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(EDITORIAL from Korea Herald on Jan. 10)

All News 07:21 January 10, 2018

Minimum wage chaos
Government must take side effects seriously, review plan to raise it sharply

The sharply increased minimum wage is generating more negative side effects than anticipated.

The government has vowed to work out complementary measures while cracking down on violations of the minimum wage law, but their effectiveness is questionable.

A review of its policy to keep raising the minimum wage until 2020 is needed.

With the minimum wage for this year raised 16.4 percent to 7,530 won ($7.06) per hour, part-time and contract jobs have been hit hardest, while prices of products closely related to the livelihoods of ordinary people are rising.

A job website's survey of 1,458 adults looking for part-time employment found that 72 percent of them expected more difficulties in finding jobs or are worried about being fired in the wake of the rise in the hourly minimum wage.

Some universities installed unmanned security systems after security guards retired, and replaced full-time janitors with part-time cleaners. Convenience stores began to fire part-time workers or reduce their working hours. A Seoul apartment complex decided to dismiss all its security guards and outsource security jobs. Fast-food restaurants are replacing cashiers with self-service kiosks.

This is far from what the government intended. It had looked forward to seeing a virtuous cycle in which raising the minimum wage would increase household income, followed by an increase in consumption and then in production and employment.

But in reality, the minimum wage hike has affected disadvantaged groups in the labor market the most. The remaining workers will get higher wages, but far more are not getting a job they might have had at the previous wage.

According to a civic group's investigation into law-bending practices related to the minimum wage, some small businesses have divided bonuses into 12 equal parts and are adding each part to monthly salaries, as bonuses are not included when calculating the minimum wages due.

Others have split their businesses into smaller ones to apply for wage subsidies that the government gives to businesses with fewer than 30 employees.

The Ministry of Labor and Employment will inspect about 5,000 sites in five lines of business across the country -- supermarkets, convenience stores, gas stations, restaurants, and apartment and building management offices -- to crack down on employers who fail to pay the minimum wage properly.

Deputy Prime Minister and Minister of Strategy and Finance Kim Dong-yeon recently visited restaurants in Seoul and appealed to them to refrain from laying off employees. But restaurant owners reportedly complained they could not hold out without reducing the number of employees or raising prices.

A government task force on minimum wage is working on measures to reduce the cost burden on small businesses, but not many policy tools remain. Measures to lower rents or credit card commissions are said to be considered, but they will likely cause other problems.

President Moon Jae-in said Monday, "Though the minimum wage increase may have caused confusion at first, it will be of great help to the sustainable growth of our economy."

This means he will keep his pledge to raise the minimum wage to 10,000 won by 2020 despite side effects. He does not seem to regard the situation as serious.

The government publicizes the minimum wage subsidy fund, but as Kim said, it is not a fundamental solution. Even the fund is not likely to be viable for many, because small businesses are required to pay employment insurance premiums for employees in order to receive minimum wage subsidies. However, most small businesses cannot afford to insure their employees.

There had been warnings before the new minimum wage took effect. About 40 percent of small businesses said they would reduce their employment of staff and part-time workers.

Uh Soo-bong, chairperson of the Minimum Wage Commission, said recently that the government needs to give up on raising the hourly minimum wage to 10,000 won. A policy must be reviewed if it causes more side effects than expected.

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