[Viewpoint] Dogmatic fights over minimum wage

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[Viewpoint] Dogmatic fights over minimum wage

“Provide us enough at least to make a living.” That is what low-income workers are arguing for in their demands for an increase in the national minimum wage. All they are asking for is a raise in the amount of tens of won in an economy that generates an average income of $20,000 per capita. The debate about whether to increase the minimum wage also involves conscience and ethics. Labor and management could work out the problem if they address this as an issue of humanity.

But there no longer exists a negotiation channel to fix the rate for next year’s collective bargaining. Members of a subcommittee in the government-led committee that deals with minimum wage all resigned.

The labor side accuses management of lacking any conscience or ethics. But the management argues that an increase in the minimum wage could lead to job losses because small businesses cannot afford to pay the salaries.

The minimum wage has long been debated by economists. Mainstream economists oppose an increase in the minimum wage, claiming higher labor costs will decrease demand for a workforce, and a fall in the demand eventually leads to higher unemployment, according to corporate logic.

But other economists argue that a minimum wage hike boosts welfare for workers as well as their employers. No sides are completely correct. Empirical study results also vary.

In 1992, the minimum wage in New Jersey was increased to $5.05 per hour, while that of the adjacent state of Pennsylvania remained at $4.25.

Professor David Card at the University of California, Berkeley, studied the effects on employment and concluded that the number of jobs in New Jersey increased after the minimum wage was increased. This helped reverse the general belief that there is a net negative effect on employment.

But other studies showed mixed results, with some arguing that increases in the minimum wage were too minimal to have any real effect on the economy.

In November 2006, 650 American economists issued a statement calling for an increase in the minimum wage from $5.15 per hour to $7.25. Among them were five Nobel laureates, including Joseph Stiglitz.

But there remained people who opposed. They argued that such an opinion came from a minority that makes up 3.3 percent of 20,000 members of the American Economic Association.

The five Nobel laureates who argued for the minimum wage increase are also only one-seventh of 35 living American Nobel winners in economics.

The debate over the minimum wage still remains controversial even among economists. European countries are generally for the idea while Americans are against it. Coincidentally, unemployment is higher in Europe.

The same debate has been inconclusive in Korea as well. It has been revisited through textbook theory and empirical studies. At last it ended with a walkout by members of the committee that sets the minimum wage.

Experts offer various options. They suggest different rates for different regions, industries and corporate sizes. Some say the labor-management committee should just recommend a rate and let a public committee decide, while others say a national minimum wage base should be legalized instead of being negotiated annually. Those arguments have both merits and downsides.

But politics will creep in if the argument is prolonged. Proponents of the minimum wage will be better positioned because their argument comes across as more just and fair; if unemployment increases, they can always blame large companies or a poor economy. They have nothing to lose.

Our society is said to be deeply polarized between the rich and the poor. Politics will take the side of the poor. The debate on the minimum wage will bring helpful leverage to politicians.

The Democratic Party of Japan won votes by pledging to increase the minimum wage to 1,000 yen ($12.35) in 2009. But so far, it has remained at 730 yen.

The minimum wage debate will likely come up in next year’s general and presidential elections. Both camps will pitch their opinions and try hard to sound persuasive.

Voters should stand pat because an increase in the minimum wage is not the best solution for everyone.

*The writer is a senior business writer of the JoongAng Ilbo.


By Nahm Yoon-ho
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