Small firms balk at wage increase

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Small firms balk at wage increase


Mr. Park, 68, has been running a convenience store in Mapo District, western Seoul, since 2012, but last Sunday, he called his family together to discuss a decision he thought he would never have to make.

After the government announced it would raise the minimum wage next year by 16.4 percent, the largest increase in 16 years, Mr. Park thought it was best to close his corner shop, and he wanted to make sure his children were okay with the decision.

Mr. Park used to bring home about 2.9 million won ($2,500) a month after paying royalties to the chain operator, wages to his five part-timers, rent to the landlord and interest to his lender.

But the new minimum wage set to go into effect next year will force Mr. Park to pay an additional 1,060 won an hour to his part-timers, which means his monthly profit would drop to 2 million won - lower than his part-timers who will receive 2.34 million won each if they work a 9-hour shift for 20 days a month.

“I don’t see the point of running the business,” Mr. Park said. “I work 9 hours a day anyway, and I think it is better to find part-time jobs at other convenience stores.”

President Moon Jae-in has made raising the minimum wage to 10,000 won per hour by 2020 one of his administration’s goals, and last Saturday, the Minimum Wage Commission announced it would start by raising it to 7,530 won next year.

Owners of small businesses have opposed the plan, saying it would disproportionately hurt companies that employ fewer workers.

According to Statistics Korea, nearly 70 percent of employers in the country own companies with less than 10 employees, and almost 45 percent of people who work in retail and distribution, restaurants and hospitality work at companies with less than five employees.

Convenience stores, once considered a stable business for first-time entrepreneurs, are expected to face especially significant burden. There are more than 35,000 convenience stores in the country, according to the Korea Association of Convenience Store Industry, and most of them operate 24/7 with five to six part-timers on average. About 25 percent of convenience store sales are spent on labor cost, and that figure is expected to go up to 27 percent next year.

Many fear convenience stores will begin to disappear because owners will find the increased labor cost burdensome on top of rising rent and operational costs.

“The profit that convenience store owners earn will be halved by 2020 if the minimum wage goes up to 10,000 won per hour,” said Nam Sung-hyun, a researcher at Hanwha Investment & Securities. “Owners will not run convenience stores if they receive less than their part-time workers.”

Shares of convenience store operators have been falling since the government’s announcement on Saturday. GS Retail stocks dropped 6.16 percent on Monday from the previous trading session, and those of BGF Retail fell 3.09 percent.

NH Investment & Securities on Monday lowered its target amount for shares of convenience store chains.

The government has promised to help cover the additional amount of minimum wage that small businesses have to pay their workers.

Since the minimum wage has risen 7.4 percent on average in the past five years and will rise 16.4 percent next year, the government plans to compensate small businesses for the 9 percent increase.

For example, part-timers at convenience stores currently receive 1.39 million won a month, and the figure will go up to 1.62 million won next year.

Of the 230,000 won increase, the government plans to chip in 126,000 won, while the convenience store owner will cover the rest.

Many believe the government’s compensation of small-business owners will hurt its budget, and that it’s not enough.

The government said it would allocate 3 trillion won toward paying labor costs for those working at small companies, but small-business owners believe they will have to pay 11 trillion won more next year under the new minimum wage.

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