The South Korean government on Sunday decided to spend some 3 trillion won ($2.6 billion) to help smaller businesses offset an increase in labor costs, after a panel hiked next year’s minimum hourly wage by the biggest margin since 2000.

In a late-night decision on Saturday, the Minimum Wage Commission, representing labor, management and the general public, set the lower limit of wages at 7,530 won for 2018, up 16.4 percent from this year. It was the biggest gain since 2000, when the bar was moved up by 16.6 percent. This year’s minimum wage was 6,470 won per hour, up 7 percent from a year ago.

“The decision will benefit many workers, but it could also put a heavy burden on small business owners,” said Finance Minister Kim Dong-yeon during a meeting with economy-related ministers held on Sunday morning.
The hike is seen as the first big step toward realizing President Moon Jae-in’s vision of 10,000 won by 2020. 

The liberal Moon administration is pushing for “income-led growth,” stressing that an increase in household income will create a virtuous economic cycle of stronger domestic consumption, higher corporate profits and more jobs. 

To realize this, Moon has vowed efforts for a higher minimum wage and a reduction in average working hours. 

Employers, particularly small- and medium-sized business owners, have been calling for caution, fearing a sharp rise in labor costs could put them out of business. 

Saturday’s decision to increase the wage by 16.4 percent is projected to directly affect at least 4.63 million workers, or 23 percent of all workers, according to Statistics Korea. 

If a minimum-wage earner works eight hours a day, he or she will be able to receive 60,240 won a day and 1.57 million won a month under the new guideline in 2018. 

“The suggestions made by both sides (labor and management) reflected the government’s will to push for a minimum wage for 10,000 won (by 2020),” said Uh Soo-bong, professor at Korea University of Technology and Education, who chairs the commission. 

To devise detailed support plans for SMEs, the government will form a task force, the ministers decided in the meeting. 

Among the plans currently under consideration is subsidizing companies that meet certain criteria for the increase in labor costs exceeding 7.4 percent, which is the five-year average increase rate in minimum wage. 

The government will also consider a reduction in commission fees charged by credit card companies and a slashing in value added taxes – all for small businesses, Vice Finance Minister Ko Hyoung-kwon revealed. 

Earlier in the day, employers and major corporate lobbies voiced concerns over the drastic hike.

The Korea Employers Federation said the hike would take a toll on smaller businesses and deteriorate the business conditions for employers.

The Korea Federation of SMEs also claimed the small- and medium-sized enterprises will be crippled by the higher cost of labor.

By Kim Da-sol (ddd@heraldcorp.com)