NATIONAL

Korea struggles in dilemma over minimum wage hike

By 옥현주
  • Published : Jun 25, 2015 - 17:25
  • Updated : Jun 30, 2015 - 16:49

Kim Ok-joo, 46, who works at a tollgate on a highway just outside Seoul for more than eight hours nearly every day of the week, cannot help but think her drudgery does not really pay off. 

“It takes only two weeks to use up all my monthly wage,” said Kim, a single mother raising two teenage sons. “I often work for 16 hours a day, and even on weekends, but my wage is never enough to feed my children.” 

This year, Kim received 1.6 million won ($1,400) per month as her wage was 6,000 won per hour, 120 won higher than the current hourly minimum wage set at 5,880 won.

As her children have continued to grow, Kim says her debts have as well. Executing the most mundane task of giving the children an allowance is becoming more of a feat each day.

(Yonhap)

Kim is one of the estimated 5 million low-wage workers who have been pleading for a drastic hike in the minimum wage next year to receive “what they deserve” for their labor. 

According to government statistics, 1 in 4 wage workers in Korea is “working poor,” suffering from in-work poverty, with 2 million of them being paid less than the minimum wage.

Korea joins the legion of economies that toils in the recurrent debate over the efficacy of minimum wage in encouraging low-wage workers to become self-sufficient.

Business leaders and economists here view it as an obstacle to economic recovery, while unionized workers see it as a key to economic growth. 

The Korea Employers Federation has argued that the minimum wage has risen too rapidly and it needs to be stabilized, voicing concerns over possible job losses. 

On the other hand, the nation’s largest trade unions ― the Korean Confederation of Trade Unions and Federation of Korean Trade Unions ― have maintained that the hike would tackle the nation’s income inequality and spur consumer spending.

Since the government adopted the minimum wage in 1989, the Minimum Wage Council, a trilateral committee of labor experts, employees and employers, has set the minimum wage through discussion. 

This year, the discussion began on June 2 to decide the minimum wage for next year with an aim to reach a conclusion by June 29. After the committee turns in its consensus proposal, the government will officially make the rate public in August. 

But the labor circle and business bloc have continued to clash over the extent of the increase, casting a shadow over the passage of the proposal for next year’s minimum wage within a legal deadline. 

The labor unions have demanded a 79 percent rise from the current minimum wage at 5,580 won to 10,000 won, while employers have campaigned for a freeze.

“The higher minimum wage is necessary to narrow the income gap and guarantee a basic standard of living for low-wage workers, which is also key to boosting the domestic economy,” the Federation of Korean Trade Unions said in a press release, calling on the business leaders to withdraw its proposal for a freeze. 

The union claimed that companies have unfairly benefited from the low minimum wage, citing that household income only increased by 5.7 percent on average when companies’ profits rose by an average of 9.8 percent from 2001-2013. 

Yi Jung-ah, a researcher at local socioeconomic think tank Institute For New Society, also backed the claims. 

“The pay raise will lead to economic growth in the long run by giving the low-income workers purchasing power as Korea’s growth model is wage-led, not profit-led,” Yi told The Korea Herald, citing a report by the International Labor Office released in 2012. 

In the report, the ILO categorized Korea’s economy as a wage-led growth model, meaning that it is more efficient for Korea to drive economic growth by raising workers’ wages rather than helping companies make profits. 

“Through research, I found that the poor tend to spend rather than save when they get extra money,” Yi said. “This means that the minimum wage increase could be the most powerful way to spur domestic spending here.” 

The increase can also prompt the employers to reduce working hours per person, which could create more jobs in the market, she added. 

But the employers association has protested the unionized workers’ proposal, saying that such drastic increase in the minimum wage could pose a formidable threat to small and medium-sized enterprises that are already faltering amid prolonged economic downturn. 

“The labor unions’ suggestion of a 70 percent jump in the minimum wage is unrealistic,” So Han-sub, an official from the Korea Federation of SMEs, told The Korea Herald. 

“The government has already raised the minimum wage too much and too quickly for the past decade, despite worsening business conditions, taking a toll on employers.” he said.

The minimum wage has risen by an average of 8.8 percent from 1,865 won in 2001 to 5,580 won this year, with inflation increasing by 2.9 percent during the same period. 

“Labor is the biggest cost for small and medium-sized employers,” he said. “If all the companies go bankrupt (due to the wage hike), where would workers find a job?”

