His comments followed a string of oppositions lodeged by both the business and labor sides, while his chief financial policymaker criticized the double-digit growth as hurting the economy.
Earlier in the day, the deputy prime minister and finance minister cited the rapid hike timeline as a major risk factor for the nation’s economy, to be followed by President Moon Jae-in, who later in the afternoon, apologized for the “insufficient” rise, while seemingly admitting that his pledge to raise the hourly wage level to 10,000 won ($8.90) by 2020 was nearly impossible.
“There are signals that the minimum wage (increase) is exerting visible impact upon the employment of specific age groups and job clusters,” Finance Minister Kim Dong-yeon said in a press briefing held at the Bank of Korea, after a one-on-one meeting with the central bank’s Gov. Lee Ju-yeol.
“A double-digit hike in the legal wage is likely to impact the competitive spirit of the market, as well as (the government’s economic slogan of) innovative growth.”
|Deputy Prime Minister Kim Dong-yeon (right) on Monday meets with Bank of Korea Gov. Lee Ju-yeol at the centra bank building to exchange views on the downside risks concerning the economy. (Ministry of Strategy and Finance)|
The top fiscal official’s remarks came in the wake of the latest decision by the Minimum Wage Council on Saturday to set next year’s legal minimum wage hike rate at 10.9 percent, raising the hourly amount to 8,350 won from the current 7,530 won.
Though the increasing rate was a slowdown from the previous 16.4 percent hike and from the Moon Jae-in administration’s target timeline of raising the wage to 10,000 won per hour by 2020, the change added labor cost pressure upon small-sized businesses here.
The Federation of Korea Trade Unions on Monday issued a statement, censuring the lower-than-expected increasing pace. The federation had earlier suggested that the average wage hike rate for the next two years should stand at 15.3 percent.
Owner-operators and small-sized businesses, led by the Korea Federation of Micro Enterprise, gestured to boycott the new legal wage, citing excessive personnel costs, and demanded they be allowed a phased hike.
Political parties joined the fray, with the opposition parties slamming the government for “turning a blind eye to alarming economic signs.”
Amid the ensuing controversy, the president publicly commented on the minimum wage for the first time in the afternoon, largely centering his remarks on how he regretted that the speed of the wage hike could be disappointing.
“I respect the decision of the Minimum Wage Committee and understand that it was made in consideration of various factors and opinions,” said President Moon at a meeting with senior presidential aides at Cheong Wa Dae. He said he was apologizing to the people for failing to keep his election promise.
“The government will draw up follow-up measures to prevent small merchants and self-employed people from being impacted, not only through employment subsidies but also through commercial property lease protection, reasonable (credit) card fees and protecting franchises,” Moon said.
While the Blue House and key presidential aides, led by presidential chief of staff for policy Jang Ha-sung, continued to advocate Moon’s initiative, Minister Kim stepped up his objections, calling for a meeting with the central bank chief.
“I was the one to suggest the meeting (with Gov. Lee), hoping to exchange our views on the economy in general, including fiscal affairs,” Kim told reporters.
“It seems that our economy will keep up its potential growth trend but also face a number of downside risks during the rest of the year.”
The fiscal policymaker and monetary chief have met a number of occasions over the past year, but their latest encounter attracted attention as the BOK has recently displayed a more optimistic stance on Seoul’s economy.
“Macroeconomic indexes are in line with the potential growth trend and market prices are relatively stable,” said Lee before his meeting with the minister.
The monetary chief policymaker said that, despite volatility in some emerging economies, South Korea’s financial market has shown itself to be relatively stable, backed by its ample foreign currency reserves and strong fundamentals.
Lee nevertheless agreed that extra caution would be needed in the context of the brewing global trade conflict between Washington and Beijing, which may heavily affect Seoul’s key indices such as exports, investment and employment.
Meanwhile, speculations mounted that the Ministry of Strategy and Finance may also inch down its economic forecast for this year.
“Our economy is so far more or less in accordance with the macroeconomic growth trend, but we are keeping a close eye on possible downside risk factors,” Kim said, refraining from further details.
The ministry is set to confirm the economic policy direction for the second half of the year and announce the revised forecast figures by the end of this month, according to officials.
The BOK, upon freezing the nation’s policy rate at 1.5 percent for an eighth consecutive month last week, lowered its previous 3 percent forecast to 2.9 percent. The Korea Development Institute, a think tank affiliated with the Finance Ministry, earlier said that this year’s growth would stand at 2.8 percent.
By Bae Hyun-jung (firstname.lastname@example.org)