to follow suit.

Workers from Samsung were demanding the company scrap an existing bonus cap and allocate 15 per cent of operating profit to employee compensation. That figure – worth more than 40 trillion won (S$34 billion) – could have meant a windfall of more than US$400,000 (S$511,490) per worker on average.

Under terms of the strike-averting proposal, Samsung will begin a special performance bonus system that would reward workers in the semiconductor division based on profitability. The 10-year bonus scheme will include ambitious profit targets of 200 trillion won per year from 2026 to 2028, and 100 trillion won from 2029 to 2035. 

Samsung’s union told members they will be able to vote on the proposed 2026 wage agreement starting on May 22.

As a labour and human-rights lawyer before entering politics, Mr Lee helped workers pursue industrial compensation claims and he has subsequently built a political identity closely associated with employment rights and economic inequality. He has often referenced his own experience as a teenage factory worker when he suffered a permanent arm injury in an industrial accident while operating a press machine. 

In a Labour Day speech on May 1, Mr Lee said a society that respects labour and a country that is good for business are not incompatible. He also warned against workers shouldering disproportionate sacrifices during the transition to an AI-driven economy, saying growth without a future for jobs cannot be sustainable. 

“Even if it’s an inevitable change, finding a path of mutual prosperity is the way for a sustainable tomorrow,” he said.

As the Samsung dispute escalated this week, Mr Lee emphasised the broader economic implications of labour unrest affecting certain strategic industries. In a social media post on May 18, he said constitutional rights may be restricted for “public welfare” purposes. Those remarks were widely interpreted as a signal the state could intervene if a strike threatened the economy. 

Mr Lee repeated that stance at a cabinet meeting on May 21 saying there had to be “an appropriate limit” to the actions labour unions undertook to secure their interests. 

As the Samsung debate plays out, Mr Lee may have to reconcile his worker-friendly agenda with investor demands, said Professor Leif-Eric Easley, a professor of international studies at Ewha University in Seoul. 

“This labour dispute is important as a test case of how governments and societies prioritise economic security while negotiating the sharing of benefits from the AI economy,” he added. BLOOMBERG