Raises not possible for businesses

Lee Dong-eung

We are nearing the difficult period when a minimum wage must be set for the year. As usual, the labor sector is making an unreasonable demand - a hike of nearly 30 percent. Bumpy negotiations are inevitable. Minimum wage is the legally guaranteed salary for workers. The government enforces minimum wages to ensure basic living wages for the lowest-income category. Employers are required to pay their workers above the legal base. A company that cannot guarantee a minimum wage for its employees is legally unqualified to operate.

According to the minimum wage committee report, there are more than two million workers who do not even get the minimum salary for their labor. The number sharply rose from 580,000 in 2001. We have to examine why so many workers are not guaranteed a minimum wage. Does it mean there are so many unethical companies that exploit their employees? There may be some, but one reason may be that companies simply cannot keep up with the rises in minimum wage.

Korea’s hourly legal wage base shot up to 5,210 won ($5.10) in 2014 from 1,865 won in 2001 - an average annual increase of 8.9 percent. The pace has been increasing faster than the gains of 3.8 percent in nominal wages, 2.9 percent in consumer prices and 4.7 percent in national productivity. In 2001, employers had to pay at least 390,000 won per worker per month. Now they must pay more than 1.09 million won. Workplaces that pay employees near the minimum wage are small - they employ less than 30 people. The sharp increase in labor costs could damage their management. Strictly speaking, Korea’s minimum wages are not that low. Out of 22 OECD countries, Korea ranks 10th on the median wage scale. Korea’s minimum wages are not unreasonably low when considering that most countries factor bonuses and expenses into their minimum wages.

Many Korean companies are hard-up these days. The operating profit rate was 4.6 percent last year, dropping from 5.7 percent in 2008 when the global economy was hit by the financial crisis. Some data shows positive signs, but with tapering in U.S. quantitative easing and a slowdown in the Chinese economy, we cannot rely entirely on exports to sustain the economy. Consumption has been slow in picking up, weighed down by household debt worth 1,000 trillion won, which further hurts self-employed individuals and small businesses. Other major labor changes - revision of salary base scope, extension of retirement age and reduction in working hours - have all translated into higher labor costs and a bigger burden for companies.

Nearly all - 98.7 percent - workers earning less than minimum wage work in small companies employing fewer than 300 people, and 87.9 percent work at businesses that employ 30 or fewer. A hike in minimum wages without considering this reality will only aggravate conditions for the self-employed and small enterprises, and will eventually generate job losses for low-income workers from chain business closures.

The rises in minimum wage need to be stabilized in consideration of worsening corporate management conditions and upsets in small workplaces. Korea now offers various social security programs to protect and improve the lives of low-income workers. Instead of increasing minimum wages, which will not effectively help to cover living costs for low-income earners but instead undermine their job security, we should strengthen assistance through social security programs.

Translation by the Korea JoongAng Daily staff.

JoongAng Ilbo, May 30, Page 26

*The author is senior managing director of Korea Employers Federation.

By Lee Dong-eung