Minimum Wage Threatening Jobs

President Moon Jae-in installed a “job situation board” in his Blue House office early in his term. It was meant to underscore the importance of jobs. In this year’s New Year’s address as well, he again emphasized that “jobs are the foundation of our economy and the basis of each individual’s life.” This is highly significant in that it showed the government’s determination to work toward expanding “good jobs” in the future.

In reality, however, far too many people in our economy are unable to find work. Last year, the number of unemployed rose by 16,000 from a year earlier to 1.028 million. This was the highest figure since the unemployment statistics were revised in 2000, and it marked the second consecutive year, following 2016, that the number exceeded 1 million.

Youth unemployment in particular is becoming increasingly serious. The perceived unemployment rate among young people rose to 22.7% last year, the highest level since related statistics began to be compiled in 2000. In our society, the shortage of jobs is therefore a core task that must be addressed as a priority. At a time when jobs should be increasing, it is troubling that jobs are instead being threatened across the economy.

There are various factors threatening jobs. Among them, the recent excessive increase in the minimum wage is now producing side effects. With this year’s minimum wage rising by as much as 16.4%, many people have ended up losing their jobs. Reports frequently emerge that jobs are disappearing rapidly in convenience stores and the security services sector.

The minimum wage system is intended to guarantee the quality of life of low-wage workers. It is deeply ironic that a system enjoying political support is, in reality, reducing jobs and thereby threatening the lives of low-wage workers.

If the adverse effects of forcibly raising wages are greater than the intended benefits, then it is only natural that the policy should be reconsidered. If the minimum wage has been set excessively high or implemented in a way that does not fit economic realities, it must be corrected.

If the government raises the minimum wage within a range that business owners can absorb, it will not have a major impact on jobs. That is because employers will seek to improve productivity or cut other costs to offset the higher labor burden rather than reduce employment. But if the size or speed of the minimum wage increase goes beyond that range, jobs will inevitably disappear. For the purpose of the minimum wage system to be achieved, jobs must be preserved.

If the benefits of a minimum wage increase are limited to only some workers while a substantial number lose their jobs, then it is a system whose costs outweigh its benefits. Nor does a higher minimum wage necessarily have the effect of raising the income of the poor. Most low-wage workers are not part of the poor. In fact, only about one-third of those subject to the minimum wage are low-income earners. It can therefore be said that the actual effect of the Minimum Wage Act is minimal.

It is most desirable for wages to be determined through voluntary transactions in the labor market. To the extent that the government steps in to prohibit or interfere with private transactions, the autonomy of the economy inevitably declines. And the side effect of reducing jobs becomes even greater. Political logic that ignores economic principles can throw reality into confusion, and should therefore be guarded against.

Sung-no Choi, Vice President, Center for Free Enterprise (CFE)

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Original title: 일자리 위협하는 최저임금

Author: Sung-no Choi

Date: 2018-01-10

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&pn=26&idx=10797