South Korea's labour reforms having a negative impact

File photo showing a cleaner mopping the floor at the Lotte World Mall in Seoul.
File photo showing a cleaner mopping the floor at the Lotte World Mall in Seoul. PHOTO: REUTERS

Higher minimum wage, shorter work week lead to low-wage workers earning even less

SEOUL • President Moon Jae-in wants South Koreans to work less and earn more - and to achieve that his government has hiked the minimum wage and slashed the maximum length of the working week.

But Madam Heo Jeong, who serves barley tea samples at a Lotte Mart store in Seoul, said she lost a third of her income as a result. Madam Heo's store shortened its opening times and cut staff hours.

The 48-year-old now makes 1.2 million won (S$1,450) a month working 32 hours instead of 40, a third less than before because she is not getting much night work at premium rates or as many chances to earn bonuses.

She is not alone. Many businesses are closing early rather than hiring additional staff after the legal cap on working hours was cut to 52 per week from 68, effective July 1.

It is one of a number of signs that Mr Moon's reforms are starting to backfire and his pledge to be the "Jobs President" who tackles inequality head on may be at risk, economists warn.

Another problem is that a January hike in the minimum hourly wage - the biggest in 17 years at a whopping 16 per cent - may have had the opposite effect on incomes for the lower paid, and also become a deterrent to investment and recruitment.

Household income for the lowest 20 per cent fell 8 per cent in the first quarter from a year earlier, marking the sharpest fall since 2003 when Statistics Korea began compiling data, and almost a quarter of those aged 15-29 remain unemployed.

DOUBLE BOOSTER

Steep increases in the minimum wage aim to ensure a dignified life for low-income workers, while raising household income to boost domestic demand, which in turn will lead to job creation.

SOUTH KOREAN PRESIDENT MOON JAE-IN

Last Saturday, the government-mandated Minimum Wage Commission heightened concerns over the issue by announcing that next year the minimum wage will increase another 10.9 per cent to 8,350 won an hour. That prompted a small business group, the Korea Federation of Micro Enterprise, to threaten to refuse to implement the reform.

"Small-business owners are at a crossroads where they cannot help but choose either business shutdowns or staff cuts," it said.

Certainly, South Korean companies have slowed down hiring. The monthly average number of jobs added so far this year, 142,000, is the slowest pace seen since the 2008-09 global financial crisis.

On Monday, Mr Moon acknowledged possible negative consequences for small business owners and low-income earners from a higher minimum wage, but said his policies will continue to focus on boosting incomes.

"Steep increases in the minimum wage aim to ensure a dignified life for low-income workers, while raising household income to boost domestic demand, which in turn will lead to job creation," Mr Moon told a Cabinet policy meeting, adding that efforts will be made to provide subsidies for the low-income earners who suffer as a result of the policies.

Mr Moon remains popular, with 69 per cent backing in polls this month, though that is down from a peak of 83 per cent in May after his summit with North Korean leader Kim Jong Un, and his rating has fallen for a fourth week in a row, according to Gallup Korea.

Shipbuilder Hyundai Heavy Industries and retailers Lotte Shopping and Shinsegae are among companies which have begun to power off computers at 5.30pm for office workers to prevent overtime.

And for many white-collar workers, the new policies are a relief.

"I didn't even think about leaving earlier than my boss last year," said Mr Shin Duk-young, a 29-year-old office worker at a retailer in Seoul. "Now I can go watch movies every day and take my accounting classes at night, because they literally shut down my computer."

REUTERS

A version of this article appeared in the print edition of The Straits Times on July 18, 2018, with the headline 'S. Korea's labour reforms having a negative impact'. Print Edition | Subscribe