Trash the minimum-wage hike

Home > Opinion > Columns

print dictionary print

Trash the minimum-wage hike


Lee Ha-kyung
The author is the chief editor at the JoongAng Ilbo.

Thanks to President Moon Jae-in’s pledge to increase the hourly minimum wage to 10,000 won ($8.38) by 2020, the Korean economy has been pushed into a deep swamp. As the minimum wage has been increased by 30 percent to reach 8,350 won over the past two years, small-business owners and the self-employed have been bankrupted one after another, while low-wage workers have lost their jobs. Although the policy was meant to support the economically vulnerable, it has actually hurt them. Our economy has lost its energy. As criticism peaked, Moon finally conceded that he won’t be obsessed with the promise to raise the minimum wage all the way to 10,000 won by 2020.

Japan has stronger economic fundamentals than Korea. But its increase in its minimum wage this year was 3.1 percent, the highest ever. Japan planned to increase the minimum wage to 1,000 yen ($9.07) by 2020, but gave that up as the economy’s growth slowed. Despite a boom in its economy, the United States has frozen the federal government’s minimum wage at $7.25 for the 10th consecutive year. Though the federal guideline is flexibly adopted by regions, 20 states and 40 cities increased it this year. That shows how carefully the two economic giants are treating such a sensitive issue.

In Korea, the opposite is true. If you include holiday allowances, Korea’s minimum wage rose to 10,030 won this year, a nearly 50-percent increase over the last two years, according to the Korea Economic Research Institute. Although Korea has more self-employed people — who can hardly afford to pay that amount — than other developed countries, the government went ahead and raised the minimum wage. The self-employed in Korea account for 25.4 percent of the economy, far higher than 10.4 percent in Japan and 6.3 percent in the United States.

According to the head of the Korean mission of the International Monetary Fund (IMF), no economy is capable of handling a 30-percent hike in the minimum wage over two years. He advised that any increases in the minimum wage should be compatible with labor productivity. Moody’s also said Korea’s employment crisis is largely caused by the minimum-wage hikes.

Economic bureaucrats and scholars should have challenged the ruling forces — who opted to defend a fortress of abstract ideologies — and promote a pragmatism in policy making that is deeply rooted in the world of reality. Yet what have they been doing as this chaos swiftly descended? Before politicians made radical moves, they should have raised objections. They made no such attempt.

Korea’s minimum wage is uniformly applied to all employees. Other countries apply different amounts based on economic situations, employers’ abilities to pay, working conditions and productivity. For instance, Japan applies different amounts to various regions and vocations. If the situations do not permit, the amounts are even sometimes cut. The United States and China use different minimum wages for different regions. In England, France, Germany, Australia and the Netherlands, different amounts are used for different age groups.

No system is without flaws. If different amounts were paid in different regions, youngsters in rural areas would rush to cities. If different minimum wages were used for different industries, the wages of workers with low-paying jobs would be cut even further.

There is no perfect answer, but we should create a system that has fewer side effects through trial and error — and we must start now.
Very few conservative or liberal economists are debating whether our wages have increased as much as economic growth by presenting analysis and data. It is fortunate that they are engaged in a heated debate on the challenges we face today: But why now?

Korea’s mainstream economists are studying the U.S. economy day and night to publish their papers in renowned U.S. academic journals. That is how they survive in the academic jungle. Yet it is regrettable that they turn blind eyes to the grim realities of our own economy. That could help explain why top economists are reluctant to verify or criticize a number of policies pushed forward by soulless officials to please the president.

During his high school year, the late President Roh Moo-hyun was approached by a friend. He proposed to Roh that they buy one portion of bread and share it. “If we each eat half, both of us will feel hungry, so you should eat it alone. I can handle my hunger,” Roh told him. The episode well illustrates the former president’s warm heart and pragmatism.

It is no coincidence that Roh proposed a grand coalition to the conservative opposition party to share power for a politics of mutual respect despite fierce criticisms at the time.

The world never moves in the you want. Fortunately, President Moon recently said, “We are living in a world where the ancient dichotomy of the conservative and the progressive is no longer working. Actually, we should make judgments based on common sense and pragmatism.”

The curse of the minimum-wage hike will only come to an end when Moon is determined to end it. The pledge to increase the minimum wage to 10,000 won by 2020 must be trashed. Presidential aides who told Moon that the Korean economy is walking the path to success must be muted given so many indicators point in the opposite direction. All judgments should be based in reality. Moon must have the courage to save Korea from an unprecedented economic crisis.

JoongAng Ilbo, May 20, Page 31
Log in to Twitter or Facebook account to connect
with the Korea JoongAng Daily
help-image Social comment?
lock icon

To write comments, please log in to one of the accounts.

Standards Board Policy (0/250자)