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(EDITORIAL from the Korea Herald on March 4)

All News 07:03 March 04, 2016

Widening wage gap
Banks, big firms need to curb entry-level salaries

The wide wage gap between small and medium-sized enterprises and large corporations continues to expand, making SME jobs increasingly unattractive to college graduates.

Last year, workers at SMEs only earned 62 percent of the wages of their peers at big companies, the widest gap since the Employment Ministry and Statistics Korea began to compile the data in 2008.

Large companies - defined as those with 300 or more workers on the payroll - paid their workers 5.01 million won ($4,110) a month on average in 2015. In contrast, SMEs - firms employing between five and 299 workers - paid their employees an average of just 3.11 million won a month.

Until the mid-1990s, workers at SMEs made about 80 percent of what their counterparts at large companies earned. Yet the ratio has approached 60 percent in recent years. In 2009, it posted 65 percent, but fell to 62.9 in 2010 and 62.6 percent in 2011. After rebounding to 64.1 percent in 2012 and 2013, it dropped back to 62.3 percent in 2014.

One major factor that widens the wage gap between SMEs and large companies is the relatively small portion that performance-based bonus and extra work allowances account for in SME employees' remuneration.

Last year, performance bonus and extra work allowances - such as overtime work, midnight work and holiday work allowance - made up 31.5 percent of the wages of employees at big firms. The comparable figure for SMEs was 17.1 percent.

So one way to reduce the wage gap is to increase performance-based bonuses at small firms. To address this problem, the government has introduced an incentive program for "core employees" of small firms.

Under the program, a company selects workers it wants to retain and opens a bank account for each of them. Each month, the company pays into these accounts double the amounts that each worker has agreed to deposit. When the accounts mature in five years, the saved money is given to the workers as a bonus. Companies get tax deductions for the money they contribute. The government needs to expand the program.

To reduce the wide wage gap, it is also necessary to lower the excessively high entry-level wages at financial companies and big business groups.

Korea's top four banks, for instance, offer an average 50 million won a year to new employees with a four-year college diploma. This is much higher compared to entry-level salaries at foreign banks.

Last month, the Korea Employers Association issued a salary guideline, advising its members to slash their starting salaries if they exceed 36 million won a year, and use the saved money to hire more staff.

Domestic banks need to take the KEA's guideline seriously and adjust their salary systems. Lowering their high entry-level salaries will help not only expand job opportunities, but reduce social polarization. If banks set a precedent, it will be emulated by other corporations.

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