Insight: Moonwalking: South Korea's wage, hours policies backfire for jobless, low income workers
17/07/2018 06:27
* Retailers cut hours after S.Korea reduces maximum work
week
* Hikes in minimum wage also seen as a deterrent to hiring
* S.Korean companies producing fewer jobs this year vs 2017
* New policies could risk more jobs than they create -
economists
By Cynthia Kim and Heekyong Yang
SEOUL, July 17 (Reuters) - 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 Heo Jeong, who serves barley tea
samples at a Lotte Mart store in Seoul, says she lost a third of
her income as a result.
Heo's store shortened its opening times and cut staff hours.
The 48-year-old now makes 1.2 million won ($1,077) a month
working 32 hours instead of 40, a third less than before because
she now isn’t 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 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 percent – 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 percent fell 8 percent 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.
"I want to work more hours, and take night shifts as much as
possible," said Heo. "I don't necessarily see anyone actually
making more money around me. I myself have cut down on
groceries."
A Lotte spokesman confirmed that most Lotte stores cut store
hours, and some of its sub-contract workers worked fewer hours
as a result.
On 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 percent to 8,350 won
($7.40) an hour. urn:newsml:reuters.com:*:nL4N1UA05X
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 in a statement.
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, 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," Moon told his cabinet members at a policy meeting in
Seoul, adding that efforts will be made to provide subsidies for
the low-income earners who suffer as a result of the policies.
A Blue House official at the Presidential Committee on Jobs,
a body Moon launched last year to fulfill his election promise
of creating jobs, declined to elaborate further.
Moon remains popular, with 69 percent backing in polling in
July, though that is down from a peak of 83 percent 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. It is unclear how much the economy is playing into those
numbers.
SENT HOME EARLY
Shipbuilder Hyundai Heavy Industries 009540.KS and
retailers Lotte Shopping 023530.KS and Shinsegae Inc.
004170.KS are among companies who have begun to power off
computers at 5:30 p.m. for office workers to prevent overtime,
according to spokespeople for the companies.
A number of Korean retailers have pulled forward closing
times to 11 p.m. from 12 p.m. because of the higher wage costs.
"We're trying to make working hours flexible for our workers
and have shortened business hours at most of our stores," an
official at Lotte Shopping told Reuters, asking not to be named
as he was not authorised to talk to the media.
All three firms declined comment on hiring plans.
Lee Jae-kwang, who owns a Paris Baguette bakery in the posh
Gangnam district of Seoul, says he is sending his workers home
earlier in the evening and closes the store himself an hour
earlier at 10 p.m.
"Adding jobs is the last thing on my mind. The steep
increase in wages is a real financial strain for us," said Lee.
SILVER LININGS
To be sure, Moon is trying to fix some major structural
economic problems. The youth unemployment rate reached 9.8
percent in 2017, almost three times the rate for all workers,
yet South Koreans put in the third longest hours among the 36
members of the Organisation for Economic Cooperation and
Development, behind only Mexico and Costa Rica. Also South
Korea’s labour productivity growth was only 19th among OECD
countries in 2017.
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. Now I can go watch movies every day and take my accounting
classes at night, because they literally shut down my computer,"
said Shin Duk-young, a 29 year-old office worker at a retailer
in Seoul. He asked that the company not be named.
Also, while the poor got hammered in the first quarter,
average household income grew 3.7 percent from a year earlier,
the fastest expansion in four years. Income for the top 20
percent surged 9.3 percent, making income inequality the worst
on record, according to Statistics Korea.
This has yet to boost domestic demand, though. Consumer
sentiment is at its lowest since May 2017, when Moon won the
general election.
Labour unions say the policies can only achieve their goal
if small companies get subsidies and low-income earners get tax
credits. They criticise the government for delaying related
reforms of tax policies.
"BAD TIMING"
If Moon is to fulfill his campaign promise on the minimum
wage, he will have to keep lifting it to 10,000 won per hour by
2020.
Lee Sang-jae, chief economist at Eugene Investment and
Securities, said Moon's policies are "steps in the right
direction" to tackle low incomes. But in a June report on South
Korea, the OECD warned that scale would be unprecedented amongst
its members and recommended Moon to assess this year's economic
impact before raising wages any further.
Many economists doubt any such assessment would go well.
The labour market shake-up comes as China, the gravitational
centre for Asian economies, shows signs of a slowdown and South
Korean exporters risk being caught in the crossfire of a trade
war between Washington and Beijing.
"Wage floor hikes and other pro-labour policies could help
reduce inequality long down the road, but it has come at a very
bad timing," said Park Chong-hoon, an economist at Standard
Chartered in Seoul.
($1 = 1,127.0200 won)
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South Korean job market https://tmsnrt.rs/2NIuGnm
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(Additional reporting by Hyunjoo Jin;
Editing by Marius Zaharia and Martin Howell)
((Cynthia.Kim@thomsonreuters.com; 822 3704 5655; Reuters
Messaging: cynthia.kim.thomsonreuters.com@reuters.net))