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[Editorial] Clumsy revision

Including monthly bonus in minimum wage fails to account for reality

The National Assembly on Monday passed a revised bill to include parts of bonus and welfare benefits in minimum wage entitlements.

According to the revised law, regular bonuses exceeding 25 percent of the minimum wage and welfare benefits surpassing 7 percent of it will count towards minimum wage payments from next year. These thresholds will be lowered in stages until 2024, when all of the regular bonuses and allowances will be included.

Currently, minimum wage consists of basic pay and fixed allowances, such as job and position allowances.

Labor groups strongly protested the passage of the bill, criticizing the government for taking away the minimum wage it had raised for them. They vowed to boycott meetings to determine the 2019 minimum wage and threatened anti-government struggles.

Conflicts have happened each year the minimum wage is determined, but disturbances like this have seldom been seen before.

This is due to the Moon Jae-in administration’s rash decision to raise the 2018 minimum wage sharply to try to stimulate “income-led growth.”

Even if it wanted to raise minimum wage, it should have determined the scope of minimum wage calculations before doing so, but it raised the minimum wage sharply without doing that.

If the government included or forewarned of including bonuses in the minimum wage calculations before raising it, the sudden hike would be less of a shock to the system.

And still the revision has holes, with the result that employers are dissatisfied, too.

Unionized companies, particularly large ones, are discontent because it is effectively impossible for them to include bonuses in the minimum wage.

The revised law requires only monthly bonuses to be included in the minimum wage.

It is rare for companies to pay a bonus each month. Regular bonuses tend to be paid quarterly by most large organizations.

If employers want to include regular bonuses in minimum wage, they have to divide the annual total of bonuses by 12 and pay them each month.

However, for companies that determine the interval of regular bonus payments through collective bargaining with unions, it is impossible to change to monthly payments if unions refuse to accept it. Little will change from employers’ standpoint as long as unions refuse to change the bonus system.

Well-paid workers belong to unions of large companies which pay bonuses quarterly or annually. If bonuses are left out of the minimum wage, high earners will be among the beneficiaries of the minimum wage hike. This can deepen income inequality.

In view of the purpose of the minimum wage, which is to increase the income of low earners, the revision could be fairer to them if welfare benefits were not part of minimum wage calculations. Lodging and transportation benefits have been paid to low wage employees largely with a view to supplementing their wages. It would be more reasonable to include welfare benefits in minimum wage calculations differentially, depending on the size of the company.

What matters more is to resolve structural problems of the minimum wage system.

It is fair to differentiate minimum wage by industry and by region, but this was not reflected in the revised law.

Work intensity in a convenience store, for example, is different depending on whether it is located in a busy downtown or a remote village.

It is not reasonable for workers to receive the same minimum wage regardless of whether they work in booming or struggling industries.

The scope of the minimum wage has become controversial because of the complex structure of South Korean wages.

Wages have many layers including regular and irregular bonuses and a wide array of allowances on top of basic pay. Unless the wage structure is simplified, disputes over the range of the minimum wage can flare up at any time.

The wage structure should be changed to increase the proportion of job- and performance-based remunerations. This is needed all the more considering a shorter workweek is slated to take effect from July.

It is difficult for companies to secure global competitiveness if their wages are structured around a single salary schedule which is supposed to raise pay automatically each year regardless of productivity.