Avoiding catastropheThe pundits see a decline in our economy. The Korea Development Institute lowered its estimate for our economic growth this year to 2.4 percent from 2.6 percent Wednesday. A day earlier, the Organization for Economic Cooperation and Development (OECD) did the same. Yet Korea Inc. seems to have been immunized from such downgrading after the Bank of Korea, the LG Economic Research Institute, Moody’s, Nomura Securities and Barclays all took similar action. ING Group and Capital Economics even came up with gloomier forecasts — 1.5 percent and 1.8 percent, respectively.
Those agencies cite the same reasons for the dramatic decline of the Korean economy: a reduction in exports and worse-than-expected effects from minimum wage hikes of 29 percent in the last two years. The increase in the minimum wage in particular triggered a disastrous loss of jobs, shrank consumption, and widened income polarization. Those were all in sharp contrast to President Moon Jae-in’s statement last year that the effects of the minimum wage hikes were 90 percent positive.
Side effects of the minimum wage increase have been confirmed in a recent survey by the Ministry of Labor. It announced that employment and work hours decreased in the wholesale, retail, restaurants and lodging sectors as a result of the wage hikes. An analysis of economic data shows that 10,000 jobs disappear when the minimum wage goes up 1 percent. At a policy debate Tuesday hosted by the ruling Democratic Party (DP), a representative of the Korea Federation of Micro Enterprises said, “I think the minimum wage hike is guilty.”
It is fortunate that the government and ruling party have begun talking about the need to moderate the pace of the wage increases. In a recent interview, Moon said his administration does not have to raise the wage to 10,000 won ($8.5) by 2020, one of his major campaign promises. “We can fix it on an appropriate level after considering our economy’s affordability,” he said. Park Young-sun, newly appointed minister of SMEs and startups, even stressed the need to freeze it. Rep. Song Young-gil, a leading member of the DP, has posted his recommendation, “We need to freeze the minimum wage for next year,” on Facebook.
Yet the Korean Confederation of Trade Unions is not budging on its demand that the government carry out the presidential commitment to raise the minimum wage to 10,000 won by 2020. The militant umbrella union even threatened a national strife to achieve the goal. As our economy faces tough times, the government must help ease the pain.
Our minimum wage has already exceeded 60 percent of the median income. When that figure reaches 60 percent, companies are more likely to invest in automated facilities, said The Wall Street Journal. That’s a warning that if the government pushes its plan for a wage hike next year, it will deal an irrevocable blow to the self-employed and also large companies. The public’s panic over wage hikes is growing fast. The government must avoid this catastrophe for our economy no matter what.
JoongAng Ilbo, May 23, Page 30