Wages of division

Wages are in the news in Korea. The government has strong views about pay on two fronts, but is not having much luck with either. In a nutshell, Seoul seeks to impose a higher wage floor in the South - but a lower pay ceiling at Kaesong Industrial Complex in the far poorer North.

As part of its frantic efforts to stimulate the economy and raise GDP growth - which currently lags behind the OECD average - Park Geun-hye’s administration wants to raise the minimum wage. The hope is that, despite record and still rising household debt, with extra cash in their pockets, workers will spend more and boost chronically weak consumption.

Higher wages is a key plank of “Choinomics”: minister of strategy and finance Choi Kyung-hwan’s battery of stimulus measures intended to jump-start the economy. Last week, he took his ideas to the horse’s mouth. At a lunch meeting with the five main business lobby groups, Choi sought to persuade these employers to cough up and shell out on the wage front.

No dice, it seems. Headlines pronounced his audience “unimpressed.” It was meant to be a closed-door meeting, but in ever-leaky Seoul this newspaper got hold of a transcript.

The debate was heated. Choi pleaded, but business was skeptical as you’d expect. Do turkeys cheer for Christmas? They fretted on several counts. Paying higher wages would hurt competitiveness, especially for SMEs which might also cut jobs - a perverse outcome indeed.

There also was fear that militant trade unions would abuse any raise to demand even more. Higher pay should be part of an overall reform package, including deregulation and tackling labor market rigidity. Otherwise, wages are a matter for negotiation between management and labor.

So Choi went away with a flea in his ear. More meetings are planned, but it is not clear what they can achieve. It is hard to imagine either the conservative ruling party, or Choi personally - as industry minister under Lee Myung-bak, he firmly championed business - imposing a minimum wage increase beyond what companies regard as acceptable. But with parliamentary elections due in little over a year’s time, populist gestures are always possible.

Frankly, for a fairly rich country South Korea’s minimum wage remains low. Even after being raised by 5-7 percent every year since 2010, it is still only 5,580 won ($5.40) per hour, or just over $1,000 a month. Nearly all South Koreans of course take home far more than this.

Just an hour’s drive north of Seoul, $1,000 a month would connote serious wealth. How much most North Koreans earn is largely guesswork: or at official rates of exchange, close to zero. The two Korean economies overlap in just one place: Kaesong Industrial Complex (KIC), the last surviving North-South joint venture. Here, the inter-Korean chasm is plain for all to see. It must give the KIC’s 54,000 Northern workers food for thought.

Their jobs are good by North Korean standards, yet their wages are among the world’s lowest. That is what makes KIC competitive globally, luring 124 Southern SMEs to invest in it.

Kaesong’s current basic pay rate is $70.35 per - can you guess? In South Korea, even those on minimum wage earn this much in a day and a half. But in North Korea, we are talking $70.35 per month. Overtime doubles actual average earnings to $155; or would, if the Northern state - that’s who the South actually pays - didn’t siphon off a big chunk (about 40 percent).

Here, too, pay is currently a political football. KIC is supposed to be run jointly, but last December the North unilaterally changed the rules, raising overtime rates and scrapping a 5 percent cap on annual wage increases, among other things. In February, it implemented this, decreeing a 5.2 percent hike in basic pay from $70.35 to $74 and higher social insurance contributions. With overtime as well, the average monthly cost of each worker will rise by $8.60 to $164.

The 5.2 percent is only a fraction above the usual 5 percent annual raise, for which companies already budgeted. So the money per se is peanuts: loose change, easily affordable. Southern employers often praise their workers’ skill and diligence. Could anyone deny they are worth a paltry $164 a month?

But principle is at stake. Having carefully negotiated KIC back to life after Kim Jong-un recklessly pulled all his workers out in 2013, then put in place a new management structure meant to prevent any repetition of such unilateralism, President Park must be furious at Kim’s latest antics. Suddenly, the North claims full sovereignty. On that basis, it refuses to even take delivery of the South’s protests - sent by fax; foot-dragging by Pyongyang means that after 10 years, KIC remains an Internet-free zone - much less discuss them as a partner.

The South is in a bind, but it has decided to make a stand. Crunch time will be April 10, when KIC employers are due to remit March wages. Seoul has warned its businesses not to pay the extra 5.2 percent on pain of unspecified penalties. If they obey, Pyongyang will surely retaliate, perhaps withdrawing its workers again or harassing KIC in some other way.

By chance - or maybe not? - this will be the first challenge for a new unification minister. An academic who moved across from the same portfolio in the Blue House, my fellow-Oxonian Hong Yong-pyo is seen as more hard-line than his predecessor, Ryoo Kihl-jae. Denying being either hawk or dove, Hong recently quipped he is an owl: wise and balanced.

He will need wisdom. I don’t envy his dilemma, but I hope he will think long-term and not be trapped by formalism. Kaesong is the last faint flickering candle of inter-Korean cooperation. If this, too, sputters and goes out, as did the tours to Mount Kumgang, sunshine will be finally and fully eclipsed; darkness will descend. How can that be good? Seoul should grit its teeth, pay this pittance, and try harder to find out what the infuriating young Kim really wants.

*The author is honorary senior research fellow in sociology and modern Korea at Leeds University in the United Kingdom.

by Aidan Foster-Carter