How to define regular wages has emerged as a hot potato of the Korean economy in the wake of President Park Geun-hye’s promise to address the issue during a meeting with American business leaders in Washington last week. At the time, she said the Korean government will look for a reasonable solution, replying to a question by GM Chairman Daniel Akerson whose automobile operation in Korea is now in litigation over the issue.
While it’s questionable whether Park has to reveal her position on the sensitive issue while more than 100 relevant lawsuits are now in progress in Korea, it is an issue that must be tackled as soon as possible, given its immeasurable impact on corporate competitiveness and jobs.
Regular wages include basic salary plus position and other allowances paid on a regular basis. They are used as a yardstick to calculate overtime, nighttime and holiday pay, and affect severance payments. Bonuses are not included in regular wages under the guideline of the Ministry of Employment and Labor. But the Supreme Court ruled in a lawsuit filed by the labor union of a bus company in Daegu in March last year that bonuses paid regularly ― quarterly in this case ― must be counted as part of regular salary.
Since then, labor unions have been lodging a string of lawsuits against companies, demanding the government revise the labor law to include bonuses in regular wages. The matter appears simple because it’s okay if the government and the National Assembly comply with the Supreme Court ruling and stipulate it. But this will be a glaring nightmare for businesses that are already struggling with the global economic gloom.
If bonuses are included in regular salaries, various allowances offered to employees will rise by nearly 50 percent, which will deal a fatal blow to Korea’s flagship industries such as automobile and shipbuilding. According to the Korea Employers Federation, companies in Korea would have to shoulder an additional burden of about 38 trillion won, which could result in nearly 400,000 jobs being swept away because they may have to trim the payroll.
Realistically, a sharp rise in labor costs without improvements in labor productivity would drive more companies, especially marginalized small- and medium-sized enterprises, to the brink of collapse and speed up the relocation of Korean firms abroad.
True, corporate management deserves criticism for having distorted the wage structure to mitigate their severance pay burden ― in some companies, basic salaries fall 40 percent short of an employee’s total wages.
The labor ministry said Friday that a tripartite commission of labor, management and government would begin discussing the issue next month. We welcome the move and expect the panel to negotiate a fair settlement by the end of this year as the ministry promised. It would be mutually destructive if labor sticks to the dominant position it held after the Supreme Court ruling.