By Yoon Ja-young
Small companies forced to slash workers against wage hike next year
Businesses are showing signs of slashing jobs before the minimum wage hike next year as they struggle to afford the steep pay rise.
The minimum wage will increase 16.4 percent to 7,530 won ($6.97) an hour from January, following President Moon Jae-in's pledge that it should reach 10,000 won by 2020. It is expected to benefit 23.6 percent of workers, according to the Presidential Minimum Wage Committee, mostly those in services, agriculture and fisheries, as well as at small businesses. But there is rising concern over side effects.
According to Statistics Korea, the number of workers at restaurants and lodging businesses has been decreasing since June when the minimum wage hike for 2018 was approved. Job numbers at business facility management and services also started falling from October. Low-paying jobs, such as janitors and waitresses, started to decline first.
Small businesses plan to make workers redundant because they cannot afford higher wage costs. According to the Center for Large and Small Business Cooperation at the Federation of Korea Industries (FKI), which surveyed 1,000 small and medium enterprises (SMEs), 43.3 percent expected their operating conditions to worsen next year. Among them, 37.2 percent cited rising wages following the minimum wage hike and difficulties in attracting skilled workers as the biggest threats.
They are likely to cut jobs to cope. According to a 2018 economic outlook survey of CEOs by the Korea Employers' Federation, 37.7 percent of respondents said they will reduce job numbers due to the minimum wage hike. Small companies are more likely to slash jobs, with the ratio rising to 42.7 percent among firms employing fewer than 300 workers.
There will also be more capital investment in automation, 24.6 percent said, while 22 percent said they will raise product prices. Some were considering moving their factories overseas, with 5.7 percent saying so.
The minimum wage rise is part of the Moon administration's income-led growth strategy, which has been causing controversy among economists. While those who support it expect higher income to lead to more consumption and economic growth, others say side effects will eat into benefits.
"Those who are concerned say that the decrease in investment and employment may outweigh expansion of consumption following increasing income," said Chung Min, a researcher at the Hyundai Research Institute.
He said there may also be wage-push inflation next year. "There is a possibility of the businesses raising the prices of goods and services to offset increasing labor costs, which may lead to inflation," he said.
Analysts said that a tighter job market will negatively affect the economic growth next year. They expressed concerns that a higher jobless rate, growing household debt and higher interest rates would combine to keep the government from achieving its growth target of over 3 percent in 2018 - especially if semiconductors and other key exports items would lose their momentum.
Against this backdrop, small companies want more government support. In the FKI survey, 20.4 percent of them said the government should offer help, such as nurturing skilled workers and subsidizing labor costs.
The government plans to provide up to a 130,000 won per worker from its job stabilization fund for small businesses employing fewer than 30 workers, but SMEs say that the wage rise damage is still huge.
SMEs are expected to face a 15.2 trillion won increase in labor costs following the hike. If the wage rises to 10,000 won in 2020, the additional labor cost will snowball to 81.5 trillion won, according to the SMEs.
Chung said there should be mid-to-long term measures to enhance growth, such as raising labor productivity, as well as inflation stabilization measures, taking into account the side effects of the income-led growth strategy.
Small companies forced to slash workers against wage hike next year
Businesses are showing signs of slashing jobs before the minimum wage hike next year as they struggle to afford the steep pay rise.
The minimum wage will increase 16.4 percent to 7,530 won ($6.97) an hour from January, following President Moon Jae-in's pledge that it should reach 10,000 won by 2020. It is expected to benefit 23.6 percent of workers, according to the Presidential Minimum Wage Committee, mostly those in services, agriculture and fisheries, as well as at small businesses. But there is rising concern over side effects.
According to Statistics Korea, the number of workers at restaurants and lodging businesses has been decreasing since June when the minimum wage hike for 2018 was approved. Job numbers at business facility management and services also started falling from October. Low-paying jobs, such as janitors and waitresses, started to decline first.
Small businesses plan to make workers redundant because they cannot afford higher wage costs. According to the Center for Large and Small Business Cooperation at the Federation of Korea Industries (FKI), which surveyed 1,000 small and medium enterprises (SMEs), 43.3 percent expected their operating conditions to worsen next year. Among them, 37.2 percent cited rising wages following the minimum wage hike and difficulties in attracting skilled workers as the biggest threats.
They are likely to cut jobs to cope. According to a 2018 economic outlook survey of CEOs by the Korea Employers' Federation, 37.7 percent of respondents said they will reduce job numbers due to the minimum wage hike. Small companies are more likely to slash jobs, with the ratio rising to 42.7 percent among firms employing fewer than 300 workers.
There will also be more capital investment in automation, 24.6 percent said, while 22 percent said they will raise product prices. Some were considering moving their factories overseas, with 5.7 percent saying so.
The minimum wage rise is part of the Moon administration's income-led growth strategy, which has been causing controversy among economists. While those who support it expect higher income to lead to more consumption and economic growth, others say side effects will eat into benefits.
"Those who are concerned say that the decrease in investment and employment may outweigh expansion of consumption following increasing income," said Chung Min, a researcher at the Hyundai Research Institute.
He said there may also be wage-push inflation next year. "There is a possibility of the businesses raising the prices of goods and services to offset increasing labor costs, which may lead to inflation," he said.
Analysts said that a tighter job market will negatively affect the economic growth next year. They expressed concerns that a higher jobless rate, growing household debt and higher interest rates would combine to keep the government from achieving its growth target of over 3 percent in 2018 - especially if semiconductors and other key exports items would lose their momentum.
Against this backdrop, small companies want more government support. In the FKI survey, 20.4 percent of them said the government should offer help, such as nurturing skilled workers and subsidizing labor costs.
The government plans to provide up to a 130,000 won per worker from its job stabilization fund for small businesses employing fewer than 30 workers, but SMEs say that the wage rise damage is still huge.
SMEs are expected to face a 15.2 trillion won increase in labor costs following the hike. If the wage rises to 10,000 won in 2020, the additional labor cost will snowball to 81.5 trillion won, according to the SMEs.
Chung said there should be mid-to-long term measures to enhance growth, such as raising labor productivity, as well as inflation stabilization measures, taking into account the side effects of the income-led growth strategy.
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