Salaries increase fast as young Koreans up the pressure

Economy

Published: 05 Jul. 2022, 16:13 Updated: 05 Jul. 2022, 19:44

Salaries increase fast as young Koreans up the pressure

The Korean Government Employees' Labor Union (KGEU), Government Employees' Union and the Confederation of Korean Government Employees' Unions protest near the Yongsan Presidential Office on June 23, asking for higher wages. [YONHAP]

Salaries are rising at big companies as competition for employees heats up and young Koreans place a priority on making money.

Rapid increases in remuneration have been noted, especially companies dealing in semiconductors, IT, batteries and automobiles.

In 2021, salaries at the 100 largest companies by sales rose 9.1 percent, according to the Korea Economic Research Institute.

In February last year, an SK hynix employee griped on the company's intranet and by e-mail about the lack of transparency in terms of bonus pay. The company promised to make changes.

Samsung Electronics raised wages by 9.0 percent in May, the biggest increase in a decade. LG Electronics increased pay by 8.2 percent, Kakao raised pay by 15 percent and Naver 10 percent.

Full employment and a lack of workers is one reason for the pay increase.

The number of newly employed in May rose 0.9 million to 28.4 million on year, according to the Ministry of Employment and Labor and Statistics Korea. The number of unemployed dropped to 259,000 from last year's 889,000, with the unemployment rate at 3 percent. This rate is considered to be at or near full employment.

Labor is adding to the pressure. The Federation of Korean Trade Unions suggested an average increase in wages by 8.5 percent this year, as "the inflation hit the highest levels in about a decade." The Korean Confederation of Trade Unions has asked for a 10 percent.

"It is acceptable for labor unions to ask for a wage rise as the cost of living increases due to the current high inflation," said Shin In-seok, a business professor at Chung-Ang University.

"However, this may create a vicious circle. In order to prevent the current economy from facing the Great Inflation situation like in the 1970s, it is important to let people acknowledge that the consumer price index will eventually drop so that the need for wage rise would seem unnecessary."

This is seen leading to wage-push inflation. Higher salaries will lead to a rise in labor costs, eventually causing costs of goods and services to increase.

This will eventually cause an upward spiral for inflation and if this happens, "it is going to take much longer to get rid of inflation," according to Christopher Pissarides, a Nobel Prize-winning economist and economics professor at the London School of Economics.

The Bank of Korea pointed out that "during the time of high consumer prices, consumer prices are likely to be more affected than usual by the labor cost," which could yield even higher inflation in the end, according to a report released in May.

A bigger problem associated with inflation caused by pay raises is economic inequality. This would eventually create a wider gap between average wages depending on the size of the company. The average pay increase rate of all full-time workers was 4.6 percent last year, which is only half of big company increases.

The monthly average salary of big companies was 9.2 million won a month, while that at small and mid-sized firms was 3.8 million won as of this January.

Workers at small and mid-sized firms may be heavily affected by high inflation as their salaries have not been able to catch up with the speedy rise in consumer prices. In fact, many employees at these firms say it is very difficult to get a pay increase.

According to a survey conducted by Saramin, a Korean online recruitment website, 31.4 percent of small and mid-sized companies said they have no plan to increase wages this year and may even cut pay.

"Raising wages could be accepted differently according to the company's productivity," said Sung Tae-yoon, a professor of economics at Yonsei University.

"There will be a bigger burden on the Korean economy as the overall trend of companies increasing wages is spreading regardless of productivity, resulting in high inflationary pressure and reduced employment."

The government has requested big companies to limit salary increases.

"Excessive wage rises may not only worsen the inflation situation but also widen the wage gap between large and small companies," said Finance Minister Choo-Kyung ho during a meeting with the Korean Enterprises Federation on June 28.

"Businesses should limit salary increases and raise wages at a rate in line with productivity increases."

Companies may continue to raise wages despite the change in the economic situation.

"Everyone wants to reduce inflation without affecting the economy, but in reality, there is no way to do that," said Cho Dong-chul, a professor at the Korea Development Institute School of Public Policy and Management.

"It is important that the society believes the inflation will be controlled eventually despite the worsening economic situation."

BY HWANG KUN-KANG [cho.jungwoo1@joongang.co.kr]