South Korea yesterday decided to raise the minimum wage by 10.9 percent to 8,350 won (US$7.40) an hour next year, but a small-business group said that it would refuse to implement the reform, as its members were already grappling with a slowing economy.
Labor-friendly South Korean President Moon Jae-in has pledged to raise the minimum wage by 55 percent to 10,000 won per hour by 2020 as part of efforts to boost consumption and growth.
After a 19-hour-long meeting ending yesterday morning, the South Korean Minimum Wage Commission agreed on the wage increase, which was smaller than this year’s 16.4 percent rise, amid worries about weak job growth.
South Korea added a monthly average of 142,000 jobs between January and last month, the slowest growth seen since the 2008-2009 global financial crisis, Statistics Korea said.
A lobby group representing small-business owners called the wage increase a “unilateral decision” and said that it would impose a “moratorium” on its implementation.
“We can’t accept the decision by the Minimum Wage Commission,” the Korea Federation of Micro Enterprise said in a statement.
“Small-business owners are at crossroads where they cannot help but choose either business shutdowns or staff cuts,” the association said, adding that they were facing a “miserable reality.”
It said that its members would discuss the possibility of more action.
“We may not be able to satisfy both companies and workers, but after a heated debate, we proposed levels that can contribute to improving the income of low-wage workers and alleviate an income cap, without hampering the economy and employment,” commission Chairman Ryu Jang-soo said in a statement.
He also said that the commission would submit to government proposals to support small merchants facing difficulties.
Raising the minimum wage “could also slow employment growth and weaken [South] Korea’s competitiveness if not accompanied by productivity gain,” the Organisation for Economic Co-operation and Development said in a report in May.
Meanwhile, as a trade war develops between the US and China, some fund managers have begun unloading shares not only in China, but also in one of its major suppliers: South Korea.
“We have reduced our holdings in South Korea and China because of our concerns,” said Walter Price, a San Francisco-based senior portfolio manager at Allianz Global Investors, which oversees US$600 billion globally.
While Asia’s largest economy will be “most hurt” by the conflict, “if China slows down a lot, South Korea will be hurt as well,” Price said.
South Korea, which sends nearly a quarter of its total exports to China, would see its GDP fall 0.9 percent if its biggest trading partner cut imports by 10 percent due to the conflict, a report by Bloomberg Intelligence chief Asia economist Tom Orlik said.
South Korea’s chemicals and steelmakers will be among sectors hit by the conflict, said Erik Zipf, who runs a US$500 million emerging market fund at DuPont Capital Management
In addition to the US-China clash, market sentiment has been hurt by the South Korean government’s moves toward “anti-business initiatives,” including a minimum wage increase and higher capital gains taxes, Zipf said.
Additional reporting by Bloomberg
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