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Minimum wage divides Moon’s top economists

Finance minister and policy head lock horns over impact on hiring
May 19,2018
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Two of the Moon Jae-in administration’s top economic officials are at odds over the minimum wage increase’s impact on hiring, raising concerns among experts about the government’s future policy direction.

“I think the minimum wage increase must have had an impact on hiring and salary,” said Kim Dong-yeon, the country’s minister of strategy and finance, in a committee meeting at the National Assembly on Wednesday. This was an about-face from his stance a month ago, when he said it was difficult to attribute stagnant new hiring to the minimum wage hike.

“[The past few months] has not been enough time for research institutes to find any meaningful evidence on the impact of the minimum wage increase, but based on my experience and intuition, [I think] it has had an impact,” Kim said.

Kim earlier argued that it was the ongoing restructuring of Korea’s automotive and shipbuilding sectors that slowed down employment growth.

Kim’s remark on Wednesday came after a report released on the same day that showed a decrease in the number of new jobs created.

According to data from Statistics Korea, the number of people who got new jobs in the wholesale, retail, accommodations and food category of the service sector, which is highly sensitive to changes in the minimum wage, fell by 88,000 compared to a year before, which is a drop of about 1.5 percent. New hires in the category have been on the decline since December last year, a month before the minimum wage increase went into effect. Total number of jobs lost in the category since then is about 447,000.

“Kim is an applied economics expert and is well aware of the relations between the rise in minimum wage and the fall in employment, which is why he finally acknowledged its impact,” said Pyo Hak-gil, an economics professor at Seoul National University.

But the Blue House’s top economic official doesn’t agree with the finance minister.

“There was no fall in employment due to the minimum wage increase,” said economist Jang Ha-sung, President Moon’s chief of staff for policy, in a high-level meeting in Seoul on Tuesday. “There has been some controversy about the fall in employment, but based on the analysis by several research institutes using the statistics from March, there was no notable fall in hiring, excluding some food and beverage businesses.”

Jang added that policy support for companies that could suffer from the new minimum wage was received well, and requests for government funding far exceeded initial projections.

The differences in opinion between Kim and Jang, the country’s top two economic policymakers, have market watchers worried about the government’s future economic policy direction.

“The perspectives and diagnosis of current economic conditions diverge within the government, which raises questions about its ability to come up with proper solutions,” said Yun Chang-hyun, a professor of economics at the University of Seoul.

“The unemployment issue is not entirely the fault of the current administration, but it is true that some of its policies intended to expand jobs had the opposite effect,” said Nam Sung-il, professor of economics at Sogang University. “The government has to approach this issue with a more forward-looking perspective.”


BY PARK JIN-SEOK, HA NAM-HYUN [choi.hyungjo@joongang.co.kr]