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Focused on a pipe dream

Basic economic mechanisms do not work around artificial wage setting.
Feb 12,2018
Those making a living off of precarious and low-skill jobs are losing their incomes as they are laid off by employers who cannot afford the jump in the minimum wage. It is a textbook theory that jobs can be lost due to higher wages.

Proponents for the minimum wage policy argue that higher wages boost income without hurting jobs — given that the increase comes gradually. But their argument does not make sense. Basic economic mechanisms do not work around an artificial wage setting. They have based their argument on poor grounds. They will find fallacies in their methodology if they just take a second look at their study.

When the statutory wage floor goes up, people who are paid below that level will naturally lose their jobs. Those who maintain their jobs will get bigger paychecks. In short, increases in minimum wage will hurt the lowest paid and unsecured workers and only benefit those who already have financial security. In a society with such a rigid pay system like ours, the permanent workforce at large companies end up benefitting the most from a higher minimum wage.

This poses the biggest moral flaw in the minimum wage system. A fair society shares wealth with the poor by paying taxes. But it cannot be deemed fair if a system helps those who are better-off at the expense of the underprivileged. All problems spilling over from minimum wage increases have been forewarned. It is surprising to see such insensitivity toward the poor from the progressive government. Aides and ministers under the liberal president gave out pamphlets touting the merits of increasing the minimum wage to shop owners and workers instead of paying close attention to their concerns.

The government insists that a higher minimum wage would help clean out unsustainable and marginal businesses. It seems unaware of how callous that sounds to business owners.

A “marginal firm” is a business that could either enter an industry with a small rise in profitability or exit from a small decrease. The concept is highly theoretical and does not actually apply in the real business world. It does not just refer to a weak business, but also one that can turn around if market conditions improve.

All companies are weak and marginal in their early stages. Even a strong enterprise can become weak in an economic downturn. Marginal companies should not be the government’s restructuring targets. The government should first try its best to make economic and business conditions better to strengthen these companies and help them make profit. It must aid and groom weak companies to become stronger, not weed them out.

The government appears to be mistaking “marginal companies” with “troubled companies.” Troubled companies in Korea refer to those sustaining their name through political connections instead of business and wasting social value and resources. Owners who run small businesses and shops with a few employees cannot be deemed the same.

Moreover, cornered workplaces have become marginal not just because of their poor business conditions, but also from a sudden spike in their wage cost. The rationale of kicking them out to “change our economic fundamentals” is not only wrong but unethical.

Even presuming that the economy would be better off without shuttering businesses and that higher minimum wage helps change our economic fundamentals, should the credit go to the government for pushing up wages? Can it really congratulate itself for coddling the union, bailing out troubled shipyards for fear of losing votes, and victimizing small merchants?

The policy of raising the minimum wage aims to help the low-income community. It was not only poorly designed, but it also does not meet Korean business standards. There are many alternatives to guaranteed minimum wages to help the lower class, such as negative income tax, without hurting business owners and their hiring prospects.

But why the government does not look to other and better options is beyond our comprehension. It can only be accused of obsessing over a presidential campaign promise. The government may not want to lose favor with unions by breaking a promise to them. But its pursuit will not only hurt poor and insecure workers, but also the governing power.

JoongAng Ilbo, Feb. 10, Page 27

*The author is a novelist.

Bok Geo-il