C HO IMHO is angry. Perched on an enormous black leather chair, the director of South Korea’s association of small businesses throws up his arms…
C HO IMHO is angry. Perched on an enormous black leather chair, the director of South Korea’s association of small businesses throws up his arms in despair as he discusses the government’s economic policy. Mr Cho reserves particular ire for the recent increase in the minimum wage to 7,530 won ($6.65) an hour, 16% more than it was a year ago. The leap is the centrepiece of the government’s plan to revive the economy by boosting the incomes of the poor; further hikes are planned. Mr Cho claims many of the firms he represents are considering shutting down. Others have shed staff. “It’s crazy, a disaster,” he says.
Mr Cho is a proud right-winger from Daegu, a nest of South Korean conservatism. His aversion to the policies of the left-leaning president, Moon Jae-in, is perhaps not surprising. But in recent months a spate of disappointing employment data and loud protests from businesses have stirred unease within the government. The finance minister, for one, has sounded surprisingly equivocal about the increases.
Mr Moon has pledged to stick to his strategy of “income-led growth”, which remains popular with voters. But he now says that the minimum wage will not rise as quickly as originally planned. He also demoted Hong Jang-pyo, an adviser who was one of the policy’s architects. Some observers believe that Chang Ha-sung, his chief of staff for policy and the other main advocate of income-led growth, may be next to go. “There are tensions between the committed reformers and those who are worried about political backlash,” says Jun Sung-in of Hongik University in Seoul. “Currently, the worriers are winning.”
Small wonder: according to South Korea’s statistics agency, the income of the lowest 20% of earners fell by 3.7% in the second quarter of this year compared with the same period last year (for high earners, it rose by 12.4%). That suggests that job losses have more than offset increased wages among those whom the policy is intended to help. There has certainly been no spurt in the growth rate, which continues to hover around 3%.
It is not obvious, however, that the increase in the minimum wage is to blame for the disappointing data.
