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Government to subsidize wages

Small firms will get money to help cover higher minimum pay
Nov 10,2017
In hopes of easing the financial burden of a higher minimum wage at small businesses, the government announced a plan on Thursday to provide up to 130,000 won ($116) per worker to small businesses that employ less than 30 people.

The measure, announced by Finance Minister Kim Dong-yeon during a press conference at the Export-Import Bank of Korea’s headquarters, will take effect next year, when the minimum wage goes up by 16 percent to 7,530 won an hour. The increase is the largest since 2001 and more than twice the average growth in minimum wage over the past five years.

Under the plan, the government will allocate 2.97 trillion won to help small businesses pay their workers. Only companies with less than 30 employees that are subscribed to the government’s employment insurance program and make less than 500 million won a year in taxable income will be eligible for the subsidy.

The government views companies that make more than that as capable of paying their workers the minimum wage on their own.

The government will also provide subsidies to residential buildings that hire security guards and custodians because they are more vulnerable to dismissal, the minister said.

Each company will receive a monthly subsidy of up to 130,000 won for each employee that makes up to 1.9 million won a month. The government expects 3 million people will benefit from the subsidies.

Additionally, the government is expanding the pool of small businesses eligible for subsidies to cover employee benefits like health insurance, workers’ compensation and pensions.

Currently, the government covers up to 60 percent of benefits at small businesses with less than 10 employees. The subsidy is offered to workers that make less than 1.4 million won a month. Under the new plan, the government will raise the ceiling to 1.9 million won and cover between 80 and 90 percent of benefits.

The measures are in line with President Moon Jae-in’s signature policy of “income-led growth,” with the hope that increased wages will spur consumption and drive the economy.

But his push to raise the country’s minimum wage has drawn backlash from owners of small businesses, who say they can’t afford to pay their workers more.

The finance minister said the subsidies will only be temporary and confined to 2018 to ease the burden of a higher minimum wage.

“During the first half of next year, we will seek ways to put our subsidy program on a soft landing by reviewing the subsidy allocation process and finding ways to improve the program,” Kim said.

The question remains, though, whether the government will be able to keep its promise of limiting the program to 2018 because it expects to continue raising the minimum wage in coming years.

President Moon has promised to bring the minimum wage to 10,000 won an hour by 2020, citing the country’s growing income disparity. Since 2003, the top 20 percent of earners have seen a 70 percent increase in their wages, but the bottom 20 percent have only seen a 56 percent rise, the government said.

The largest opposition party in the legislature, the Liberty Korea Party, has criticized Moon’s income-led growth policy as a classic example of a “populist agenda” borrowed from Greece and South America, and argues these countries have been struggling as a result of similar policies.


BY KANG JIN-KYU [kang.jinkyu@joongang.co.kr]