As the government is using every possible policy means to boost the economy -- including a minimum wage increase, the Bank of Korea’s interest rate reduction to 1 percent and the Korea-style New Deal -- the business community has publicly opposed the government’s request for higher wages. Accordingly, Choi Kyung-hwan, deputy prime minister and finance minister, is in trouble.
On March 13, Choi met with five heads of economic organizations and said, “By raising wages to a reasonable level, we hope that we can cooperate to recover consumer spending.” He was trying to appease the business industry by using the expression “a reasonable level.” However, the heads said that they did not find it acceptable.
It was the fourth time in the past 10 days that he asked companies to raise wages. At first, Choi demanded to significantly raise it, but he backed off the same day. Korea Chamber of Commerce and Industry Chairman Park Yong-man opposed the idea, saying, “Once wages are increased, they rarely go down. That is a matter of considerable concern.”
Choi set out a logical argument that only higher wages increase consumer spending and boost domestic demand. However, the business industry is refuting the argument, saying, “If we raise the wages dramatically, it can have an adverse effect on employment.” It seems that it is pressing the government to withdraw its demands on grounds of “job creation,” which is the Achilles’ heel of the government.
Indeed, the Ministry of Strategy and Finance indicated its stance through a briefing immediately after the meeting on the day, saying, “A wage increase is basically left to the discretion of private autonomous organizations.”
In a policy coordination meeting on March 15, they agreed to feel the necessity on the issue, but did not discuss specific amounts.
Accordingly, it will be difficult for the voluntarily increase wages enticement to be effective in the future as well.
Meanwhile, there is no indication of the market picking up, regardless of various business stimulating measures including expanded financial policy, after Choi took office in July last year.
In January this year, most business indicators such as production, consumption, and export, showed a downswing. The consumer price in February posted negative growth, except for the effects from cigarette price increases. Therefore, there is a growing concern over deflation.