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Public Sector to Create Jobs By Cutting Wages

Posted January. 21, 2009 08:01,   


To promote the “job sharing” movement initiated by certain companies, the government will overhaul the wage scales of public companies, including lowering the starting salaries of college graduates.

Following a survey of the initial pay of college graduates at public organizations, the government will assess the effectiveness of lowering their wages in creating jobs, the Strategy and Finance Ministry and the Labor Ministry said yesterday.

A new “job-based wage system” will be implemented on senior officials at state-funded bodies to lower labor costs. Wages will differ according to the importance of their duties and performance under the system.

The decision came yesterday as part of follow-up measures to President Lee Myung-bak`s call for job sharing. “To share the burden of the economic downturn, find ways to spread the job sharing movement in a way to create more jobs by lowering wages,” he said.

○ Paying less to hire more

In line with the government’s new measure, state-run bodies are reviewing cutting wages of new recruits including college graduates to create more jobs.

“Let us review ways to partake in the job sharing movement to follow the government’s job security policy,” Kim Jong-shin, president and CEO of the Korea Hydro & Nuclear Power Corporation, told a senior staff meeting Monday.

The Korea Electric Power Corp., the country’s largest state-owned company, is also reviewing reducing the first-year salaries of college graduates. A state-run financial institution was the first public corporation to report the job sharing measure to the Strategy and Finance Ministry.

A separate pay system for executives will adjust their salaries based on their ability and performance.

In addition, the duties of each position will undergo analysis to introduce the job-based wage system and cap their pay to cut labor expenses.

The money saved by reducing labor costs will be spent to create more jobs, a government official said.

○ Wage flexibility

Experts say the government’s new approach is seen as a way to strengthen the flexibility of the domestic labor market in line with the job sharing movement. Many companies complain that difficulty in laying off employees is a major factor in their refusal to hire.

The relatively high starting salaries of college graduates in Korea compared to those in advanced economies are another common complaint from business. The Korean Employers Federation and the Federation of Korean Industries have repeatedly blamed this phenomenon for hindering job growth.

“Once the wage flexibility is enhanced with the introduction of the job-based wage system in public corporations through performance and accomplishment evaluations, it will significantly influence the private sector as well,” a high-ranking Strategy and Finance Ministry official said.

The finance and labor ministries will provide a range of incentives to businesses joining the job sharing movement. Such perks include lowering the interest rate on loans by one or two percentage points; extending the deadline for corporate tax payment or allowing companies to pay taxes in installments; delaying tax audits; exemption from labor supervision; subsidizing employment insurance payments; and giving priority in getting government procurement contracts.

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