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[Editorial] Wage costs

Supplementary measures needed to ease burden on employers despite lowest minimum wage increase

A tripartite commission has set the country’s minimum wage for next year at 8,720 won ($7.27) per hour, a 1.5 percent rise from this year’s figure.

The increase, decided Tuesday by the commission comprised of 27 members representing labor, management and the general public by an equal number, is the lowest since the minimum wage was introduced here in 1988. The decision will affect up to 4 million workers, whose current hourly wage is lower than the legal threshold for 2021.

Park Jun-sik, head of the Minimum Wage Commission, said the decision was made based on the judgment that top priority should be protecting the labor market and sustainable jobs at a time when economic uncertainties were greater than ever.

Commission members representing the general public proposed the 1.5 percent increase after representatives from management and labor failed to bridge their gap.

Labor members had initially called for an on-year increase of 16.4 percent to 10,000 won, while management members had wanted a 2.1 percent cut to 8,410 won.

The proposal by commissioners representing the general public passed by a vote of 9-7 at the ninth plenary meeting of the commission. All seven labor representatives and two management representatives boycotted the vote.

Labor unions stressed the importance of ensuring the livelihood of low-paid workers who are suffering most from the economic impact of the coronavirus pandemic. Whereas the business community called for easing the financial burden on employers, most whom are struggling to keep themselves afloat amid deteriorating conditions.

The decision appeared to be in favor of employers, particularly mom-and-pop business owners and small and medium-sized firms.

But the smallest-ever increase in the minimum wage may still be burdensome for many marginalized employers as it follows a 33 percent hike over the past three years.

The minimum wage increase 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, coupled with other pro-labor measures taken by the Moon government, has driven mostly low-wage workers out of their jobs as many employers have been pushed to cut their payrolls to cope with rising personnel expenditures. 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.

Since the first new coronavirus case was reported here in January, the pandemic crisis has exacerbated the country’s unemployment problem.

A recent poll showed 6 out of 10 small and midsize companies plan to reduce employment if the minimum wage is raised further.

Representatives of the general public made their proposal for next year’s minimum wage on the assumption that, among other factors, the country’s economy would grow 0.1 percent this year.

But many economic institutes at home and abroad forecast Asia’s fourth-largest economy will contract more than 2 percent in 2020 amid the fallout from the pandemic crisis. The Korean economy was already suffering a simultaneous slump in corporate investment, consumer spending and exports before the coronavirus outbreak.

Under these circumstances, it would have been a more reasonable choice to cut or at least freeze the minimum wage.

Complementary measures need to be taken to ease the burden on employers and protect employees whose income is directly linked to the wage floor.

Consideration should be given to the differentiated application of minimum wage regulations by industry, region and corporate size. The scope of allowances included in the minimum wage calculation needs to be expanded.

In the long term, the government should push for a legal revision to change the process of deciding the wage floor. The formation of a separate panel consisting of independent experts, which would be tasked with suggesting upper and lower limits for the minimum wage, could help set it at a more reasonable level.

Labor groups have vehemently objected to the minimum wage decided by the commission, which is scheduled to be put on public notice by Aug. 5.

After walking out from the final session of the tripartite commission, labor representatives said its decision was tantamount to declaring the “death of the minimum wage” in the country.

Their argument sounds far from persuasive, given the steep rise over the past years and worsening economic and employment conditions. Labor groups should recognize that now is the time to focus on retaining jobs, not to squabble over wage increases.
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