Pay gap widens for smaller firms

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Pay gap widens for smaller firms

Kim Jung-hee, 32, used to work at a small firm but recently quit her job in order to find work at a conglomerate or a major public company.

This is not the first time she has tried to land a job at a fancier, better-paying company; Kim failed to do so after graduating from university and then eventually lowered her expectations and took a full-time position at a smaller firm.

It did not take long for her to regret her decision. She realized that her colleagues who have worked five years or longer now earn almost half the amount their counterparts make at large companies, which are legally defined as such if they have 300 or more employees.

“Even my friend who is a contract (non-regular) employee at a large company receives much, much more than I did at my firm,” Kim said. “It was the right decision for me to reconsider my future.”

Data from the Ministry of Labor and Employment supports Kim’s claim, showing that as of last year the average hourly salary for employees at small and medium businesses (SMBs) is 49.7 percent that of employees at larger firms.

The ratio fell below 50 percent for the first time since 2008, when the ministry began compiling the data. Even contract employees earned 65 percent the salary of regular workers last year. Furthermore, the ratio for last year is down 2.6 percentage points from a year before, as the gap has been widening for the past three straight years.

Cho Jun-mo, professor of economics at the Seoul-based Sungkyunkwan University, believes that the Supreme Court’s ruling on base salaries in 2013 has only contributed to the rise of salary levels at large corporations.

The court ordered that all fixed pay amounts given regularly to workers be included in the wage base, regardless of what the pay was or how often it was given. As a result, overtime charges also went up, expanding the gap between these employees and workers at smaller companies.

“Thanks to their powerful labor unions, large companies managed to include bonuses in the classification of base salaries,” Labor Minister Lee Ki-kweon recently said. “But smaller firms have maintained the previous salary system, which has led to the income disparity between smaller and larger companies.”

The situation with non-regular workers at smaller companies is even worse. For every 1 million won ($865.17) a regular employee at a large company receives, a non-regular counterpart at a smaller company receives on average about 350,000 won.

“The government needs to not only differentiate employees at large and small companies but also consider the difference between regular and non-regular employees and apply different policy measures for each classification to help out those who receive the least,” said Geum Jae-ho, professor of economics at Korea University of Technology and Education.

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