Dump income-led growthOn Thursday, President Moon Jae-in said his administration will try to reflect the opinions of self-employed businessmen and mom-and-pop store owners in the process of determining raises to the minimum wage in the future. The remarks he made at a meeting with 160 of the sector’s representatives at the Blue House suggest an intention to moderate the pace of the minimum wage increases. In the conference, Moon said he will help them this year through the moderation of the wage hikes.
As the president admitted, the self-employed are in trouble. When you include their families, they account for some 25 percent of the working population. That share — much higher than the OECD average of 16 percent — spells fierce competitions in the market. On top of this, they have been suffering from three structural factors: abnormally high rents, widespread gentrification and a fast aging of the population.
The whopping 27.3-percent increase in the minimum wage over the last two years is pushing them over the edge. Some 49,000 self-employed people who hire staff had to shut down last year due to the fast wage hikes. Their pain is shared by the workers they hire as seen in the dramatic increase — 420,000 — of part-time workers who work less than 36 hours per week.
We welcome Moon’s sentiments. But expecting them to see any kind of turnaround by simply slowing the pace of wage increase is a pipe dream. An analysis of the effects of his administration’s “income-led growth” policy by the Korean Economic Association proves it. The study showed that Korea’s GDP, investments and employment all dropped — by 0.13 percent, 5.14 percent and 0.16 percent respectively — during the first year of the Moon presidency compared to the previous three years. The analysis shows the time has come for the government to scrap — or radically change — its income-led growth policy.
Income-led growth can only be sustained by innovation. Without making our economic pie bigger, you cannot share more. But wage-led growth takes the reverse path. The poor performance of our economy and deteriorated employment situation clearly show the government’s signature economic policy is based on fiction — or wishful thinking.
It is not the time for the administration to adhere to a demonstrably wrong policy. While the Korean economy still has enough steam to make some kind of step forward, the government must do everything it can to encourage innovative growth. The clock is ticking.
JoongAng Ilbo, Feb. 15, Page 34