Wage setting group will not consider ability to pay

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Wage setting group will not consider ability to pay

In determining the minimum wage, the government will not consider the ability of companies to pay the new wage.

The economic situation and the impact of the increased pay on hiring will drive the process, the Ministry of Employment and Labor said in announcing the final version of reforms being made to the minimum-wage decision-making process.

It also noted that four out of the seven members representing the public interest on the 21-member committee deciding the minimum wage will be picked by the National Assembly.

Reforms to the minimum-wage decision-making process have met with strong resistance from the business community. Mom-and-pop shops are especially sensitive to wage changes.

“While we have decided to exclude the ability of businesses to pay the wage as a factor in determining the new rate, we will be looking at the economic situation and the influence on jobs,” said Labor Vice Minister Im Seo-jeong on Wednesday.

“This is because data related to the ability to pay wages overlaps with data on the economic situation and jobs.”

He said information on the ability of companies to pay the higher wages could be substituted with other data, such as that on hiring and operating profits.

The government will not only consider the number of jobs that have been added when deciding on the minimum wage but also the quality of the jobs created.

The government has decided on a dual-track process. A group of nine experts will recommend a minimum-wage increase range based on objective data to a second group of 21 representing labor, business, the government and the public interest. Under the current system, a single committee of 27 makes the decision on the following year’s minimum wage.

The change, the first in 30 years, is aimed at improving efficiency and speeding the process, which has for years been getting bogged down in time-consuming squabbles.

Under the new system, the government loses one seat on the public interest committee while the National Assembly gains one. Labor Vice Minister Im said this will add diversity to the discussions.

The decision by the government not to include the ability of businesses in deciding the minimum wage met with opposition not only from large businesses but also from SMEs and small mom-and-pop businesses.

Big business lobbying organizations - such as the Korea Employers Federation and the Korea Chamber of Commerce and Industry - expressed their disappointment, arguing that when the companies are forced to pay wages above their capacity, the very survival of those companies is threatened.

They have argued that the rising minimum wage will not only force companies to raise the price of their products and services but could also result in a fall in the number of employees that they can hire.

The Korea Federation of Micro Enterprise in a statement said the decision by the Labor Ministry has been especially disappointing for small stores. Their ability to pay employees has been weakening amid falling revenue.

The federation said the Wednesday decision by the government can be interpreted as ignoring the current circumstances of small businesses, which already lose out in terms of the social safety net.

According to a survey conducted by the Ministry of SMEs and Startups, 70.9 percent of small businesses - such as restaurants and convenience stores - said their revenue has declined and 76.4 percent said this year’s 10.9 percent minimum wage rise was excessive.

The increase of the minimum wage is a cornerstone of the income-led growth policy.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]
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