Relieve SMEs of their minimum wage burden

As of the end of March, 27.5 percent of SMEs bore a credit rating of C or lower, which means three out of 10 cannot afford to meet their debt obligation or have de facto bankruptcy. The self-employed businesses are equally hard-up. The rate of business closure neared 10 percent, and the number of self-employed people shrank by 94,000 over a year.

Small companies and the self-employed have descended into crisis due to poor business conditions amid high inflation and interest rates and the dollar-won exchange rate. The costs of core inputs, labor and capital, have become expensive. Due to a leapfrog under the Moon Jae-in administration, the minimum wage soared 52.4 percent over the last seven years. The Korea Development Institute has advised monetary easing to boost liquidity and uplift domestic demand.

Yet there are few policy options to stimulate domestic demand. Against the conundrum, we must look widely for improvements in the system and environment. According to a survey by the Korea Federation of Micro Enterprises, 98 percent of small merchants call for a cut or freeze in the minimum wage and 88 percent call for sectoral differentiation in the wage floor. And they are not simply whining. In the 2023 Economically Active Population Survey by Statistics Korea, more than 3 million workers were not getting minimum wage last year. Over 30 percent of farming, forestry, fisheries, food and hospitality establishments were not able to pay staff by the minimum wage in 2023. The law should be rationalized so that it can be kept according to affordability and productivity.

Makeshift responses to alleviate the immediate hardship ended up worsening the condition. Ailments can get bigger when neglected. Like the human body, the economy also should have a vibrant metabolism to run smoothly. Relief actions must go to businesses in temporary hardship, while those unable to stand by themselves must be let go. Businesses must be assisted to easily close and shift to a new line of business. Help should go to reemploying workers and recovering entrepreneurs.

In theory, restructuring is the answer. But on the field, a layoff is bloody and stokes strong resistance. Streamlining can be persuasive only when social security is solid. Engaging those pushed out of competition mitigates polarization and helps social cohesion. Despite improved data, wealth disparities remain worrisome due to the soaring home prices.

The government sharply raised the threshold for median income that became the basis for state welfare benefits last and this year. It must examine whether the new threshold is being well kept and consider lifting it further if necessary. Wisely using existing welfare benefits is the only way to contain the opposition party’s penchant for giveaway populist platforms.