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Economy

Instead of spurring growth, Moon's wage hikes trigger layoffs

South Korean president's J-nomics has little to show after one year

A job board at an employment office in Seoul. Unemployment in South Korea rose to 4% in May.   © Reuters

SEOUL -- South Korean President Moon Jae-in's signature economic policy is starting to backfire a year into his term, with unemployment increasing despite his push to create new jobs and the income gap widening even more.

South Korea gained just 72,000 new jobs in May, compared with the 379,000 added a year earlier, the government said Friday. Meanwhile, the unemployment rate ticked up 0.4 point over the 12 months to 4% overall. The figure was even worse among those 15 to 29 years old, climbing 1.3 points to 10.5%.

Inequality is growing as well. Household income in the bottom 20% of the country fell by a record 8% on the year in January-March, even as it rose for high earners, according to data released at the end of May.

Moon was voted into office by a broad-based movement of South Koreans, who drove predecessor Park Geun-hye into impeachment over corruption. Under his 'J-nomics' policy, named after his first initial and based on neighboring Japan's Abenomics, he has focused on raising wages and creating jobs in hopes of spurring economic growth.

One of the first things he did as president was launch a campaign to turn temporary and contract workers into permanent staff. One in three South Koreans hold such irregular positions and are paid 40% less than their permanent peers. Moon has pledged to eliminate all irregular positions in the public sector.

But J-nomics came at a cost. Moon raised the minimum wage by 16.4% in January toward his goal of reaching 10,000 won ($9.05) per hour by 2020. But many convenience stores and fast-food franchises, as well as mom-and-pop eateries and other small businesses, found the higher wages too costly. They ended up resorting to layoffs instead.

Government spending has boosted employment in the public sector. But private businesses are urging a slowdown in wage growth.

Recent economic data has highlighted shortcomings in Moon's strategy for income-led growth, and shows the gap between rich and poor South Koreans only widening. Kim Dong-yeon, deputy prime minister and minister of strategy and finance, said Friday that he felt deeply responsible. Local media have slammed Moon's policies as a "disaster" and "chaos" for employment.

The president's office has shot back, arguing that economic growth is now over 3%, as opposed to the 2% range under previous conservative administrations. Public support for Moon also remains strong, with the ruling party winning last Wednesday's regional elections by a landslide.

But Moon seems aware that the walls are closing in. At a meeting with government officials on Monday, he stressed that a government that cannot improve the lives of the people will be abandoned.

South Korea's economy may be entering a "recession" phase, according to a recent report by the Hyundai Research Institute. Moon could risk losing his support base unless he can whip the economy back into shape.

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