South Korea’s finance minister pressed leading business groups Friday to have companies increase investment and hiring to help government efforts to revitalize the economy amid rising concerns about deflation.
“We can see some improvements in the real estate and labor markets as we’ve made all-out efforts to boost the economy,” Choi Kyung-hwan said in a luncheon meeting with the heads of the country’s five business associations.
“But main economic indices have remained sluggish due to future uncertainties and chronic problems of the domestic economic structure.”
Stagnated wages, rising household debts and the aging population weigh heavily on domestic consumption, and companies have become more reluctant to make investments due to a lack of demand and entrepreneurship, Choi said.
Choi noted that a wage hike is the key to tackling a slump in domestic consumption, which weighs heavily on the economic recovery.
“I hope (the businesses) cooperate in raising salaries by a proper level to boost consumption,” he said. “If it is difficult to immediately hike wages, large companies can make due payments to small- and medium-sized suppliers and let the money flow into the lower industry sector.”
The finance minister, also a deputy prime minister, especially emphasized hiring members of the younger generation.
“I want to ask the business community to focus on hiring the youths,” said Choi, adding that the country’s youth unemployment rate is nearly 10 percent, much higher than the overall figure. “I also expect companies to participate in (huge investment projects) as the government will support long-term risky investments.
“As companies are the main source of investment and employment, the business community’s cooperation is the most important factor in stimulating the economy,” Choi said.
The government has been pressing companies to return more of their profits to shareholders and workers, hoping to give them extra money to spend, which would in turn promote spending. As part of this effort, it has set aside a 30 trillion won ($26.7 billion) corporate investment program that can support various projects.
The government raised the minimum wage for this year to 5,580 won ($5) per hour, up 7.1 percent from a year ago, and plans to increase it more to around 7,000 won.
The government’s drive also pushed listed companies to expand their dividend payouts, leading tech giant Samsung Electronics Co. to pay out 2.9 trillion won last year, up 39 percent from a year earlier.
The tech giant, on the other hand, citing falling profits on stiffer smartphone competition, said it is freezing its employees’ pay this year. Other companies were expected to follow suit, which is raising doubts about the government’s ability to convince companies to pay more wages.
Business leaders told the minister that they are committed to doing their part to revitalize the economy but cautioned that any move to hike up wages can affect their international competitiveness and undermine exports, on which the South Korean economy highly depends.
“The issue of the minimum wage should be discussed under a long-term master plan, considering the economic and income structures,” said Park Yong-maan, the head of the Korea Chamber of Commerce and Industry. “We have a smaller domestic market compared with the United States and Japan. A hike in the minimum wage will raise the overall salaries and hamper (corporate) competitiveness.”
Park pointed out that hiring more workers and increasing wages involves a trade-off, clearly hinting that businesses cannot do both.
He argued that new government-led projects will contribute more to the economic recovery than a rise in wages and corporate taxes.
On other economic issues, Korea International Trade Association chief Kim In-ho called for South Korea’s prompt participation in the Trans-Pacific Partnership (TPP), a U.S.-led regional free trade agreement.
“I want to ask (the finance minister) to make a quick decision on the TPP. It’s time to join the TPP and seize the new opportunity,” said Kim.
Following the meeting, Deputy Finance Minister Jeong Eun-bo told reporters that Choi and business leaders talked extensively on young people’s employment, a sign that all sides are viewing unemployment as a source of concern.
The official said that while the government can encourage companies to raise wages, the official stance remains that all decisions can only be determined by businesses in consultations with workers.
“When the government talks about proper wage hikes, it actually means companies with the ability to pay more should do so, while others that are not in such positions must take steps that best reflect their individual circumstances,” he said.
On the minimum wage issue, he said that a definitive decision will be reached at a joint committee that will look into ordinary pay and better distribution of wealth.
The official reaffirmed the government’s stance on corporate taxes remains unchanged.
The finance ministry has said that there will be no hikes because such a move will have negative repercussions on investment as a whole, hurt international competitiveness and the country’s ability to lure foreign companies.
Calls for tax hikes have come to the forefront recently because of the need to spend more on welfare amid a drop in tax earnings. (Yonhap)
