South Korea has approved raising its minimum wage by 5 percent next year after government-appointed officials were left to make a decision closely watched by company executives, labor leaders and also policymakers concerned about the possible emergence of a wage-price spiral.
The move came yesterday after a vote in which all nine business representatives abstained, a labor ministry statement said, adding that four negotiators from a labor union also skipped the vote.
Nine members appointed by the government before South Korean President Yoon Suk-yeol took office voted in favor of their proposal to raise the pay level to 9,620 won (US$7.41) per hour, joined by some representatives from a labor union, the ministry said.
Photo: EPA-EFE
The minimum wage carries implications across many sectors of the economy that rely heavily on labor. After a 10.9 percent rise in 2019, Korea has kept increases below double digits amid worries that larger gains could put pressure on small businesses already buffeted by the COVID-19 pandemic.
With inflation running higher than forecast for this year, South Korean Minsiter of Finance Choo Kyung-ho has asked businesses to refrain from raising pay too competitively.
The Bank of Korea is also worried that a fast rise in wages could lead to stubbornly high inflation becoming entrenched as prices and pay form a feedback loop.
“The wage increase will keep fueling cost-push inflation at a time when large companies have already been raising salaries fast,” Kookmin University economics professor Ryoo Jae-woo said, adding that hiring could slow as wage pressures on employers increase.
Given that the government representatives were appointed before Yoon was sworn in this year, it is too early to gauge how he might deal with labor and business disputes through the outcome of the latest negotiations, he said.
Business representatives sought a 1.86 percent increase, while the labor side demanded a 10.1 percent raise in their final offers in talks that began in April. With no compromise reached, the two sides asked government mediators to step in, the ministry said.
The final proposal came by adding this year’s 2.7 percent economic growth forecast and 4.5 percent inflation projection, then subtracting an expected 2.2 percent increase in employment, the ministry said.
Economists are not in agreement on whether higher minimum wages would lead to job losses. A local business group citing an economist said earlier this week that the nation could lose hundreds of thousands of jobs if labor unions were granted the wage hike they originally sought.
Labor and civic groups dispute the claim that the rise in the minimum wage would lead to significant job cuts, contending that a higher minimum wage narrows wealth inequalities and facilitates a smoother functioning of the economy.
It is not unusual for negotiators to walk out during the final phase of negotiations when their demands are not met.
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