The recent court ruling for the expansion of the scope of ordinary wage would lead to an increase in labor cost on the part of companies, an increase in outbound investment and a decrease in inbound investment, the Korea Employers Federation warned in a symposium on March 19.
At the symposium, Korea Aerospace University business administration professor Kim Sang-shik said that South Korean companies are likely to face a labor cost increase of 2 percent to 9.1 percent this year. “It is likely to entail a producer price increase of 0.56 percent to 2.54 percent and a decline in exports of US$870 million to US$7.53 billion,” he explained.
The professor also pointed out that the increase in labor cost would affect foreign direct investment (FDI) in South Korea. “A 9.1 percent increase in labor cost is estimated to decrease FDI by 0.1 percent to 0.47 percent,” he continued to say, adding, “At the same time, South Korean companies will increase their outbound investment and an increasing number of foreign companies will shut down their manufacturing facilities in South Korea.”
Panelists at the symposium criticized the court as being excessively favorable to workers in defining the scope of ordinary wage. “In the recent case of Siyoung Traffic, the court ruled, based on the bus company’s earned surplus, that it is capable of making a payment despite the fact that its cash on hand is merely 54 million won and its debt ratio amounts to 1,223 percent,” said lawyer Jo Young-gil at I&S, adding, “This shows the court’s ignorance about accounting.”
“At present, 44.5 percent of small and medium-sized enterprises in South Korea are subcontractors and 80.8 percent of their sales are dependent on their clients,” Korea Small Business Institute researcher Roh Min-seon explained, continuing, “The ongoing ordinary wage discussions revolving around large corporations and the resultant labor cost burden will hit them hard.”