By Kim Bo-eun
Small- and medium-sized enterprises (SMEs) will likely spend an additional 1.1 trillion won on labor costs for foreign workers due to last week’s minimum wage hike.
A panel of labor, management and government representatives on Saturday settled next year’s minimum wage at 7,530 won ($6.7), a 16.4 percent jump from 6,470 won this year.
Including wage hikes for foreign workers, SMEs’ labor costs are expected to grow to over 16 trillion won in 2018 from the initially expected 15.2 trillion won, according to the Korea Federation of SMEs.
The organization estimated that labor costs for foreign workers at SMEs in the manufacturing sector will increase from 7.72 trillion won this year to 8.8 trillion won next year.
The group made the calculations based on the assumption that foreign employees work an average of 209 hours a month, as allowed by law. The hike in the minimum wage will raise monthly labor costs for each foreign worker by 332,891 won, including raises in basic pay, overtime allowances and paid benefits.
The organization multiplied the figure by 269,000 foreign workers on E-9 visas as of May, and by 12 months to reach the 1.07 trillion won increase in labor costs.
When the Korea Federation of SMEs unveiled its first estimate, it was based on data about the nation’s economically active population from Statistics Korea, which did not accurately reflect circumstances of foreign workers.
Due to the minimum wage hike, the greatest in 17 years, SMEs and mom-and-pop stores face a jump in labor costs, raising concerns of falling employment.
To address the issue, the government has pledged to subsidize 3 trillion won in labor costs.
“Although the government has yet to announce details of the provision, we believe its estimate of labor costs is lower than actual figures,” a Korea Federation of SMEs official said.
“Its labor costs are based on basic pay, excluding additional allowances and benefits, like insurance. We are wondering whether the government’s plan is sustainable,” she said.
The unprecedented hike followed President Moon Jae-in’s pledge to raise the minimum wage to 10,000 won by 2020, as a means to alleviate the income gap and boost the economy.