According to a survey of 429 SMEs by Korea Employers Federation and Korea Federation of SMEs, more than half of the companies responded that they would lay off workers or not recruit new employees if the minimum wage were to increase. 

The surveyed companies also responded that 67.3 percent of their employees take home more than 1.6 million won per month, including bonuses and overtime pay, nearly 50 percent more than the monthly minimum wage. 

Choi Chang-kyu, an economics professor at Myeongji University, also thinks that the raised minimum wage has deterred companies from creating new jobs due to growing costs, resulting in fewer jobs for the young. 

“The shortage of jobs for the young is partially due to the constantly raised minimum wage,” Choi told The Korea Herald. “When the government intervenes in the labor market and sets the minimum wage higher than the market demands, the labor market stops the young from entering the labor force.”

The unemployment rate for the young stood at 9.3 percent in May, significantly higher than the overall rate of 3.8 percent.

Putting aside the effect of a pay raise on the domestic economy, another focal point in the wrangling between the labor and business bloc is whether to cover living costs of laborers’ families in the minimum wage. 

“It is not realistic for workers to live on the minimum wage in Korea while supporting their families,” Kim Jong-jin, a researcher for Korea Labor & Society Institute, told The Korea Herald. 

“The minimum wage is a part of social welfare policy to tackle income disparity and ensure a basic living standard for the marginalized,” Kim said, opposing employers’ perception that workers should be paid in accordance with the amount of work they put in. 

According to OECD data, a Korean single parent with two children at a minimum wage job in 2013 would need to work 58 hours a week to earn 50 percent of the median household income in Korea and get above the poverty line. The 58 hours ranks as the third most, behind the Czech Republic and Greece, among 25 OECD countries that have adopted the minimum wage system. 

Based on the data, the labor unions have claimed that the current minimum wage is far lower than the amount of money needed to support a family. 

The current minimum wage, which translates to 44,640 won a day and 1.16 million won a month for those who work eight hours a day, makes up 70 percent of the actual living expenses for a single household and only 32 percent of the living wages for a three-member household, according to labor unions. 

This means that it is “impossible” for one person in family to support the rest of its members, they said. 

But economics professor Choi noted that raising living conditions for workers and distributing wealth is the government’s job to do, not that of companies. 

“The government appears to pass the responsibility to take care of Koreans on to companies,” Choi said. “Rather than putting the burden on employers, the government should encourage them to create more jobs and put more people back to work.”

While the management and labor circle are bickering over the extent of the wage hike, more focus should be on the social and economic structures that distress SMEs in the first place, the researcher Kim pointed out. 

“Beyond discussing how much to raise in the minimum wage, we should think about why SMEs are under pressure to keep their costs to a minimum in the first place,” Kim said. 

“It is not the minimum wage spike that puts a strain on small companies,” he said. “It is the unfair business practices between conglomerates and themselves that threaten their businesses.”

Despite the government’s pledge to curb family-owned conglomerates’ power and foster smaller businesses, large companies have been accused of exploiting SMEs, which are often their suppliers, by cutting costs or pushing them out of business with their economies of scale. 

Kim Dong-kyu, an owner of cafe Bom Bom in southwestern Seoul, agreed. “In the short term, it could be difficult for us to cope with the rising costs to hire part-timers, but in the long term, I also think that the minimum wage should increase,” Kim told The Korea Herald. 

“What we (small businesses) fear more than the minimum wage increase is conglomerates who are expanding their businesses into every street, threatening small and independent shops,” he said. 

But behind the intensifying feud over how much to raise the minimum wage may be a more systematic problem: a lack of legal institution that allows the management and labor circles to “reasonably” discuss the issue. 

“The dispute over the minimum wage between laborers and business leaders repeats every year, with labor unions going as far as to stage strikes and protests,” Park Ji-soon, professor at Korea University Law School, told The Korea Herald. 

For the same statistics and data, the labor and business bloc have used different measurement methods, which often result in different understandings of the status of the current minimum wage in global rankings and the effects the wage hike would have on the local economy. 

“There should be a more systematic framework and common indicators to be used when setting the minimum wage,” Park said. “Such an important policy for the public good should not be a subject of political bargaining.”

By Ock Hyun-ju (laeticia.ock@heraldcorp.com)