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This year, the Korean economy will face difficulties with both internal and external negative factors. The world economy has slowed down due to weak dollar, sub-prime mortgage financial crisis, expensive raw materials and surging oil price. On a domestic front, the consumer prices are highly expected to soar while companies’ investment and consumer spending continue to be sluggish. The domestic economy is projected to be worsening as export, which had played a major role for economic growth in Korea, is likely to get slowed due to Won’s rise against dollar.
Competitiveness of companies has been weakening due to the high wage hike over the past few years, exceeding the productivity and a rise in consumer price. New recruitment at companies is also showing a declining tendency, and thereby the stabilization of wage is even-more required to secure employment and create more jobs.
Hereupon, The Korea Employers Federation released the business guidelines on wage adjustment of 2008 as follows. Taking into consideration the current difficult economic situation at home and abroad, the KEF hopes that the guideline can be used as a reference in many companies, and thus the wage stabilization can be spread to overall industries.
First, adjust wage to increase up to 2.6%. However, wage of large companies should be frozen at the same level as last year.
This year’s wage increase rate is recommended at 2.6%. However, the large companies should freeze the high wage and use the spare capital for better treatment for their non-regular workers and smaller partner firms.
Second, cut off the vicious spiral.
The Korean economy is aggravating due to skyrocketing consumer price and continuing trade deficit, while the fears about stagflation has come into reality by soaring prices of oil, raw materials and grains. If the excessive wage increase is forced, again, to keep up with the rise in consumer price, the economy will fall into a vicious cycle of consistent wage hike and price boost and result in deterioration of both companies’ competitiveness and worker’ real income.
Third, create employment through wage stabilization and flexibility.
The high wage raise exceeding the productivity and price increase has been continuing over the past twenty years. Korean economy has entered upon a ‘low-growth period.’ At this point, it should be noted that the employment stability is more important factor than wage increase.
Forth, change the wage system to ex post payment.
It would be difficult to stop consistent wage hike without changing the current wage system which is uniformly decided by collective bargaining rather than productivity and pay ability. The wage adjustment standard fixed by collective bargaining should be lowered and set up the wage with ex post through performance pay and bonus pay, etc.
Fifth, innovate the wage system through introduction of job-based pay and abolition of regular pay raise.
Seniority-based wage system, in which a wage increase is made collectively regardless of productivity, has caused various side effects such as mounting up the cost burdens on companies and deepening the conflict between labor and management. In this regards, the existing wage system should be innovated to promote efficiency in wage management by introducing job-based pay and repealing regular annual promotion.
Sixth, freez the minimum wage and find measures to meet global standard.
A recent increase in the minimum wage has already attained its goal to guarantee minimum level of livelihood. However, the negative effects of the excessive raise are now becoming serious problems, causing employment insecurity and weakening SMEs’ profit. To resolve the problems, freezing the minimum wage for a few years is inevitable. The wage system also needs to be improved to meet the global standards. In Korea, fixed bonuses are not summed up from the minimum wage, whereas fixed bonus and a wage in kind are already included in the minimum wage in many developed countries.
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