Supply Chains Collapsing Amid Rapid Increase in Labor Cost

A number of South Korean companies are claiming that the minimum wage in the country, which has jumped approximately 30 percent in two years, is significantly affecting their supply chains with their operating profits already on the decline. “Although it is right to raise the minimum wage, side effects need to be addressed at the same time,” one of them said, adding, “Uniform application in different regions and industries and the same minimum wage applied to South Korean and foreign workers will destroy our industrial ecosystems in the end.”
 

With the minimum wage rising at such a rapid pace, the popularity of jobs requiring skills is falling, and this is leading to more and more employment-related difficulties on the part of companies. This is particularly serious at the bottom of supply chains.

A lot of firms working with large corporations are currently going through financial difficulties amid the ongoing recession and the minimum wage issue is adding to their difficulties. Besides, this is being witnessed in most of South Korea’s major industries. “At present, warning signals can be found in each of the automotive, steel, shipbuilding and consumer electronics industries with the trade war between the United States and China resulting in more and more tariffs, various policies causing an increase in cost and an increasing number of contractors going into a slump,” said an industry insider, adding, “A collapse of the manufacturing sector is already occurring.”

The South Korean government’s nuclear phase-out policy is resulting in adverse effects, too. Subcontractors in the nuclear power industry are now on the edge of a precipice after the construction of the fifth and sixth units of the Shingori Nuclear Power Plant was stopped. Compensation from Korea Hydro & Nuclear Power is unlikely to reach sub-subcontractors.

52-hour workweek is another headache of companies. “Our employees currently get 70 million won to 80 million won a year, but their annual salaries are likely to be halved next year once 52-hour workweek is implemented,” said the CEO of a local subcontractor, continuing, “They are already concerned over how to make up for the shortage.”