The Minimum Wage Commission decided to increase the rate of the minimum wage in 2020 by 2.9 percent. It was the first time that the rate of increase has fallen to a single digit since the inauguration of President Moon Jae-in, and the rate is the lowest level since 2010 (2.8 percent). President Moon pledged to raise the minimum wage to 10,000 won by 2020 as an economic policy, but it has not been implemented. It is also seen to be difficult to carry out the policy by 2022, the final year of his presidential term.
The president said that the minimum wage 10,000 won is not merely an hourly wage, but a symbol of the right to live like a human being, and he expressed his expectation of economic growth through it. However, the present economic situation is different from president’s anticipation. The rapid increase of the wage floor decreased the number of jobs and earnings of lowincome groups rather than being a driving force of economic growth. According to a family budget survey done in the second quarter of 2018, although the top 20 percent income increased 10.3 percent, the lowest 20 percent income decreased 7.6 percent compared to the previous year. Furthermore, according to an employment indicator in the Joint Conference on Economics, 27 percent of the jobs was lost in 2018 as a result of the sharp rise in the wage floor.
Domestic companies are burdened with labor costs as the minimum wage rises, so they reduce hiring in the internal market, increase the number of overseas hire, and shift facilities. Self-employed people also feel pressure from costly personnel expenses, and do not prefer employing part-timers over five hours.
The president wanted to encourage the circulation of idle money from the wealthy through the increase of the wage floor, but in reality, the money is provided not from high earners but from the self-employed. Therefore, as the burden of the self-employment increases, the life of the middle and lower classes does not improve though their income increases, and the economy cannot grow.
The aim and intentions of raising the minimum wage are not wrong, but it is necessary to improve it. The president implemented the policy for income-led growth.1) However, this policy is not a goal itself but a means to generate economic development and it requires complementary policies. In order to increase actual labor income, the government should create jobs, including public sector positions, through employment policy and shifting the target of government support from enterprises to workers. In addition, since the wage increase has not resulted in growth, it is necessary to make a policy to improve stagnant productivity, knowing that increased wages do not necessarily make benefits but that productivity does make profits.
1) A theory that increasing household wages and income will increase consumption and economic growth. It is based on the wage-led growth theory of post-Keynesian economists.
Park Eun-chong, Editor email@example.com
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