Listen to the markets
The author is an economic news editor of the JoongAng Ilbo.
In September last year, Bank of Korea Governor Lee Ju-yeol was confounded by the job data. His belief that the weakening in employment would be seasonal and temporary was debunked. The increase in payrolls stopped at a mere 3,000 in August, down from 5,000 in July. Compared to the average year-on-year job increase above 300,000 until January, the situation was catastrophic. “We had thought the atypical number in July would be normalized in the following month. We were wrong and could not pin down the cause,” said an official from the central bank.
It is a mystery how our monthly increase in jobs on year, which had long come in above 200,000, suddenly dropped to around 10,000. The sharp spike in the minimum wage, the cornerstone of the Moon Jae-in administration’s income-led growth policy, played some part. Many mainstream economists point out the push upset the market and worsened the already poor conditions in the job market.
The attack on the income-led growth policy may be excessive to some extent. A former economics minister said it did not make sense for the world’s 11th largest economy to shake under a few public policies.
“It is like trying to find a scapegoat to dump the blame on an economy that has already been sliding downhill,” he said.
Still, the government cannot avoid the blame for poorly navigating through difficult waters. It has turned a deaf ear to repeated warnings from the market about the steep rise in the minimum wage. Last week, President Moon Jae-in invited self-employed businessmen for a talk and apologized for the hardship they had to endure due to the rapid increase in the minimum wage. He also said that supplementary measures to help ease the transition are being delayed due to a gridlock in the legislature. The measures he mentioned refer to a cut in credit card service fees, subsidies for hiring and the paying of the employer’s share in four insurance programs for employees, and greater rent security for shops.
The January job data underscores that the government has no solution to the ever-worsening job situation. The number of employed in their 30s and 40s, the peak work years, fell by 292,000 in January against a year-ago period. Their joblessness must have brought serious hardship to their families.
The number of employed in the manufacturing sector declined by 170,000, while 67,000 jobs disappeared from wholesale and retail businesses and 40,000 jobs vanished in lodging and restaurant services. The construction sector lost 19,000 jobs.
Worse, there are no upsides that can improve the figure in the near future. The manufacturing sector has entered a downtrend and consumer demand remains stubbornly lethargic. The construction sector has been hit by the chill in the housing market from a series of government crackdowns. Builders cannot increase supplies amid dim prospects on demand. The government’s target to increase job numbers to 150,000 this year remains far-fetched. The rare areas of job activity are in health care and social welfare services, where the government committed significant funding to create public jobs, and the telecommunications sector. There is no place for self-employed businessmen in their 40s and 50s who are saddled with heavy debt after their shops went bust. Opportunities must be made so that they can work and make money again.
Guests to the president’s recent series of gatherings for businesspeople offered honest criticism. Start-up entrepreneurs pointed out that Korean venture companies were under reverse discrimination as multinationals enjoy various exemptions from local rules. They also argued the 52-hour workweek cap was another form of regulation that dampens innovation and business spirit. They advised the government not to hurt free-market integrity even if it wants to help. Self-employed businessmen asked for a hiatus in the increases in the minimum wage. Their plea was desperate with their viability at stake.
Lee Jae-woong, the founder of Daum Communications and the country’s first car-sharing start-up SoCar, shook his head after Deputy Prime Minister for the Economy Hong Nam-ki emphasized social consensus while mentioning the ongoing conflict between ride-sharing and taxi industry. “What age does the deputy prime minister live in?” he sighed. The country could be pushed out of the sharing economy race if it falls further behind. A breakthrough to multiple challenges to the economy could come if the president simply acts on what he has heard from the businessmen. Why is it so hard to delay minimum wage increases until the economy recovers and remove regulations in the services sector that can benefit the broad population?
JoongAng Ilbo, Feb. 19, Page 27