Moon's job policies

By Chang Se-moon

I really think President Moon Jae-in cares deeply about the Korean people and is trying to help them, especially those who are struggling to make ends meet. Unfortunately, the economy has its own mind. Economists have studied how the economy works for over 250 years, but still have not figured out how it works enough to make it behave the way we want it to.

In fact, the economy behaves so independently that sometimes our well-intentioned policies can have exactly the opposite effect.

Take as an example the proposed policy that will convert all irregular jobs to full-time regular ones. There is no doubt that all those who work irregularly deserve help and would be happy if they could work full time. As an economist, I can predict how the policy will impact the job market.

The real impact of the policy will be a reduction in the number of jobs available. Some who now work full-time will benefit. Many who either lose jobs or cannot find them because there are less jobs available, the policy will hurt them by forcing them to be totally unemployed. Here is why.

For large businesses that can afford the conversion, they will convert all irregular jobs to regular ones, but stop hiring until the new number of full-time employees reaches an optimal level. This may take several months or several years.

Medium or small businesses that are barely surviving now will totally eliminate irregular jobs or may have to close. Owners of these small businesses are desperate for an understanding about their daily efforts. President Moon may want to talk to them to really see how reality works.

A higher minimum wage is another example. When the minimum wage is raised too much and too fast, the impact on the job market will be the same as the proposed requirement of converting all irregular jobs to regular ones. Those who can hold onto their jobs at a higher minimum wage will benefit, while many more who either lose their jobs or cannot find jobs will suffer.

There is another issue not apparent to the casual eye. When wages go up, total labor costs to businesses are greater than the total amount of increased wages. This is because there are fringe benefits. Fringe benefits include health and life insurance premiums, vacations, overtime payments, support for training, retraining, educational expenses, periodic bonus payments (popular in Korea) and more. Total labor costs to employers are total compensation costs that include direct wages and fringe benefits.

There is no doubt that the minimum wage needs to increase over time, and assistance should be provided to involuntary irregular workers. However, there has to be moderation so that the policies do not lower their employment opportunities.

Both of these proposals are based, at least in part, on the wage-driven growth hypothesis, claiming that the economy will grow faster when wages are raised. When wages are raised by businesses, the hypothesis is likely valid. When wage increases are funded by taxes or government borrowing, the policy will benefit the economy only if it is temporary or undertaken during a recession. If the policy is undertaken over a long period of time, it is likely to generate more problems than answers.

What should the government do to increase employment opportunities? This is a tough question to answer. Let me list some ideas that have been tried for many years but need periodic re-enforcement.

The job policy of the government should focus not on forcing businesses to hire more, but to provide incentives for businesses to hire more people. These incentives may include a taxation policy of encouraging domestic investment; support policies for exporting companies; anti-corruption policies banning illegal transactions involving company funds that can adversely affect domestic investment; and recognition of businesses that employ creative ways to help their employees. These are policies that are aimed at improving the job market in a relatively short time frame.

To develop long-term strategies, it is important to recognize that we are in the early stages of the IT revolution. Word processors eliminated typist jobs, on-line classes are replacing classroom teachers, drones are replacing delivery persons, taxi drivers may be disappearing owing to self-driving cars, self-service kiosks are about to replace sales persons at retail stores as well as at fast food places, and more.

The 21st century IT revolution has been shifting, if not eliminating, numerous jobs before we even realize what has been happening. The need for retraining and life-learning has been suggested. Importantly, however, new opportunities present themselves to those who prepare for the changes.

The aging population, for instance, is creating many new job opportunities in elderly care, recreation, health-conscientious construction activities, magazines for the aging population, and many more. Also in Korea, there is the potentially huge challenge of accommodating cheap labor from North Korea.

These are issues relating to the long-term labor market that the committees President Moon appointed may want to explore.

Chang Se-moon is the director of the Gulf Coast Center for Impact Studies. Write to him at: changsemoon@yahoo.com.