Safety first

South Korea’s legal minimum wage next year will jump 16.4 percent to 7,530 won ($6.64) per hour. A tripartite panel representing the government, labor and employers passed a revised wage floor in the biggest gain in 17 years. Next year’s rise exceeds the average annual gain needed to meet the new administration’s goal to hoist up the legal wage base to 10,000 won by 2020.

The repercussions on the local economy cannot be immediately assessed. But the steep rise in minimum wage could bring about an expansive and deep shockwave to a domestic economy with a high concentration of self-employed businesses such as mom-and-pop stores. Many of the self-employed and small vendors will go out of business if they cannot afford their labor costs. According to Hana Financial Investment, the income of those running franchise convenient stores could decline 9 percent, assuming revenue rises by 2 percent.

The toll could also be heavy on workers. Jobs could become scarcer. According to a study by Seoul National University professor Lee Jung-min, when minimum wage goes up 10 percent, full-time employment will fall by 1.4 percent. Workplaces with 29 or fewer employees will likely make cuts. The smaller a business, the bigger the burden. To cushion the shock, the deputy prime minister for the economy, Kim Dong-yeon, held an economic cabinet meeting on Sunday and decided to spend over 3 trillion won to subsidize workplaces with less than 30 employees over the next five years.

The government will increase social insurance fees for apartment guards and others living off minimum wage and lower credit card servicing fees of around 2.0 percent to 1.3 percent for vendors who have revenue less than 500 million won, and 0.8 percent for those with less than 300 million won.

Yet the positive effect from the hike in minimum wage remains questionable. Government data shows that the income of the bottom-bracket takes up 14 percent of all household income. A higher wage floor will not help narrow the gap between the rich and the poor. Instead, higher wages will lead to inflation. The spike in labor cost will lead to higher costs for suppliers, subcontractors and franchisees. The government must take care that its experimental policies do not lead to a lab explosion.

JoongAng Ilbo, July 17, Page 30