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Labor’s demand for minimum wage hike is unreasonable

Posted July. 07, 2018 07:17,   

Updated July. 07, 2018 07:17


Labor representatives proposed raising the hourly minimum wage by 43.4 percent to 10,790 won next year in a session of the Minimum Wage Commission held Thursday. It is higher than 10,000 won that had been suggested by the labor side for three consecutive years until last year. Meanwhile, representatives from business proposed a freeze in the minimum wage at the current level of 7,530 won per hour. The gap of 3,260 won in the suggested wage of the labor and business is the highest ever.

Labor representatives have called for the increase saying that the regular bonus and employee benefits will be included when calculating the minimum wage starting from next year. They argue that such an adjustment results in the wage cut of 7.7 percent on average, so the baseline of the minimum wage should start at 8,110 won, also higher by 7.7 percent than the current level. In order to reach the minimum wage of 10,000 won, it should be increased by about 33 percent than now (7,530 won), and if the baseline amount is 8,110 won, a 33 percent increase will be 10,790 won.

To start with, the labor community’s estimate of a 7.7 percent wage cut is hard to trust, but what is more unreasonable is that the community’s taking issue with other parties at the commission over the adjusted calculation method of the minimum wage, which had been already passed at the National Assembly. Moreover, the adjustment was led by the labor-friendly ruling party because the previous system was irrational in that even a worker with an annual salary of over 60 million won including the regular bonus and employee benefits would benefit from the increase in the minimum wage. Also, some pointed out that the minimum wage hike would widen the wage gap between workers at large conglomerates and small and medium sized enterprises.

The minimum wage hike of 16.4 percent last year is already making the country’s economy to have a rough time. What is the most serious is an “employment shock” faced by the country as the job growth rate hit the lowest level in eight years and four months in May. The number of temporary workers and day laborers, who are greatly affected by the increased minimum wage, has reduced by 2.2 percent and 7.9 percent year on year, respectively, and the number of workers in the wholesale and retail, lodging services, and restaurants has also decreased by 1.7 percent. The self-employed have also been seriously hit as evidenced by the fact that the number of businesses that have shut down exceeds that of newly opened businesses since the launch of the current administration. Those hit the hardest are socially vulnerable people. Yet, labor representatives are turning a blind eye to the issue of an employment shock, calling for the wage hike again.

Along with the pace of the minimum wage increase, the introduction of differential increase rates by business types proposed by the business community should be also considered. The labor community is opposing the differential increase rate on the grounds that “it is against the purpose of the minimum wage system intended to protect socially vulnerable workers and to narrow the wage gap.” However, differentiating the minimum wage based on business types and regions not only is being already implemented in advanced countries including the United States and Japan, but is also sensible as productivity levels and prices are varied depending on industries and regions. The commission will hold four more meetings to decide next year’s minimum wage next Saturday. We have been already experiencing side effects of the steep minimum wage hike. Still, the labor community seems to be living in a different world.

Sung-Won Joo swon@donga.com