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Fix this disastrous hike

July 24,2018
The contentious debate over minimum wage hikes continues. The Korea Employers Federation (KEF) formally asked the government to revisit its decision to increase the minimum wage by 10.9 percent over this year’s level. Small merchants, including convenience store owners, vowed to boycott next year’s minimum wage increase and threatened collective action, including a shutdown of stores. They oppose the decision to bump up the hourly wage to 8,350 won ($7.38) next year because the increase — on the back of a 16.4-percent hike this year — will worsen the burden of labor costs on small businesses.

They are not exaggerating. The KEF complained to the Ministry of Employment and Labor that four out of 10 small and mid-size businesses do not earn enough to pay the interest on their loans. A small merchant earns about 63.5 percent of the average monthly pay of salaried workers. They simply can’t pay the wages, the KEF argued. But minimum-wage workers usually work for these small employers. A 29-percent hike in their pay in just two years is cruel for employers. After next year’s hike, the share of workers paid the minimum wage could make up a quarter of Korea’s working population, higher than the 10.6 percent in France, 11.8 percent in Japan, and 2.7 percent in the United States.

The hike in minimum wage has not generated more jobs. The government argued that higher wages would bolster working-class incomes and consumption to revitalize the economy. But the average for new hires is around 100,000 a month for the first six months of the year, half of the government’s original target of 320,000. The spike in labor costs has also dampened hiring. A higher minimum wage without increasing numbers of jobs will only aggravate inequality between the employed and unemployed.

The government is attempting to dump the onus on the market and dig into its tax revenue to cover up its policy failure. It is trying to make credit card issuers lower their service charges for merchants. It plans to launch a state-administered mobile pay system with 40 trillion won a year to help bring down service charge costs.

Good intentions do not always generate the desired effect. The minimum wage must be adjusted to match reality. Forcing cuts to credit card service fees instead of fixing the fundamental problems that surround the steep hike in wages is simply a makeshift action that cannot work. The government must look straight at the problems and come up with feasible solutions.

JoongAng Ilbo, July 23, Page 30