World Economy

South Korea Gov’t Will Support Small Businesses

Major corporate lobbies have expressed concern that the wage increase could worsen business conditions and hamper job creation
President Moon Jae-in has promised to increase the minimum wage to 10,000 won per hour before his five-year term  ends in May 2022.
President Moon Jae-in has promised to increase the minimum wage to 10,000 won per hour before his five-year term  ends in May 2022.

The government in Seoul decided Sunday to inject some three trillion won ($2.6 billion) next year to relieve smaller businesses of financial burden from the effect of the increase in minimum wage.

A panel representing the government, labor and management agreed Saturday to raise the minimum hourly wage for 2018 to 7,530 won, up 16.4% from this year. It is the highest on-year increase after a 16.6% hike in 2000, Yonhap reported.

“The decision will be a huge momentum for an income-led growth, but it could put a heavy burden on small business owners,” Finance Minister Kim Dong-yeon said during a meeting with economy-related ministers.

After the meeting, the government announced a set of measures to support the small enterprises, such as providing cash and expanding benefits to make up their increased wage costs.

The government plans to subsidize a certain size of companies with cash equivalent of an excess of 7.4%, which is the five-year average increase rate in minimum wage. The government also said it will lower card fee rates for smaller businesses and expand such benefits to more businesses.

It will also lower the current 9% cap on increasing the deposit or rent for commercial properties. The period of tenants guaranteed a renewed contract under the same lease terms will be extended from the current five years to 10 years.

A task force will be formed to come up with detailed support plans to be reflected in next year’s budget proposal, it said.

 Businesses Express Concern

Earlier in the day, major corporate lobbies expressed concerns that the increase could worsen business conditions and hamper job creation. “It was a decision that ignored small and mid-sized businesses which are already suffering from harsh economic conditions,” an official at the Korea Employers Federation said.

“The minimum wage hike doesn’t really have a direct influence on big business groups, but such a rapid hike could be regarded a signal that the current administration is siding with the labor circle more than with the business community,” an official working at a local conglomerate said.

While the decision was largely seen as a victory for the labor circle, local union organizations also expressed disappointment, saying the amount still falls short of their demand.

The labor circle first proposed 10,000 won, or a 54.6% hike on-year, while the management representatives suggested 6,625 won, a 2.4% increase. Their final proposals were modified to 7,530 won and 7,300 won, respectively, following government representatives’ arbitration.

An official at the Korea Chamber of Commerce and Industry also said that while there is social consensus for the need to increase the minimum wage, if it hikes too much, the burden mainly falls on small business owners and could eventually lead to a reduction in new jobs.

 Moon’s Promise

President Moon Jae-in has promised to increase the minimum wage to 10,000 won per hour before his five-year term ends in May 2022.

Moon said he is to unveil a one hundred-point plan for the next five years, touting jobs, the fight against corruption and reform as his top policy priorities.

The complete policy agenda for the Moon administration, prepared by the president’s de facto transition team, was reported to the president last Thursday.

Among the raft of policy items is the creation of a new body to investigate corruption and influence-peddling of high-level officials and their families, such as prosecutors, judges, generals and lawmakers. The president and his relatives will also be put under its microscope.

“We plan to complete the legislation and establishment of the investigative body within this year,” a ruling camp official said.

According to the same official, the list includes many other election pledges of Moon and some new plans, bits and pieces of which are already known through the public discussion process.

Among them are a 5% youth employment quota for state-run corporations, up from the current 3%; a plan to establish regional social service corporations to hire 340,000 caregivers and social workers; the much-controversial plan to hike the minimum wage to 10,000 won ($8.82) per hour by 2020.

“Measures to make dismissals easier are also included,” the official said.



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