Scrap income-led growth

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Scrap income-led growth

President Moon Jae-in replaced three of his senior secretaries Tuesday. The most noticeable change is the replacement of Hong Jang-pyo as senior presidential secretary for economic affairs. Career economic bureaucrat Yoon Jong-won, Korea’s ambassador to the Organization for Economic Cooperation and Development, will take the position. The decision translates into his de facto admission that the income-led growth strategy led by Hong failed.

Hong’s fall is overdue. After being appointed senior secretary last July, he drove Korea Inc. into a panic by pushing drastic increases in the minimum wage and a mandatory 52-hour workweek. These policies led to some of the worst-ever employment figures. Nevertheless, Hong adhered to his weird economic beliefs and helped Moon make ludicrous remarks last month at a Blue House meeting, in which he said that positive effects of the minimum wage hike accounted for 90 percent of the results.

Hong based his evaluation on data he received from the Korea Labor Institute after commissioning an assessment of the effects of the minimum wage increase on the economy. The problem was that he only used data on income earners while ignoring data on the self-employed and jobless. That was a critical distortion of statistics.

Hong’s replacement raises the need to thoroughly review the income-led growth strategy. Its goals — narrowing wage gaps and revitalizing the economy — were not bad to begin with. But the anti-market approach ended up inflicting serious damage on our economy. For instance, new hires declined below 200,000 for four consecutive months and plunged to 72,000 in May. That’s the worst employment situation since the 1997-98 foreign exchange crisis. While advanced countries, including the United States and Japan, were enjoying high employment rates, Korea was experimenting with a half-baked solution for employment.

As Korea implemented a novel idea, its competitors brought flexibility to their labor markets.

To tackle such challenges, we desperately need “innovative growth” which would help boost the competitiveness of our mainstay industries. However, due to sharp increases in the minimum wage and the introduction of a 52-hour workweek, local companies are increasingly reluctant to invest.

It is time to drastically change course. Liberal economist Jang Ha-sung remains head of the Policy Office at the Blue House, which may signal more uncertainties down the road. Yoon, as the new secretary, must dispel such concerns through a more balanced approach. He must present his boss with realistic solutions, including labor reform, rather than the quick fixes of his predecessor.

JoongAng Ilbo, June 27, Page 30
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