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Economy

Moon's minimum wage policy inflames small businesses

South Korean analysts, mom-and-pop store owners attack pace of pay rises

Some small restaurants and shops in South Korea are losing workers as they struggle to afford employees' salaries.    © Getty Images

SEOUL -- Lee Keun-jae has sold kimchi soup and pork belly barbeque at his small restaurant in central Seoul for the last two decades. He has managed to keep going through business ups and downs, but says he is now facing one of the toughest periods yet.

A part-time waitress recently offered to quit after she realized that the eatery was not making enough revenue to maintain her job. Lee believes this is due to the country's fast-rising minimum wage, driven by President Moon Jae-in's pledge during last year's election campaign to increase it to 10,000 won ($8.9) an hour by 2020.

The government announced on Saturday that it will raise the minimum wage for next year by 10.9% to 8,350 won, following a 16.9% increase this year.

"I am just waiting for the next general elections, which will come in 20 months," said Lee. "People will judge the government with their votes."

Lee is not alone. Small business owners are in uproar over the drastic increase in the minimum wage, while there is no guarantee for business owners' minimum income. Official data shows that mom-and-pop store owners are struggling to survive.

The number of jobs in the wholesale and retail industry, mostly comprising small business owners, dropped by 225,000 in the first half of this year from a year ago, according to the Finance Ministry. Jobs in the accommodation and restaurant sector fell by 96,000 during the same period.

Economists say that pace of the minimum wage increase was too fast compared with other countries such as Japan, which has a target annual increase of around 3%.

"The minimum wage hikes look too ambitious," said Kwon Young-sun, a senior economist at Nomura. "Because the pace of minimum wage hikes in [South] Korea has been much faster than in Japan, we estimate that Korea's minimum wage will reach about 93% of Japan's in 2019."

Convenience store owners complain that the Moon administration, which vows to help ordinary people, only helps employees, while neglecting small business owners. They also point out that the two-digit minimum wage increases trigger battles between small business owners and low-income employees, while landlords, retail and credit card companies take excessive profits from sales in the shops.

According to the National Convenience Store Owners' Association, the average monthly income of its members dropped to 1.3 million won this year from 1.9 million won a year ago, largely due to the minimum wage increase.

"We never want to fight against employees. The authorities should resolve the remaining issues, such as unfair contracts with retail companies, high rents and credit card fees," said the NCSOA in a statement.

On the other side, labor unions, a key support base for Moon, think the government is not going far enough.

Against this background, Moon on Monday expressed regret for not raising the minimum wage fast enough. "I apologize for being unable to fulfill my campaign pledge," Moon said.

For Moon to meet his campaign pledge, the government needs to raise the minimum wage by roughly another 20% in 2020. This is seen as highly unlikely.

The tensions can also be seen as a fight between generations. Many of the mom-and-pop store owners are in their 50s and chose to run their own businesses after retiring as employees. The part-timers are dominated by those in their 20s, of the same generation as the store owners' children.

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