Moon's wage hike plan could dampen employment: think tank

A major state-run think tank on Monday warned that the government’s minimum wage hike plan could hinder employment in the upcoming years, underpinning the uneasiness over drastic changes and the consequent impact on the market. 

The study also laid bare the recently suspected feud between the nation’s top two economic officials -- presidential chief of staff for policy Jang Ha-sung and Deputy Prime Minister and Finance Minister Kim Dong-yeon.

The Korea Development Institute, affiliated with the Ministry of Strategy and Finance, estimated in its report that the number of job losses since the wage hike earlier this year ranges between 36,000 and 84,000.

Citing past examples in the United States and Hungary, the KDI claimed that a nation’s employment generally declines by 0.15-0.35 percent for every 10 percent increase in the minimum wage.

This was the first time that a state-run institute suggested that the incumbent government’s wage hike measure may stand at odds with the job creating initiative.

As one of the top priority actions to promote fair economic order and income-led growth, the Moon Jae-in administration increased the legal minimum wage by an unprecedented 16.4 percent to 7,530 won ($7) from 6,470, as part of a mid-term plan to raise the lower limit to 10,000 won or more by year 2020. 

“As of April, however, the actual impact on the labor market remained limited due to the government’s job security fund (for small-sized businesses),” said Choi Kyung-soo, senior researcher and author of the report.

The government earlier injected some 3 trillion won to help small-sized employers respond to the heightened recruiting burden. About 1.9 million business owners had applied for the special fund as of mid-May, the KDI report showed.

The think tank, however, warned that the job-cutting effect could expand to 96,000 next year and to 144,000 in the following year, should the government push ahead with its current target timeline.

“Should the legal hourly wage take another 15 percent hike next year (as planned), Korea’s minimum wage index will be one of the highest among developed countries,” Choi said, calling for an incremental approach.

The warning report came amid recent dissent between the presidential office Cheong Wa Dae and the Finance Ministry concerning Moon‘s wage hike initiative.

The presidential chief policymaker Jang, who also chairs the Blue House‘s minimum wage task force, asserted last month that the wage hike did not cause a fall in employment. 

Despite Moon‘s emphasis on jobs and two sets of extra budgets dedicated for the cause, unemployment peaked at a 17-year high in March and the youth unemployment rate remained in double digits.

Weighed by these underachieving job indicators, Finance Minister Kim raised an objection to the Blue House‘s optimism, stating over several occasions that the wage hike had its side effect on employment.

Though Kim later toned down on his remarks, the latest KDI report fueled the minister’s persisting concerns over the fast-paced wage system change.

By Bae Hyun-jung (tellme@heraldcorp.com)