Wage gap expanding between conglomerates, SMEs

By Yoon Ja-young

The wage gap between conglomerates and small- and medium-enterprises (SME) has expanded to its widest, worsening economic polarization.

According to Statistics Korea, full-time employees at businesses that hire more than 300 workers earned on average 5 million won a month last year ― a 3.9 percent increase from the previous year.

Those working for firms hiring between five and 299, meanwhile, were paid 3.1 million won, up 3.4 percent from a year ago.

It means those working for SMEs are earning on average 62 percent of the salaries of those working for conglomerates. The rate is the lowest since 2008, when Statistics Korea started compiling the data. Before the Asian financial crisis, workers at SMEs were paid salaries on average 80 percent those of conglomerate workers.

Kim Kyung-ah, a researcher at the High-Potential Enterprises Research Institute, said the income gap starts from the performance gap of the businesses.

“While the mid-tier firms and SMEs are increasing their part in the total economy, the gap with conglomerates is widening in terms of profitability and productivity,” Kim said.

The ratio of operating profit to sales was 4.7 percent for conglomerates, while it fell to 3.2 percent for SMEs.

Another analysis of manufacturing firms showed that SME workers are paid 53 percent of the salary of conglomerate workers here, compared with 74 percent in Germany, 85 percent in the United Kingdom, 90 percent in France and 82 percent in Japan.

Kim said the conglomerates have higher profitability than the SMEs due to unfair trade. As conglomerates have monopolized economic power, they can determine prices for subcontractors. They often pressure subcontractors to cut prices, she said.

She also said conglomerates often engage in unfair internal trade, blocking mid-tier firms or SMEs from entering the market.

“The widening gap is hampering SMEs from securing competitive human resources, leading to the polarization of workers,” Kim said.

Experts have been highlighting dualism in the labor market, or the gap between conglomerate workers and SME workers, as well as the division between regular workers and non-regular workers, as the biggest hurdle for labor reform.