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(EDITORIAL from Korea Times on Feb. 3)

2018/02/03 09:35

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Growth policy under fire

Moon should pay more heed to market trend

President Moon Jae-in's income-led growth policy has come under criticism because of its side effects. Moon needs to accept this criticism humbly so that he can deal with unintended consequences effectively and take better steps to produce successful results.

During a symposium hosted Thursday by the Korean Economic Association, economics professors went so far as to describe Moon's policy as "reckless" or "risky. " The professors, both critics and supporters of the liberal President's signature policy, shared skepticism that it might undermine the country's mid- to long-term growth potential.

Cho Jang-ok, a professor emeritus at Sogang University, called on the Moon government to change the direction of its economic policy to avoid a crisis similar to the "Lost 20 Years" of Japan. The Lost 20 Years refers to the longtime economic stagnation which plagued the Asian economic giant following an asset price bubble in 1991. Cho said the policy of raising the minimum wage steeply, having a shorter workweek, and converting irregular workers into regular ones runs the risk of sapping productivity and slowing down economic growth.

It is worth noting Cho's remarks because he is against the three core measures aimed at shoring up Moon's income-led policy. The President has stood firm for his inclusive growth formula by bring more income to the people, which will hopefully lead to a virtuous cycle of more consumption, production and investment.

The minimum wage was raised by 16.7 percent to 7,530 won ($7) per hour starting Jan. 1, as part of Moon's effort to raise it to 10,000 won by 2020. The hike is no doubt designed to ensure a minimum standard of living for poor workers and address social polarization. Despite its good intension, however, higher wages have prompted businesses, particularly smaller firms and the self-employed, to cut their workforce. This is making the labor market tighter.

To tackle such a problem, the government has created a 3 trillion won job stabilization fund to provide 130,000 won in financial aid to each worker at smaller businesses to offset the effect of the wage increase. But only a few employers apply for aid because of their burden for health insurance and unemployment insurance for workers.

During the symposium, professor emeritus Lee Jung-woo of Kyungpook National University, expressed his opposition to the provision of support to businesses through the state fund. Lee, a former policy adviser to the late President Roh Moo-hyun, dismissed such a measure as a nostrum.

There are also growing concerns that Moon's policy goes against the market mechanism. So Moon and his economic policymakers should not try to swim against the market trend if they really want to achieve their goals. Otherwise, the income-led policy might end up failure without boosting incomes and achieving sustainable growth.