A December 2007 survey conducted by the Korea International Labor Foundation found that of 80 foreign firms polled in Korea, one third cited rising labor costs as the largest deterrent to investment in Korea. While some firms are looking to move from China to Vietnam to save on labor costs, many foreign firms with Asia-Pacific headquarters in Korea now see China or India as less expensive alternatives.

The rigidity of Korea's Labor law has been cited as a major reason for the consistently increasing labor costs. Extensive employee protection within the law makes it more difficult to hire and fire workers in Korea than in nearly any other developed country. In the Heritage Foundation's 2008 Index of Economic Freedom (IEF), South Korea was rated only "49% free in terms of its labor market. This compares to 80% in the UK and 92% in the US.

Aggressive labor unions and frequent strikes are a major concern to foreign firms investing in Korea. It is common for unions to establish binding collective agreements with company management and the total work days lost to strikes in Korea is more than twice that in the US and 45 times that in Japan.