BOK head admits minimum wage issues

Gov. Lee Ju-yeol of the Bank of Korea, left, and Finance Minister Hong Nam-ki discuss economic issues on Wednesday at the Bank of Korea in central Seoul. [YONHAP]

The chief of Korea’s central bank has admitted that the steep minimum wage hike had a negative impact on the country’s job market, a noticeable shift from his previous intentionally vague stance on the policy’s impact.

Gov. Lee Ju-yeol told reporters late Tuesday that a two-digit rise of the minimum wage for two consecutive years will have a significant impact on the labor market.

“The minimum wage rose 16 percent this year, and the rate is set at 10.9 percent next year,” the governor said at a press event.

“The impact of a two-digit hike will definitely not be inconsiderable,” he said.

In previous remarks, Lee tended to play down the downside of the move, saying that a combination of structural factors plays into the low job numbers.

But market observers including global ratings agency Moody’s cited a steep increase in the minimum wage and a cut in working hours under the Moon Jae-in administration as a factor that increased uncertainties and dragged down profits for self-employed people. Since employers who pay the minimum wage are mostly self-employed shop owners or small-scale merchants and manufacturers, higher labor costs led to reduced profit and more layoffs of part-time workers.

Lee went on to call for the need to find a new growth engine to replace or supplement the semiconductor segment, the driving force of the country’s export-oriented economy.

“The stellar performance of the semiconductor sector has led economic growth since last year, but looking ahead three to five years, it is true that concerns arise,” said Lee.

Multinational financial institutions have downgraded opinions of the semiconductor sector, citing concerns about oversupply in memory chips including dynamic random-access memory (DRAM) chips.

Market analysts expect the industry to face headwinds next year due to oversupply and the overall sluggish global trade trend.

SEMI, the global industry association representing the electronics manufacturing supply chain, reported that worldwide sales of new semiconductor manufacturing equipment are projected to increase 9.7 percent to $62.1 billion in 2018, exceeding the historic high of $56.6 billion set last year. The equipment market, however, is expected to contract 4 percent in 2019, according to the association.

Meanwhile, the governor met Hong Nam-ki, the new deputy prime minister for the economy and minister of finance on Wednesday at the Bank of Korea’s (BOK) office in central Seoul.

The meeting is intended to discuss fiscal and monetary policy under the Moon Jae-in administration.

The two said that their respective bodies will work closely to prop up the economy, adding that their assessment on the global and domestic economy goes hand in hand.

The finance minister mentioned that policy coordination is essential to navigating the economy next year.

“The government will carry out an expansive fiscal policy with a 470 trillion won [$417.2 billion] budget, but the monetary and financial policies should be in line with fiscal policies,” Hong said.

The BOK has been on track to normalize low interest rates to keep up with the rising rates in other economies, including the United States.

Last month, the BOK lifted the rate to 1.75 percent for the first time in a year.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]