Semiconductor boom drives sharp jump in manufacturing labor productivity

Strong semiconductor exports drove a sharp rise in manufacturing labor productivity in the first quarter, with the sector's value-added rate also jumping despite supply chain disruptions caused by the war in the Middle East.

By contrast, productivity growth in the service sector remained negligible, fueling calls for an AI-driven transformation to lift output across the broader economy.

The Korea Productivity Center released its first-quarter 2026 labor productivity report Monday.

The overall labor productivity index for all industries rose 1.7 percent from a year earlier to 111.8, up from 109.9 in the same period last year. The index uses 2020 as the base year of 100; any reading above that level indicates an improvement.

Both value added and labor input increased — by 3.9 percent and 2.2 percent, respectively — but the faster growth in value added pushed the overall productivity index higher than a year ago.

Value added grew 3.9 percent, compared with just 0.2 percent the previous year, supported by continued growth in facility investment, strong exports, rising private consumption and a slowdown in the decline of construction investment.

Driven by the semiconductor boom, the manufacturing labor productivity index climbed 6.6 percent to 123.1.

In the first quarter of last year, the index had risen 4.3 percent to 115.5. Value added and labor input grew 7.2 percent and 0.6 percent, respectively, with the larger gain in value added pushing manufacturing productivity well above year-earlier levels.

Particularly notable was the value-added growth rate of 7.2 percent — 18 times the 0.4 percent recorded in the same period a year ago. Analysts attributed the surge to strong semiconductor exports, which overcame supply chain shocks stemming from the Middle East war.

The service sector labor productivity index edged up just 0.6 percent from a year earlier to 112.3, compared with 111.6 the previous year. Value added and labor input rose 3.3 percent and 2.6 percent, respectively, and the wider margin in value-added growth did lift productivity, though only modestly.

Service sector value added grew 3.3 percent year-on-year, up from 0.8 percent in the first quarter of last year, as improving consumer sentiment supported a recovery in business conditions across the sector.

Korea Productivity Center Chairman Park Seong-jung said the immediate challenge is to extend the productivity gains seen in manufacturing to the service sector and the broader economy. "We need to raise productivity across all industries by accelerating the AI transformation of the service sector," he said.