Will Higher Minimum Wage Fulfill President’s Promise?

SEOUL, Jan. 16 (Korea Bizwire) — “When the new minimum wage takes root, the economy will rebound and job growth will materialize.”

In his back-and-forth with journalists at the Blue House on January 10, Moon stood firm in his conviction that his administration’s audacious minimum wage boost — dragging up wages from 6,470 won to 7,530 won to start 2018 — would serve as the tide that lifts the fortunes of both the workforce and companies. 

After delivering his New Year’s address to the 250 or so press members in attendance, the president allowed that the 16.4 percent higher minimum wage may lead to “somewhat disconcerting issues or concerns this month”. He added that the policy change may result in “those in the vulnerable economic classes such as security guards and public janitorial staff of apartment complexes seeing their livelihoods threatened”.

As Moon alluded to in his remarks, security and janitorial staff at residential complexes across the country are feeling firsthand the adverse effects of the improved pay scale.

One 71-year old security guard employed at an apartment complex in Seoul told Yonhap News on January 14, “Even though salary per hour has increased, total working hours have been reduced, so total take home pay has not changed in any way.”

This individual can consider himself one of the lucky ones, as others less fortunate have found themselves out of a job, pushed out by employers who find the increased overhead a burden too much to bear. 

In the southeastern city of Ulsan, 260 to 270 security and janitorial workers 70-years old and above working for public residential complexes are believed to have been fired due to the higher salary floor.

Those in the same age range and who are still clinging to their jobs are reportedly working in temporary positions, with younger, more able-bodied individuals lined up to replace them.

 When asked about the fired security guards, the management office replied, “The residents can’t make as much as the security guards do, so why would [the complex] continue to employ individuals who are not physically healthy.” 

Each Ulsan security guard in question earned an average 1.9 million won per month last year. Under the same working circumstances, guards would see the new minimum wage boost their earnings by 200,000 to 300,000 won per month.

However, the existence of stories of guards and janitors seeing their hours slashed indicate that at least some are not receiving the full benefits that Moon’s minimum wage victory should provide. 

While these individuals are left feeling disgruntled over their unfair treatment, business owners are feeling the same as they are forced to navigate a financially crippling path forward this year.

Small business owners employing anywhere from 5 to 49 employees may be the hardest hit. According to a 2015 Statistics Korea report, these individuals employ 7.88 million, or 37.8 percent of the entire workforce, a larger proportion than the mid-to-large companies — businesses that employ 50 or more employees.

As the nation’s leading employers, small businesses are clearly vital to a healthy job market, yet an analysis on the impact the minimum wage hike will have on these economic actors revealed plenty to be worried about.

Business paper Chosun Biz found that operating profits were expected to shrink by 35 to 42 percent for small businesses, with losses numbering in the tens to hundreds of millions of won depending on how many employees the company had.

Chosun Biz interviewed a member of the Korea Federation of SMEs regarding its findings and was told that businesses facing operating losses of 30 to 50 percent would have no choice but to pursue cost-saving policies. 

One small business owner told Chosun Biz, “This year salaries per month are set to jump by 10 million won. To survive, we will have to generate 120 million won in extra profit that is realistically impossible.” The owner went on to say that the 25-employee company is considering automation as a means of cutting down costs.

Meanwhile, a Gallup Korea survey carried out from January 9 through 11 found that 50 percent of the general public (1,006 adult participants nationwide) considered the new minimum wage to be “reasonable”.

Among the respondents, 27 percent thought the minimum wage was too high, while 17 percent thought it was too low. 

In response to the question “What impact will the minimum wage hike have on our economy?”, 39 percent said the impact will be negative, and 38 percent answered that the impact would be positive.

Gallup Korea in a statement explained that “positive” responses had declined by seven percentage points since six months ago, while “negative” responses had grown by 11 percentage points in the same period, a reflection of the difficulties brought about in the early stages of the new minimum wage reality. 

According to the president, the turmoil in these early stages will eventually settle down and be resolved. The government raised the examples of 2000 and 2007, when the minimum wage was raised 16.6 percent and 12.3 percent respectively, as successful cases that nevertheless required months for society to adapt to a new economic environment.

With Moon aiming to raise the minimum wage to 10,000 won by 2020, which would require yearly raises of 16 to 17 percent, it appears that what workers and employers have gone through in the first two weeks of the year will become a recurring theme. Helping the most vulnerable, like the elderly security guards and small business owners, bear the change without breaking will be one of the tougher tasks for the Blue House this decade.

 

Lina Jang (linajang@koreabizwire.com)