Moon's Goal of Becoming Korea's `Jobs President' in Jeopardy
(Bloomberg) -- South Korean President Moon Jae-in’s goal of becoming a “jobs president” is looking increasingly like a stretch, as joblessness rises despite his government’s efforts.
Unemployment in March jumped to the highest level since 2010, and many are blaming Moon’s aggressive increase in the minimum wage, putting his economic agenda at risk less than a year after he took office.
Moon became South Korea’s first liberal president in a decade by promising voters to pursue social justice and "income-led growth" at a time of rising anger over inequality and stagnant incomes. He pledged to create hundreds of thousands of public-sector jobs, to subsidize hiring at small businesses and to provide direct assistance to job seekers.
Now the government is pushing for its second extra budget to create jobs, at a cost of 3.9 trillion won ($3.7 billion). But resistance is growing among conservative opposition parties in parliament, where Moon’s party lacks a majority. Conservatives say the new proposed spending package is a "populist" giveaway to voters ahead of nationwide regional elections in June.
It doesn’t help Moon that many economists are blaming the 16 percent increase in the minimum wage, which took effect in January, for the rise in unemployment.
"If the job situation remains weak, which I think it will, it will increase criticism over the effectiveness of Moon’s economic policies, especially the minimum wage increase," said Yun Chang-hyun, a professor at the University of Seoul and a former head of the Korea Institute of Finance.
Yun said the minimum wage hike was the main reason for recent weakness in jobs data, noting that the increase was about 10 times the annual inflation rate.
Finance Minister Kim Dong-yeon recently denied that the wage increase is responsible for the growing joblessness, pointing to job cuts in the shipbuilding and auto sectors. In addition, the services sector is still sluggish as a result of China’s ban on package tours to South Korea.
The Bank of Korea recently lowered its projection for 2018 job growth to 260,000, which is almost 20 percent less than the increase seen in 2017. The government’s forecast remains at 320,000.
Job growth could stay weak throughout the year, according to Lee Geun-tae, a research fellow at LG Economic Research Institute.
“The property boom last year, which led to an increase in construction workers, has peaked out, and overall economic growth will be weaker this year due to issues such as trade tension,” Lee said. LG forecasts the economy to grow 2.8 percent in 2018, versus 3.1 percent last year.
BOK board members, who have set a 2 percent inflation target, have expressed concerns that a lack of improved hiring is delaying a recovery in private spending and any accompanying inflationary pressures. Governor Lee Ju-yeol told reporters this month that weak employment can in the long term have a negative impact on the nation’s potential growth rate.
Moon’s approval rating remains relatively high at 70 percent, according to a Gallup survey released on Friday, but a poll in January found 39 percent of people said the minimum wage hike would have a negative impact on the economy, while 38 percent said they expected it to be positive.
For now, the supplementary budget proposal, submitted to parliament on April 6, is languishing. So far no committee has reviewed the bill.
"The extra budget would help temporarily, but fundamentally there needs to be a way to activate industries so companies can increase hiring,” said Joo Won, a director at Hyundai Research Institute.
©2018 Bloomberg L.P.