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[Editorial] Pain-sharing

Deputy PM requests large companies’ restraint on excessive wage hikes amid high inflation

Deputy Prime Minister and Finance Minister Choo Kyung-ho has requested large companies refrain from raising wages excessively.

Choo said in a breakfast meeting with leaders of the Korea Enterprises Federation on Tuesday that wages have recently increased sharply among large companies and some IT firms. He said that this trend shows signs of spreading to other industries and companies. He was concerned that an excessive wage rise among large companies may aggravate high inflation. He said he wants wages to rise to a suitable level in accordance with productivity increases.

As a rule, wages should be determined autonomously through negotiations between labor and management. Usually, there is no reason for the government to intervene. But considering the growing economic hardship due to high inflation, Choo’s request is reasonable. Consumer prices rose 5.4 percent last month from the same month the previous year and are expected to climb to 6 percent within a few months. Electricity and city gas charges will rise from this month.

Large companies are at the top of wage rankings. Their drastic wage hikes will not only further widen the gap between them and small and medium-sized companies but run the risk of fanning inflation. This will impose a burden on the national economy as a whole.

The Korean economy faces a difficult situation where interest rates are rising, the Korean currency is depreciating and prices are surging. All economic players -- the government, companies and households -- should join forces to get past this difficult period.

However, labor unions for some large companies are going in the opposite direction, demanding sharp pay raises.

The union of Hyundai Motor is reportedly demanding a monthly basic pay raise of 165,200 won ($127), which is more than double last year’s increase, and 30 percent of net profits in bonuses. Samsung Electronics agreed on a 9 percent wage hike through its internal labor council in April, but its four unions accused the management of leaving them out of negotiations. The unions, representing only 4 percent of employees, are demanding an annual pay increase of 10 million won for every employee and 25 percent of the operating profit in bonuses. The union of SK hynix is demanding a 12.8 percent increase in basic pay and 15 percent of operating profit in bonuses.

It is inevitable to some degree that wages will rise in line with inflation. But pay increases beyond productivity gains will cause serious side effects. Production costs will rise, pushing up product prices and increasing inflationary pressure.

Unlike large companies, many small and mid-sized companies have been hit by a double whammy: rising manufacturing costs and sluggish sales. They are faced with an existential threat, far from raising wages. According to the Ministry of Economy and Finance, wages of small and medium-sized companies were about half (50.6 percent) of those of large companies in the first quarter.

A fundamental solution to the current high inflation is pain-sharing for coexistence. Large companies need to lead by example.

The government must step up deregulation to activate business activities and strengthen the safety net for people who the economy leaves behind. It should implement programs to support small suppliers to large companies. They could mandate material price increases shouldered by suppliers in the prices of goods and services large companies receive from them. Large companies must not seek profit maximization at small suppliers’ expense.

Everybody endures hardship from high inflation -- workers of large companies, who are relatively well off, need to reduce the burden on those who are not. A cycle of wage and inflation escalation must be prevented.

By Korea Herald (