Massive Wage Hikes Only Make Inflation Worse

      June 08, 2022 13:49

      Salaries in big conglomerates increased in the double digits in the first quarter of this year for the first time in four years. The average monthly wage at major conglomerates rose 13.2 percent on-year to W6.94 million (US$1=W1,256). The last time conglomerate salaries increased in the double digits was in the first quarter of 2018 (up 16.2 percent), when Samsung Electronics and other chipmakers hiked them due to a semiconductor boom. In the first quarter of this year, the average wage in Korea increased 7.2 percent to W4.08 million, which was also the biggest increase since 7.9 percent in the first quarter of 2018.

      But the hike could stoke inflation. Consumer prices increased 5.4 percent last month, the biggest jump in 13 years and nine months, but the Federation of Korean Trade Unions is seeking an 8.5-percent wage hike, and three out of 10 small and mid-sized companies are having a tough time dealing with the wage growth.

      Wage hikes by major conglomerates reduce the chances of them recruiting more workers, and raising prices to maintain profits ends up stoking inflation. The salaries paid in the first quarter by the country's top 15 companies in terms of stock market capitalization increased 24 percent on-year, but the number of employees edged down 0.2 percent. On top of that, the businesses are already passing or intend to pass the increased costs on to the customer.

      But the government is only trying to combat inflation on the supply side stemming from the Russian invasion of Ukraine, which raises grain, raw materials and energy prices. It has scrapped tariffs on imports of food but has no plans to deal with price hikes caused by businesses that have passed their rising costs on to the customer. The government needs to act now before the situation gets out of hand.

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