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Time for pain sharing

Published: 29 Jun. 2022, 20:31

During a meeting on Tuesday with business tycoons from the Korea Enterprises Federation (KEF), Deputy Prime Minister for Economic Affairs Choo Kyung-ho pleaded that large companies restrain themselves from raising salaries too excessively. Choo, who also serves as finance minister, was seeking business cooperation to fight inflation as spikes in wages could fan inflationary pressure. High inflation can become a fixture if higher wages joins forces with inflationary pressure from soaring prices for imports.

A lengthy period of high inflation can be harder for the low income and socially weak classes. Stabilizing prices of daily necessities is a must. The external environment has turned adverse with soaring international energy and grain prices and faster rate increases by the U.S. Federal Reserve. The government predicts the consumer price index could rise above 6 percent on-year from June to August.

The headline inflation would hover above 6 percent for the first time since November 1998 in the wake of the Asian financial crisis. Stagflation is a possibility if high inflation is accompanied by a slow-moving economy or recession. Wages naturally would have to go up to reflect the rises in prices. But they must not go beyond the level of increased productivity. If wages translate into higher production costs and prices, inflationary pressure will increase while weakening corporate competitiveness.

The Korean economy is battered by the three highs in interest rates, exchange rates and consumer prices. The government, companies and consumers must cooperate to fight the complex crisis. Yet some labor unions of large companies are demanding big raises in their salary.

The union of Hyundai Motor has declared a breakdown in talks after the management rejected its demand for a sharp increase in base salary. It will hold a vote to decide whether to strike. If the union launches a strike, it will be the first in four years. Samsung Electronics agreed on a 9-percent wage hike through the labor-management council. But the four unions under Samsung Electronics questioned the legitimacy of the council and accused the management of unlawful labor activity. Only 4 percent of employees of the electronics giant are union members. The union of engineers and officer workers at SK hynix demands a 12.8 percent hike in base salary and a bonus amounting to 15 percent of the operating profit.

Unlike large companies, small and midsized companies are grappling with higher production costs and sluggish sales. They cannot dream of a salary raise as they have to survive first. Choo said that steep pay raises by large companies could stoke social conflict. According to the Ministry of Economy and Finance, employees of SMEs earned just 50.6 percent of the payrolls of large companies. Pain is in need.