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[Editorial] Income-driven growth

More selective approach to wage hike needed

March 12, 2015 - 19:30 By Korea Herald
Opposition leader Rep. Moon Jae-in seemed to go too far when he proposed this week that the government and main political parties deliberate on a minimum wage hike to help boost the economy.

The chairman of the New Politics Alliance for Democracy said during a meeting hosted by a party think tank that officials from rival parties and the government should get together to discuss how fast the minimum wage should be raised.

As the ruling Saenuri Party pointed out in its response to Moon’s proposal, the Minimum Wage Council composed of representatives from labor, management and the government is responsible for setting the increase. Politicians may offer their opinions but should refrain from circumventing the council to work out a specific guideline.

Despite their different tones on the framework of discussion, the two main parties are in agreement on the need to raise the minimum wage, which is 5,580 won ($4.93) an hour this year, a 7.1 percent rise from 2014.

In addition, they raise the same opinions in calling for an increase in overall wages as part of efforts toward income-driven growth.

Finance Minister Choi Kyung-hwan, who concurrently serves as deputy prime minister for economic affairs, also advocated this approach early this month by saying it might be hard for domestic demand to rebound without an “appropriate level of wage increases.” Admittedly, increasing domestic consumption is needed to boost the economic recovery and prevent the economy from falling into a deflationary spiral.

It is understandable that business groups are responding negatively to calls for wage hikes. Extended retirement ages and the wider scope of ordinary wages is putting a heavier burden on companies, many of which are struggling with the prolonged economic downturn.

Just a day after the top economic policymaker stressed the need to increase payments for workers, the Korea Employers Federation advised its members to keep their wage increases below 1.6 percent this year ― virtually frozen, considering last year’s inflation rate of 1.3 percent.

But it may be hard to deny the need for more substantial wage increases, given the country’s real-terms income rose 1.3 percent from 2009-2014, while its economy grew 3.3 percent over the same period.

In order to reduce friction with employers, a more flexible and selective approach needs to be taken. Raising the minimum wage at a rapid pace should be avoided, considering its impact on small companies, especially those hiring migrant workers. It is necessary to focus on increasing wages for low-paid irregular and temporary employees, which would better serve to facilitate income-driven growth.