(Second from the left) Finance Minister Kim Dong-yeon
South Korea’s minimum wage will rise 16.4 percent from current level to 7,530 won ($6.68) per hour in the biggest-ever gain, racing to meet the new government’s goal to jerk up the legal wage floor to 10,000 won by 2020.
The tripartite committee representing the government, workers and employers agreed and approved on Saturday the proposal to push up the minimum wage by the fastest pace since the wage floor was set in 1988.
Starting next year, Korean workers would be paid 1,573,770 won for their monthly labor when working for 209 hours, 221,540 won greater than now.
The keystone of President Moon Jae-in’s economic agenda is increases in hiring and income to help stimulate consumption and growth and ease the disparities in income and wealth.
But experts raise concern and doubts about the economic effect of the steep rise in wages as it could stoke inflation and translate labor cost burden on smaller merchants and producers to worsen hiring and consumption.
The benefit from higher wages goes to the bottom-income bracket that takes up about 23.6 percent of total working population. But the wage hike could add inflationary pressure and send prices sharply higher, dampening overall consumption.
The toll on employers is even bigger.
About 42 percent of small and mid-sized companies do not earn enough even to pay off interest on their loans, and 27 percent of self-employed vendors and shops cannot even squeeze out 1 million won profit a month from their business, said the Korean Employers’ Federation.
“The steep rise in labor cost could turn many small business owners into criminals because they cannot afford the minimum pay,” said the Korea Federation of Small and Medium-sized Enterprises.
Higher labor cost on top of heavy debt burden amid slow business would make employers cut jobs and refrain from hiring, worsening the economy, the employers’ associations argued.
To minimize the side effects, the government plans to spend more than 4 trillion won including 3 trillion won to subsidize small employers over the next five years in their pay beyond the 7.4 percent average in minimum wage increases in recent years. It will also cut credit card servicing fees for small franchisees and mom-and-pop stores from this month.
By Kim Jung-hwan and Na Hyun-joon
[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]