Taxpayers Will Have to Pay for the Minimum Wage Hike

      July 17, 2017 13:43

      The government has decided to raise the minimum wage by a record 16.4 percent or W1,060 to W7,530 (US$1=W1,136). But if the businesses that will have to pay for it cannot handle the higher wages, they will close down or lay off staff.

      The hike was pushed through without any regard to economic concerns because it was one of President Moon Jae-in's key campaign pledges to raise the minimum wage to W10,000 an hour by 2020.

      But experts say when the minimum wage reaches that level, some workers will be earning more money than the small business owners who employ them. Still, the Minimum Wage Commission, which consists of labor and management representatives and members of the public, waved the increase through. Even the employers' side had proposed a 12.3-percent hike to W7,300.

      Uh Soo-bong, the head of the commission, said, "It looks like both labor and management representatives presented offers respecting the government's positions." In other words, the employers by and large rolled over, though four of their representatives tendered their resignations yesterday.

      Eighty-five percent of minimum wage earners are employed by small and mid-sized companies. These businesses will have to shoulder an extra W15.2 trillion in labor costs next year due to the hike. Small business lobby groups have issued statements blasting the decision as "utterly ignorant" of their circumstances. At present, 42 percent of small and mid-sized businesses do not even make enough money to finance their interest payments on their debt, and 27 percent of small traders make less than W1 million a month in operating profit. But these factors were not considered at all.

      But this was not the only surprise in store. Finance Minister Kim Dong-yeon said Sunday that the government will spend billions more to help employers pay for the extra labor costs. That will come from taxes, and neither Moon nor Kim have the authority to draw on those funds.

      It is true that there is a reserve of money set aside to assist the poor, but using taxpayers' money to make up for the wage shortfalls of private businesses is unheard-of. The amount could reach W4 trillion. The government seems to think that is nothing, but it cannot be the case that every time Moon pushes ahead with some harebrained idea, taxpayers have to clean up the mess.

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