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Kim Ju-young, President of the Federation of Korean Trade Unions (FKTU) and members of the Minimum Wage Commission gather at the FKTU assembly room in Seoul’s Yeouido neighborhood to demand the immediate resolution of an amendment that will raise the minimum wage to 10,000 won (US$8.90) on July 11. (Park Jong-shik, staff photographer)
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Root of issue is exploitative system dominated by chaebols and corporations
With the deadline for a decision about next year’s minimum wage just around the corner, the debate over the minimum wage is provoking another squabble between the little guys. Even though the difficulties faced by businesses ranging from medium-sized to micro-sized are not solely due to the minimum wage, the conflict between small business owners and low-wage workers receiving the minimum wage is getting all the attention. Since their difficulties are due to an exploitative system dominated by South Korea’s chaebols, or large corporations, the government needs to accelerate structural economic reforms, experts say.
Convenience stores and micro enterprises organize against minimum wage hike
During a press conference held at the Korea Federation of SMEs, in Yeouido, Seoul, on July 12, the National Association of Convenience Store Franchises, which is composed of 30,000 convenience store owners, threatened to close their doors unless next year’s minimum wage is frozen.
“Convenience store owners cannot withstand the pressure of wages. The plan to push through another big raise in the minimum wage should be scrapped, and the minimum wage should be frozen,” association members said. They also asked the government to adjust the minimum wage by industry and to increase the range of small and medium-sized companies whose franchises can take advantage of preferential credit card fees.
The association also said that, if there is a major hike of the minimum wage, they will consider raising late-night prices by 5 to 10 percent and reducing or rejecting their public functions, such as selling government-issued trash bags, topping up prepaid transportation cards and buying empty bottles.
The Korea Federation of Micro Enterprises also held a press conference on Thursday, at the same location.
“Since the plan to differentiate the minimum wage for workplaces with fewer than five employees has come to nothing, we will be moving forward with a ‘small business moratorium,’” the group said. They announced that they will be effectively refusing to abide by the legal minimum wage and instead pay wages defined in labor-management agreements.
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The National Association of Convenience Store Franchises holds a press conference regarding the minimum wage hike at the Korea Federation of SMEs, in Yeouido, Seoul, on July 12.
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Problem is predatory practices of chaebol franchises
In order to address the pushback from small business owners to the hike in the minimum wage, experts say, there is a fundamental need to protect them from being squeezed by the chaebol. Small and medium-sized suppliers feel most threatened by pressure from the chaebols they work for to lower prices, while convenience store owners also suffer more harm from the predatory practices of the chaebol that runs the franchise main office. These circumstances were also brought to light in the site visits made by Minimum Wage Commission (MWC) members last month before their launched their review of next year’s minimum wage.
According to a report that the committee recently released about the result of its site visits, small business owners whom the committee members met agreed that they could handle a higher minimum wage if only the chaebol raised the rates they pay for goods and services. A mechanical factory in Iksan, North Jeolla Province, was drafting a request for its client to raise its supply price after the minimum wage went up this year only to receive a request from the client to lower the rate instead. This client has sales of more than 1 trillion won (US$890 million) a year.
“If we tell them no, they’ll take our work and give it to someone else. This needs to be addressed by government policy,” said the manager of this firm, which has 10 employees.
“When we get an order worth 100 million won [US$89,000], we end up losing 20 million won [US$17,800; because the price is so low]. But we keep working anyway because we would lose 30 million won [US$26,700] in wages if we just sit on our hands. The ideal scenario is the minimum wage not going up, but we could handle the minimum wage if our sales increased [because of a higher supply price],” said Park, who runs a furniture supplier with 30-or-so employees in Incheon. In a survey prior to the visit, Park said he thought that the appropriate minimum wage for next year would be 8,500 won (US$7.57).
Abuses by apartment complexes
There are some cases in which employers have no say over their wages. “The apartment complex [that hires us] has the right to set the wages, and they’ve increased the security guards’ break time to the maximum to avoid raising the maintenance fee,” said Kim, who runs a cleaning service in Busan. In recent years, he said, his company has declined to renew contracts with no fewer than five apartment complexes that have abused their power by indiscriminately increasing the break time.
“The percentage [of the franchise fee] that we pay to headquarters fell a little, but our revenue has fallen even more – sales per branch have decreased as the number of branches has increased,” complained an advisor for the National Association of Convenience Store Franchises. In other words, reduced franchise fees would appear to offset the higher minimum wage, but in fact the franchises are being hurt by the chaebol’s reckless expansion of franchises.
Ineffective government action to help small and micro enterprises
The government and the National Assembly are coming under increasing fire for ignoring this conflict. Postponing efforts to reform the economic structure has only exacerbated the “battle between the little people,” some say. When the government decided to raise the minimum wage by 16.4 percent in July of last year, it unveiled 94 programs to support small and micro enterprises owners, but 20 of those programs have been delayed without any steps taken to legislate them.
While businesspeople are concerned that rising rent is an even bigger problem than the minimum wage, a proposed revision to the Commercial Building Tenant Protection Act that would extend tenants’ contract extension request period from five to ten years has not even been discussed in the relevant permanent committee in the National Assembly. Also pending in the National Assembly is a proposed revision to the Franchise Business Act that would create a system of punitive damages that would prevent main offices from retaliating against franchises that report illegal activities.
“The chaebols need to figure out the production cost at their subcontractors and suppliers and share the burden of the minimum wage hike. The Fair Trade Commission and the Ministry of SMEs and Startups need to actively exercise their supervisory authority in order to increase the effectiveness of the system for deliberating and arbitrating supply prices,” said Kim Nam-geun, a lawyer in the economy and finance center for People’s Solidarity for Participatory Democracy.
“In the ‘inclusive economy’ that the government has advocated, a higher minimum wage ought to be accompanied by institutional reforms that ensure the fairness of rental contracts, franchise contracts and contracts with suppliers,” said Yun Yun-gyu, a senior analyst at the Korea Labor Institute.
By Lee Ji-hae, Lee Jung-gook and Jeong Eun-ju, staff reporters
Please direct comments or questions to [english@hani.co.kr]
