Minimum wage backlash

The government is nonplussed by the backlash to its minimum wage policy. It promised to raise the minimum wage to 10,000 won (＄8.9) within three years and that is a keystone of its income-led growth policy. The minimum wage would have to go up by more than 15 percent each year to reach that goal. The government might have thought the backlash would subside when next year’s rate increase was kept to 10.9 percent, moderated from this year’s 16.4 percent.

President Moon Jae-in confessed that further moderation to the pace may be inevitable. In its second-half policy direction outline, the government proposed tax incentives and other endeavors to ease the burden of the minimum wage hike on groups such as the self-employed. The Blue House is even considering naming a presidential secretary to work on self-employment issues, and ordered the government to come up with additional measures for unwanted side effects from the minimum wage increase. The administration has more or less realized that our economy can hardly afford such steep hikes.

The government has so far defended its minimum wage policy, claiming there is no evidence that the hikes cost jobs. It said the effect of the hikes are 90-percent positive. It even pointed to demographic factors for a deterioration in the employment situation, a phenomenon the government says it cannot help.

Then it panicked. The economic data has been troubling. Capital investment and consumption have been slumping. Jobs cannot be expected to increase when sales are poor and investments are not made. The business confidence index measuring the outlook for business and economic conditions six months onwards hit 98.9 — below the 100 threshold. That is the lowest business confidence index (BCI) among members of the Organization for Economic Cooperation and Development (OECD).

The OECD last year warned that Korea’s BCI was as pessimistic as Greece’s. It cut its growth estimate for Korea while raising the outlook for all other countries. The government should have reversed its policy before the Minimum Wage Commission decided to raise the wage level for next year.

The liberal administration dutifully upholds Moon’s campaign pledge as if it is written in stone. It must defend it from any criticism. The economic conditions have been interpreted as not damaging the integrity of the campaign pledge.

An aide to a lawmaker said he was surprised to hear negative comments about the government at his barber shop. The owner was an avid supporter for Moon. His view changed after the minimum wage hike. Customers in the shop all joined the chorus criticizing the government.

Deputy Prime Minister for the Economy and Finance Minister, Kim Dong-yeon, center, listens to complaints from small merchants in a coffee shop in Seoul over their deepening concerns about the steep minimum wage hikes pushed by the government. [YONHAP]

In Korea, self-employed businesses refer to mom-and-pop stores — the barber shop, convenience store, bakery or gas station. Those stores are also part of the rumor mill. What you hear in those shops often reflects grass-root opinion. That is why politicians gravitate to such shops during campaigning. Their votes can determine the outcome of an election as their primary concerns are livelihood issues. The sinking approval rating of the president is proof of public sentiment changing.

The rage of small merchants has moved the government. An economist who was on the Minimum Wage Commission observed that a political threat — rather than economic dangers — could have motivated the government to moderate its policy. Public opinion changes on economic conditions, and yet policymakers thought they were being populist. They got it all wrong.

Koreans have been fatigued by a scorching heat wave. The economy also has dried up with little signs of rainfall. The income-led growth policy poses a real threat to our economy, which it is suffocating.

JoongAng Ilbo, July 23, Page 28