Acontroversy is brewing over the government’s proposal to raise the minimum wage, and the business community has also asked for a delay of an increase in corporate taxes that is being considered in political circles. 

The government has hinted at a plan to raise workers’ wages to invigorate the sagging national economy. Deputy Prime Minister and Minister of Strategy and Finance Choi Kyung-hwan proposed the issue while delivering a lecture at a forum sponsored by the National Strategy Institute on March 4. “The national economy cannot be resuscitated unless proper levels of wage raises are not made,” Choi said. 

Deputy Prime Minister Choi took up the issue anew in a meeting with heads of five economic organizations on March 13. He asked for proper levels of wage hikes and shared growth. “I want you to join forces so that consumption can pick up through proper levels of wage hikes, and if it is impossible for conglomerates to raise wages right now, I appeal for them to make proper payments to their cooperative partners so that funds can trickle into the latter,” he said. 

Deputy Prime Minister Choi’s demand for pay hikes indicates the urgency of the national economy. The reason is that the consumer price index for February virtually registered minus growth if tobacco price hikes are not factored in, deepening worries over deflation, and signals related to income rises, which directly influence consumptions are gloomy. 

Given the situation, Deputy Prime Minister Choi put the pressure on the business community to raise wages.

Stressing a wide range of wage hikes, the MOSF minister came up with a proposal of raising the minimum wage. The ruling Saenuri Party and Cheong Wa Dae sided with the government’s proposal on wage hikes. Officials from the government, Saenuri Party and Cheong Wa Dae concurred on proper levels of the minimum wage during the 2nd Policy Consultation Committee Meeting on March 15.

The government seemed to take a step backward in the face of the business community’s strong opposition on wage hikes. In principle, the issue of raising wages should be left to the private sector’s autonomy, said Deputy Prime Minister Chung Eun-bo of the Ministry of Strategy and Finance in a news briefing following Deputy Prime Minister Choi’s meeting with heads of five economic organizations on March 13.  

But the business community decided to care for subcontractors through contract unit prices in the perspective of shared growth, he added. Deputy Prime Minister Chung’s comment was a far cry from Deputy Prime Minister’s stern stance. Choi has commented on the issue on four occasions so far since March 4, when he took it up publicly for the first time. He stressed the need for parlaying a rise in household income into a domestic-focused growth momentum, departing from export-oriented growth. 

However, the business community’s opposition is adamant. On the same day, a raise in the minimum wage has to be pushed based on a long-term master plan considering economic and income structures, said Chairman Park Yongmaan of the Korea Chamber of Commerce and Industry (KCCI). 

Downward inelasticity of wages is huge, so once a raise is made, it is not easy to lower them, and particularly, now that the Korean domestic market is not big, careful consideration has to be made lest wage hikes undermine the nation’s competitive edge, Chairman Park said.

“Such policies to induce demand as wage hikes and the expanding of welfare may right now boost the economy, but they cannot enhance growth potential through overhauling of fundamentals,” said Federation of Korean Industries (FKI) Vice Chairman Lee Seung-cheol. He said in a meeting with reporters that the government has yet come up with proper steps to cope with low growth structure of the Korean economy.

Meanwhile, KCCI Chairman Park made a request for ruling party leaders to put off a plan to raise corporate taxes. Park made the request during his policy meeting with Saenuri Party Chairman Kim Moo-sung and party leaders on March 16. He argued that the government dramatically reduced several incentives to reduce corporate taxes and introduced a system to impose a tax on funds businesses store up instead of making investments, raising wages and providing dividends, the steps that have an effect to boosting corporate taxes to businesses.

In return, Saenuri Party Chairman Kim replied that his party will be cautious in raising corporate taxes to Korean businesses, given the fact that it is contrary to policies to boost economic dynamics, and rival countries do not raise corporate taxes for fiscal soundness.