Minimum wage increase should be curbed to cushion fallout from previous hikes
A tripartite commission last week kicked off its deliberation to set the minimum wage for next year amid mounting calls to adjust the pace of increase to cushion the fallout from previous steep hikes.
The commission, which comprises 27 members, nine each representing labor, business and the wider public, raised the minimum wage by 16.4 percent on-year to 7,530 won ($6.39) per hour in 2018, the steepest rise in 17 years. The hourly minimum wage increased further by 10.9 percent to 8,350 won in 2019.
The minimum wage hike has been one of the pillars of the income-led growth policy pursued by President Moon Jae-in's administration since he assumed office in May 2017. During his election campaign, he pledged to raise the wage floor to 10,000 won per hour by 2020.
The sharp wage increase has driven mostly low-wage workers out of their jobs as many employers, pa rticularly small businesses, have been pushed to cut their payrolls to cope with rising labor costs. Subsidies offered by the government to offset increased wage costs have done little to prevent low-skilled temporary and part-time workers from losing their jobs.
According to figures released last month by Statistics Korea, the country's unemployment rate rose 0.3 percentage point from a year earlier to 4.4 percent in April, marking the highest level for the month since 2000. The number of jobless people stood at 1.24 million in April, the highest figure for the month since related data was first compiled in 1999.
These worsening figures have led the Moon administration, which usually ignores criticism of its policy initiatives, to concede that it is necessary to moderate the pace of minimum wage increase.
Economy and Finance Minister Hong Nam-ki said in a recent TV debate program that the increase rate should be kept low next year to lessen the impact of wage hikes on employment and economic conditions.
His remarks came after Moon said last month that the government was not bound by his election pledge regarding the minimum wage.
The about-face in the administration's stance comes too late, given that many economists and the business community have long cautioned against the negative effects of a steep wage increase. Still, it is better late than never.
The government should now be more active in ensuring the Minimum Wage Commission will set the 2020 rate at the lowest possible level.
The 29.1 percent rise in the country's minimum wage over the past two years represents more than double the average of 14.1 percent in 28 member states surveyed of the Organization for Economic Cooperation and Development, according to a recent study by the Korea Employers Federation. It is also the highest among major economies whose per capita gross domestic product exceeds $30,000.
At a public hearing organized by the commission Wednesday, many participants called for the differentiated application of minimum wage regulations by industry, region and corporate size. They said it would be necessary to freeze the wage at least in some sectors -- those most vulnerable to higher labor costs.
Even an additional 3 percent to 4 percent increase in the minimum wage might send many small firms and self-employed businesses over the cliff.
It is only reasonable for the head of the wage council to agree on the need to curb an increase next year.
Given the defiant stance of labor groups, however, it seems far from easy for the commission to moderate, let alone freeze, the wage increase.
In news conferences held by its regional branches a day before the hearing, the Korean Confederation of Trade Unions, one of the two major umbrella labor groups in the country, demanded the minimum wage be raised to 10,000 won as initially promised by Moon.
It urged the government to get big companies that have piled up cash reserves to share the burden of further raising the minimum wage.
Despite its pro-labor stance, the Moon administration would be in no mood to accept such an unreasonable demand, which would certainly dampen entrepreneurship.
It should go further and guide members of the commission representing the general public to minimize the increase.
Over the past few years, members who are selected by the government have held the key to setting the minimum wage. The losing side -- representatives of either management or labor -- has boycotted the final vote.
In the long term, the administration should push for the parliamentary passage of a legal revision to change the process of deciding on the minimum wage.
The formation of a separate panel consisting of nine experts, who would be tasked with suggesting upper and lower limits for the minimum wage, could help set it at a proper level.
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