South Korea’s government said on Monday it was planning tax and insurance incentives for companies not to lay off workers in a bid to stem unemployment after a crucial labour reform bill was delayed until September.

The labour bill is the keystone of the economic reforms of the president, Lee Myung-bak. Its primary aim is to allow small and medium-sized businesses, which employ about 90 per cent of the workforce, to hire and fire more easily. Currently, companies have to give permanent contracts after two years of temporary employment but Mr Lee wants this extended to four years. Foreign investors are watching the outcome closely.