Korea’s minimum wage hikes loom over hurdle to jobs

Bloomberg

President Moon Jae-in’s income-led growth campaign will harm South Korea’s economy next year by weakening job creation, according to a majority of economists surveyed by Bloomberg.
More than three-quarters of the 30 experts polled forecast employment growth will slow as the government pushes ahead with an 11 percent hike in the minimum wage, adding to the 16 percent increase in 2018. Yet about a third of respondents expect that higher pay will eventually help the economy by raising people’s incomes and boosting consumer spending.
Moon’s labour-market policies are blamed by some economists and lawmakers for pushing up unemployment at a time when economic expansion is sputtering and risks to exports abound. Last month Moon axed his finance minister and his policy chief to stop his administration sending mixed signals over the effectiveness of the policy.
The jobless rate this year has hovered close to its highest levels since the global financial crisis.
The survey also showed that a third of economists rank the trade war as the biggest risk to Korea’s economy in 2019, followed by fears over a slowdown in China or the global economy. Others expressed concern about weakness in semiconductor exports.
They are almost evenly split on whether the Bank of Korea will raise interest rates again by the end of next year.
Moon was elected last year after pledging to boost the incomes of average Koreans, address rising wealth inequality and reduce the country’s reliance on exports.
“If growth momentum in the economy decelerates further amid an extended slowdown in the semiconductor sector, then the income-led growth strategy could backfire in the short term,” said Maybank’s Singapore-based Christopher Wong, one of the respondents to the survey.
While 14 of the economists see the central bank raising its benchmark rates to at least 2 percent by the end of 2019, 16 expected it to be left at 1.75 percent.