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(EDITORIAL from Korea Herald on July 11)

All News 07:02 July 11, 2018

Don't repeat mistake
Minimum wage hike will be meaningless if jobs vanish and government support is needed

Three days remain until the July 14 deadline for setting next year's minimum wage, which will be applied nationally.

Labor groups demanded a 43.3 percent increase over this year to 10,790 won ($9.70) per hour. Even if that is just their initial offer for negotiation, it is exorbitant.

They say that the "net" increase amounts to 32.6 percent because of a revised related law which requires the inclusion of bonuses and welfare benefits in the minimum wage. Still, it is steep.

Employers demanded a freeze at this year's level of 7,530 won. However, they said they could revise their demand if labor agrees to differentiated minimum wages according to industry.

The gap between offers from the sides sits at an all-time high of 3,260 won.

The minimum wage rose sharply by 16.4 percent last year, but many employees of small businesses lost their jobs.

The numbers of temporary workers and day laborers, both jobs much affected by the minimum wage rise, decreased by 2.2 percent and 7.9 percent year-over-year in May.

Closed businesses outnumbered new in the year after the Moon Jae-in administration was launched.

Of course, the contraction in employment cannot be blamed entirely on the minimum wage increase, but it can hardly be explained, either, without giving consideration to its effect.

The nation is showing signs of an economic slowdown, with sluggish sales and lackluster investment. If the minimum wage makes double-digit percentage gains next year, businesses with little capacity to pay wages will inevitably find themselves in deeper financial straits. A rapid increase in this situation will only quicken business closure.

In a joint news conference Monday, six economic groups including the Korea Federation of SMEs demanded different minimum wages be applied by industry in a bid to help financially strapped small businesses, among others. They said, "Next year's minimum wage must be set at a reasonable level considering economic conditions, employment and payment ability.”

It is unusual for the six groups representing employers to be united in making open demands over the minimum wage. That reflects their deep sense of crisis.

If different realities by sector or by region are reflected in the minimum wage, the side effects of the rapid hike could be mitigated. The idea needs be considered seriously.

Labor argues it goes against the purpose of the minimum wage, which is to protect underprivileged workers.

In reality, however, wage levels are already different by industry and region.

According to employers, workers earn an average of 3.29 million won a month, while small business owners make 2.09 million.

It is natural that wage levels differ by sector depending on labor intensity, productivity, profitability and the like, and by region depending on such factors as the living costs and employment conditions.

The minimum wage is not much different from other wages. The US, Japan, Canada, Australia, the Netherlands and other advanced economies apply differentiated minimum wages. Korea needs to benchmark them.

Labor's claim that certain sectors will likely be stuck with low wages if different rates are applied is understandable, but it goes too far, because it fails to consider the crisis facing small businesses. Complementary measures can be sought to protect vulnerable laborers.

Adjusting the minimum wage in step with labor productivity and capacity to pay wages is realistic and rational, particularly amid economic difficulties.

The minimum wage should be raised to the extent the market can bear by itself without receiving subsidies from the government.

Increasing the minimum wage will be meaningless if jobs vanish and government support is needed.

For day laborers and temporary workers, remaining employed is probably more important than receiving a higher minimum wage.

The government must acknowledge the side effects of the sharp increase in the minimum wage for this year. It should moderate the pace of increase. The same error must not be repeated.

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