OECD Warns Against Speed of Korea's Minimum Wage Hike

      June 21, 2018 12:50

      The OECD on Wednesday recommended that the Korean government slow the pace of raising the minimum wage to W10,000 an hour by 2020 as President Moon Jae-in promised.

      The body of rich countries warned that the unprecedented speed of the hike will have a serious impact on Korea's economic competitiveness (US$1=W1,107). The OECD also said Korea needs to raise interest rates in step with U.S. increases.

      The OECD analyzes the effectiveness of the government policies of member states and issues recommendations every two years.

      It said Korea's minimum wage reached the average in member countries as of 2016, so if it is raised to W10,000 within President Moon Jae-in's tenure, the cumulative growth rate of 54 percent would be "unprecedented" among OECD member nations.

      "Unless this is matched by higher productivity, it could push inflation above its target and have a negative impact on Korea's international competitiveness," it added. It added that it is uncertain what impact the hike will have on job growth and pointed out that it could harm many businesses and prevent them from hiring more workers.

      Regarding monetary policy, the OECD said the government must ensure that the gap with the U.S.' interest rate does not widen. The Fed raised the base interest rate by a quarter percentage point last week to two percent. If U.S. interest rates are higher, investors could pull their money out of Korean markets and park them in the U.S.

      The OECD maintained its GDP growth outlook for Korea at three percent for this year and 2019.

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