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Fix the minimum wage debacle

July 18,2018
President Moon Jae-in on Monday apologized for not being able to fulfill his campaign pledge of raising the hourly minimum wage to 10,000 won ($8.86) by 2020, saying the goal is unachievable. He said he supported the decision by the Minimum Wage Commission to increase the minimum wage by 10.9 percent from this year’s level for the guideline for next year. He added that the government will try to meet the goal as early as possible, if not by 2020.

His comment gave little relief to small merchants. The Federation of Micro Enterprises that represents small shop owners and the self-employed decided to tent out at Gwanghwamun Square to rally against another double-digit hike. The group vowed to boycott the state-set wage level, claiming the decision was made on an “uneven field” with the absence of representatives of employers. The Federation of SMEs also said it was angry and disappointed by the decision that defies data pointing to a negative impact from steep minimum wage increases.

The minimum wage hike is aimed at bolstering incomes and stimulating domestic demand and jobs. But the results have been the opposite.

The Minimum Wage Commission failed to abide by the legal procedures in setting next year’s rate. In the past, the commission used the median income to determine desired wage figures. But this time, it chose average income, even including the wages of high-earners. The average figure naturally ended up higher than the median.

Therefore, next year’s minimum wage should be re-examined. The decision-making procedure must be corrected to prevent such irregularities. The labor minister has the right to order a revision.

Moreover, the wage level should be differentiated in respect to the nature of each industry. The commission’s universal wage guideline does not consider productivity or the bottom line of the industry.

The organization of public representation also needs a fix. The commission currently is comprised of nine employers, nine employees, and another nine from the government at the recommendation of the labor minister and endorsement by the president.

Before determining hourly wages, the strengths and weaknesses must be studied. The United States and the UK, for instance, set a rate after simulation studies on the impact on the economy.

JoongAng Ilbo, July 17, Page 30