[Editorial] Effect of job incentives

By Korea Herald

Direct aid unsustainable; right way is to improve business environment

  • Published : Mar 16, 2018 - 17:45
  • Updated : Mar 16, 2018 - 17:47

The government on Thursday unveiled measures to bring down youth unemployment.

It plans to offer financial and tax incentives worth about 10 million won ($9,336) a year to each successful applicant of an entry-level job in a small and midsized business over the next three or four years.

The incentives include income tax exemptions, four-year low-interest loans of up to 35 million won for the down payment of a house, monthly commute allowances and a 24 million won deposit grant to a new recruit if he saves 6 million won for three years while working at a small and midsized business.

These are steps to narrow the entry-level salary gap between large and small and midsized companies, which has been cited as a key reason why young people hesitate to seek jobs in small firms.

In early April, the government will propose to the National Assembly a 4 trillion won supplementary budget for the measures. It expects to create a maximum of 220,000 jobs by 2021 and to decrease the youth unemployment rate below 8 percent.

However, it is questionable if the generous incentives are sufficient to induce youths to seek jobs in small and midsized businesses.

Large companies are more attractive than small ones in many respects other than pay, such as aid for children’s tuition fees, vacation days, self-improvement programs and job security.

Not many would seek jobs in small and midsized companies merely to receive the new benefits, as it is clear they will vanish after a few years.

The measures do not address how companies can keep pay equity between new entry-level and existing employees. If new recruits receive more real income than existing employees thanks to the incentives, conflicts and other organizational problems are likely to happen.

Hopefully, the set of measures -- to which the government said it is devoting all its energy -- will bear fruit, but prospects are not so positive, considering that the government has taken job creation measures 22 times in the past decade, including the latest one, without effects to speak of.

This could be attributable to an ill-guided perception of the causes of youth unemployment.

Employment increased by 104,000 people or 0.4 percent last month from a year earlier. It was the smallest increase since 2010. Though the government is hesitant to acknowledge the negative impact of a high minimum wage, employment shrank the most in those businesses affected most by the minimum wage. Wholesale and retail businesses lost 94,000 jobs in February from the same month last year.

The government needs to review if it should keep raising the minimum wage sharply. When it comes to jobs, quality should take precedence over quantity. Last year’s extra budget is said to have created about 67,000 jobs, but some 30,000 of them were short-term part-time jobs for the aged. Only 4,400 of them were new jobs for youths in the private sector.

Furthermore, fiscal spending to create jobs has its limits.

The effect of job incentives will be restricted as long as corporate cost burdens, such as the high minimum wage and shorter working hours, remain unaddressed. Complementary measures to ease the burdens are needed.

The right direction for the creation of jobs is to improve business conditions for companies to invest and hire more. The Moon Jae-in administration must listen to experts’ advice that decent jobs will be added naturally as a consequence of labor reform, deregulation and service industry promotion.

High youth unemployment is largely ascribable to an oversupply of college and university graduates as well as an economic growth pattern without employment growth, and large companies’ sluggish investments.

In addition, more attention needs be given to emerging technologies such as artificial intelligence, the internet of things and self-driving vehicles.

While continuing to improve the business environment and spur capital investments, the government must find ways to get to the root of the problem.