Do no harmSince last year, the government of President Moon Jae-in has been enforcing an economic policy meant to to bolster jobs and increase incomes through a higher minimum wage, shorter working hours and a greater number of public-sector jobs. It upped fiscal spending to increase medical and welfare benefits for people. Improving the distribution system and social safety net are supposed to help ease livelihoods for people fretting over unstable jobs and incomes and feed growth in a more balanced way. Despite such good intentions, however, the radical policies the government has been pursuing are in danger of making the lives of the common people worse and undermining balanced growth.
There is scant theoretical or empirical support for the argument that a higher wage floor will stimulate consumption and, ultimately, growth. Small, self-employed merchants make up more than 90 percent of the employers that pay minimum wage for labor. The 16.4 percent jump in the minimum wage will directly hit merchants and small-and mid-sized workplaces that are responsible for 87 percent of the employment in Korea. A higher labor cost will reduce jobs and investment. It could weaken price competitiveness, accelerate offshoring, and fan inflation — all recipes that will hurt growth, not boost it.
The pain will be felt most by the financially insecure. The government has offered to subsidize merchants and small workplaces who have to pay higher minimum wages. But that cannot be a lasting solution. Moreover, it could spoil companies and make them feel dependent on handouts.
The government will need much more tax revenue to increase civil service jobs. But a disproportionate increase in jobs in the public sector can dampen job opportunities in the private sector. A slew of other government measures also carry negative risks. A hike in corporate taxes could hurt corporate investment. The plan to phase out nuclear reactors could increase electric bills. And forcing employers to put contract workers on permanent payrolls will reduce new hires. All these policies bode badly for the common man.
The government seems to believe that corporate activities and competitiveness would stay intact regardless of extra costs. What really would help the people? The government must know that jobs are the biggest relief for a struggling people, and that they come from enterprises. The government must focus on building an environment in which companies become willing to invest and turn out innovative and competitive products. Regardless of its eagerness, the government must not directly make jobs and interfere in the enterprise community with regulations and support.
The government should not blame or pressure companies on hiring. It must not turn employers into enemies of the labor force. It must seriously brood on why companies are hiring less and what they need most to compete better on the global stage.
Any policy based on the naïve belief that the state can control the market will fail. Instead, the government must lift regulations and stop with its interference and administrative restrictions. It must seek breakthroughs in reforms in the labor and services sector.
Governments around the world are vying to make their economies as business-friendly as possible. Yet our government overbearingly mounts pressure on enterprises on the naive belief that higher wages will enhance productivity and growth. Does it have the confidence to restore the international competitiveness of Korean brands and industries and keep ahead of China and other Asian nations?
Argentina is struggling to fight economic collapse brought on by past populist policies of free welfare benefits and public-sector jobs. Its prescriptions — lowering corporate taxes, reforming pension and labor system — have been encouraged by the international community.
The government should be careful not to impair growth potential due to engrossment with social security. It must pursue structural reforms to deliver actual and lasting comforts to the people or we could end up like Greece and Spain and lose public confidence — and growth.
Translation by the Korea JoongAng Daily staff
JoongAng Ilbo, Jan. 4, Page B9
*The author is a professor of economics at Sogang University.