As external and internal uncertainties increase, we expect 2012 to be a very challenging time. Ongoing international situations around the European debt crisis and the threat from Iran, and domestic uncertainty due to the upcoming presidential and general elections are expected to negatively affect the Korean economy. This is the background to the growing concerns of a slowdown in exports which has been a main engine for the economic development in Korea.
Despite these complex circumstances, the labor community is demanding wage increases that are not grounded in reality; however, a wage increase which does not reflect workers’ productivity may not only cause higher prices in the markets, but also other negative effects such as a higher cost of doing business in Korea, lower international competitiveness and lower rates of corporate investment, all of which hinder job creation. Therefore, creating wage stability is one of the most urgent tasks in order to improve corporate competitiveness and promote job security.
In light of these concerns, the Korea Employers Federation (KEF) recommends the following basic principles for wage adjustments in 2012 based on a comprehensive consideration of current international and domestic economic conditions.
KEF recommends a 2.9% wage increase for 2012
Wages in 2012 should be raised within 2.9% based on the national economic productivity. The high wages paid to regular workers in large companies is the main reason for overall income inequality and social conflict. In light of this, the KEF strongly recommends that large companies increase their wages at a minimum rate, preferably less than 2.9%, leaving some resources to be used to improve working conditions at SMEs or smaller partner firms.
In spite of the high wages in Korea, income inequality and an inefficient wage system make workers feeling an ever greater sense of unfairness. The polarization between regular workers at large companies (who receive higher wages) and non-regular workers and workers at smaller companies (who receive lower wages) is a factor that triggers social unrest.
Such income inequality in Korea stems from the focus on regular workers by labor groups in large companies, trade union selfishness, over-protective measures for regular workers and high starting salaries for university graduates. Thus, large companies that pay their employees high wages need to refrain from increasing those wages which can then be used to improve the working conditions and wages of non-regular workers and workers at SMEs.
Promote job security and job creation by stabilizing wages
Now that we are entering an era of low growth, improvement of working conditions through wage increases has reached its limits, and now we need a change of direction towards promoting stability for workers by granting job security. Last year, Korea’s labor market took a favorable turn. A total of 415,000 jobs were created and the unemployment rate decreased to 3.4%, down 0.3 % from a year earlier. In spite of these positive signs in the labor market, the number of unemployed people who gave up their job search is estimated to be on the rise. With gloomy prospects for the labor market this year, we need to work hard to provide more jobs.
Korea’s employment-to-population ratio was recorded at 63.8% in 2011 which is relatively lower than the average of other advanced countries (around 70%), and this is pointed out as a factor that hampers the nation’s potential for economic growth. To solve this problem, the KEF proposed ｢PROJECT 1070｣ in 2010, aiming for its employment-to-population ratio of 70% by 2019. According to this project, companies should focus on stabilizing their wages not only this year, but for a significant period of time.
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■ ｢PROJECT 1070｣ has produced results in the two years since it was implemented. By the end of its first year (2010), 319,000 new jobs were created with more than 342,000 jobs in 2011. KEF’s goal for 2012, the third year of ｢PROJECT 1070｣, is to create 420,000 new jobs.
– The KEF plans to adjust the goals for ｢PROJECT 1070｣ every year for the next several years, based on demographic changes and employment conditions.
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Introduce effective wage systems based on performance and importance of the job
Seniority-based wage systems which automatically raise the wage regardless of workers’ productivity, has led to many problems in the workplace such as low competitiveness due to high labor costs, serious labor-management conflict, de-motivation, and job insecurity. Due to accumulated wage increases that exceed workers’ productivity, international corporate competitiveness has worsened.
Unless we reform the deeply-rooted wage system which decides wages through collective bargaining, not in terms of workers’ productivity or companies’ ability to pay such wages, Korea’s chronic high labor costs will not decrease. Hence, wage flexibility should be enhanced by introducing a job-based wage system that also considers performance, and abolishing systems that guarantee automatic pay rise. Attention also needs to be given, in the interest of effective labor cost management, to revising the tradition of uniformly adjusting wages through collective bargaining.
Minimum wage freeze and more effective decision-making process
The minimum wage in Korea seems to have already achieved its goal of guaranteeing a minimum living standard for workers. There are now worries that the recent surge in minimum wage will negatively affect the labor market. Along with this concern, excessive regulation can pose a serious threat to job creation in Korea, such as expanding application of minimum wage to surveillance & intermittent employees, and reducing the scope of wages included in calculating minimum wage for taxi drivers.
At present, minimum wage is determined by a council of employer and worker representatives. However, it is a somewhat inefficient process that can lead to labor-management disputes and much economic and social costs. Instead, the minimum wage system should be operated according to the primary function of minimum wage. This can be achieved by stabilizing the minimum wage through effective application and an efficient process of determination.
