[Editorial] Change course

By Korea Herald

Wage subsidy is unsustainable; favor to labor saps competitiveness

  • Published : Apr 13, 2018 - 17:49
  • Updated : Apr 13, 2018 - 17:49

South Korea’s unemployment rate rose to a 17-year high of 4.5 percent in March, according to Statistics Korea. The youth jobless rate was as high as 11.6 percent.

As the global economy began to recover, the US unemployment rate stood at a 17-year low of 4.1 percent for the sixth consecutive month in March, and that of Japan amounted to 2.5 percent in February. Compared with the US and Japan, the surge of Korea’s jobless rate is to some extent attributable to domestic problems.

Employment increased by 112,000 jobs in March but the increase is about a quarter of 463,000 jobs created a year earlier.

The scorecard of the Moon Jae-in administration, which placed jobs first, is awful. The figures indicate that its job policies are seriously off on the wrong track.

The administration, advocating an experimental “income-led growth” model, raised the minimum wage sharply, curtailed working hours and pushed the public sector to hire outsourced manpower as staff employees.

However, the minimum wage hike did not have desired effect. Labor costs rose, and small businesses and self-employers reduced employment. The 52-hour workweek aims to increase employment but companies complain of cost increases due to additional recruitment, and quite a few workers worry about shrinking pay packets. Companies are turning to process automation and moving factories overseas.

To reduce the negative effects, the government hurriedly set aside 3 trillion won ($2.8 billion) of its budget to subsidize wages at small and mid-sized companies. But this is no more than a quick fix that cannot last unless the fiscal support continues.

The government says that 67,000 jobs have been created by the 11 trillion won supplementary budget drawn up last July, mostly to create public-sector jobs, but nearly half of them were part-time jobs created mostly for seniors in their 60s. Most of the jobs created with taxes will disappear when tax support is cut off. Nevertheless, the government has submitted another 4 trillion won supplementary budget to the National Assembly to create jobs for youth and support some crumbling provincial economies.

The Moon administration is not trying to solve problems fundamentally but simply splurging taxpayer money to cope with problems in a piecemeal fashion. Even if it draws up additional supplementary budgets to boost employment, the benfits will be short-lived as long as structural problems remain unaddressed.

Advanced economies pushed labor reforms and kept their jobless rates low or record-low, but what has become of labor reforms in Korea? Under the Moon administration, labor reform plans of the past administration went down the drain.

It began to drive in the wrong direction, pressing the public sector to employ all of its outsourced irregular workers as full-time regulars. Performance-based reward systems introduced to raise productivity in the public sector were rolled back. The rules of employment set by the previous government to give employers more latitude to restructure their manpower were scrapped.

In the end, the world has become better only for the unions of large companies and public enterprises, whose workers are already highly paid.

Unless the vested interests of hard-line unions enjoying high pay and job security are broken and the labor market becomes more flexible, it will be nearly impossible to find an effective way to reduce unemployment.

Probably more important are policies to strengthen the nation’s industrial competitiveness and invigorate the private sector. Nevertheless, the Ministry of Employment and Labor recently decided to disclose information on Samsung’s semiconductor factories despite its protests that it would risk exposing industrial secrets to foreign competition. Developed countries try to revitalize businesses to create jobs, while South Korea is moving the other way.

The administration must admit its favors to labor sapped Korean industrial competitiveness and productivity, and aggravated the employment situation. It must change its course toward encouraging corporate investment and pushing labor reforms.

Also, it must shed the view that it can create jobs and drive economic growth with taxpayer money. Taxes are not a panacea. Spending taxes to subsidize jobs is unsustainable and will leave a problem for future governments.

The government needs review its job policies urgently.