The prevailing outlook for the Korean economy in 2011 is that growth will be weaker than in 2010. Circumstances in oil producing Arab nations in the Gulf are not stable, and global prices for raw materials (including oil) are a factor in price anxiety in Korea. Amid this situation, the labor community is demanding significant wage increases this year, with the sharp increase in prices as the reason.
However, an excessive wage increase beyond productivity will be another inflationary factor, leading eventually to a vicious cycle of decreasing real income for workers and company competitiveness. Thus, wage stabilization is required at this point to improve company competitiveness and quality of life for workers.
Considering global circumstances, the business community is presenting recommendations on wage adjustment. We would like businesses to participate in creating wage stabilization in all industries.
First, wage adjustment in the range of 3.5% should be made for this year. Big companies paying high wages should adjust wages up less than 3.5% and use the extra funds to improve the working environment ofsubcontracted workers or SMEs.
The wage gap between large companies and SMEs has increased more than 3 times within the past 10 years, which has created difficulties for SMEs to find and keep skilled workers. This is the reason it is recommended to increase wages in the neighborhood of 3.5%, considering the productivity of the national economy. In order to reduce the wage gap mentioned above, large companies paying high wages are advised to minimize wage increases, and support SMEs with the difference.
Second, there is a need to build foundation to achieve ‘The 10-70 National Employment Rate Project’.
The employment rate in Korea is a little more than 60%, which falls short of the 70% in advanced countries. The low employment rate is simply thought to mean it is difficult to find jobs, but it is also a main factor in decreasing national competitiveness. Therefore, the KEF has proclaimed ‘The 1070 National Employment Rate Project’ to achieve an employment rate of 70% within the next 10 years. To do this, wages should be stabilized within the range of productivity increase for this year as well as for a considerable period in the future.
Third, it is advised to minimize unrealistic wage increases from factors outside companies.
Legislative changes such as the multiple union system and the time-off system can act as pressure on employers to increase wages this year. Concern is growing that wage increases due to external factors will weaken company competitiveness. Therefore, wage adjustments this year should not be influenced by external factors, but instead be based on company performance indices and within their solvency margin.
Fourth, it is recommended to switch the current wage determination system to performance-based one.
While irrelevant to productivity, the collectively increased seniority based wage system promoted by collective agreements creates many undesired side effects such as a decrease in wage competitiveness, an increase in industrial disputes, and an unstable employment environment for middle-aged and senior employees. In this regard, it is advisable to reduce the proportion of collective wage adjustment based on bargaining between labor and management, and switch the current wage determination system to one that is performance-based.
Fifth, it is necessary to promote minimum wage stabilization and reasonable improvement to the system.
Negative effects from the rapid hike in minimum wage in the past decade are growing, such as deeper financial difficulty for small and micro-businesses, and a lack of job security. In particular, the recent revision of the minimum wage brought enormous side effects including mass layoffs. The Minimum Wage Law needs to be revised again so that minimum wage returns to its original function of maintaining an appropriate wage level.