LDN - Business

South Korea's new president draws ire of small businesses he's vowed to help

[May 25, 2017] By Joyce Lee and Hyunjoo Jin

SEOUL (Reuters) - Small businesses in South Korea fear their profits could be cut to the bone and some could be forced to close if the country's new president pushes ahead with plans to raise minimum wages, restrict contract staff numbers and reduce working hours.

Since his election earlier this month, President Moon Jae-in has made boosting job prospects for young South Koreans a signature policy, while also protecting workers' rights.

With that in mind, he has also targeted reform of South Korea's giant family-run conglomerates, or chaebol, to make them less dominant and help smaller firms become engines of growth in Asia's fourth-largest economy.

Just last week, Moon's nominee to head the country's anti-trust regulator noted that South Korea's ten largest conglomerates - including household names like Samsung and Hyundai Motor Group - employ only 1 million of South Korea's 19 million actively employed workforce.

"The ultimate goal of chaebol reform is to protect small companies and self-employed business owners so they can create many more new jobs," said Kim Sang-jo, the president's choice to head the Korea Fair Trade Commission.

But many businessmen fear that instead of generating jobs, smaller businesses will be crippled by the higher cost of hiring and paying workers if Moon's labor reforms are implemented.

Take for example, Sam Heung Heat Treatment, a company employing around 50 workers at a factory supplying components to automakers like Hyundai <005380.KS> and General Motors Co <GM.N>.

Chairman Joo Bo-won told Reuters his firm could fold because of policies he says would both double the wage bill and double the number of full time workers needed to make up for the shorter working week.

Asked what would happen if Moon's proposals became law, Joo gave a stark response.

"It's simple: you can just shut down the factory," he said.

QUESTIONABLE OPTIMISM

Moon has pledged to raise the minimum wage by 55 percent to 10,000 won ($8.94) per hour by the end of his five-year term.

At the same time, he wants to lower the maximum working week to 52 hours, bringing it down from the current cap of 68 hours, in a move that he says would help create 500,000 private sector jobs.

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Employees take a selfie with South Korean President Moon Jae-in at the Incheon International Airport in Incheon, South Korea, May 12, 2017. Yonhap via REUTERS

Small businessmen, however, say Moon has got it wrong, and there will be less work as profit margins suffer.

Kim Moon-sik, the president of an association of gasoline filling station owners, is a member of the labor ministry's key minimum wage committee.

He warned that the proposals, as they stand, would backfire if they are applied to firms regardless of size.

Kim said filling stations' profit margins average less than 0.5 percent, and if the hourly pay rate is increased so sharply it would probably force owners to run their businesses for shorter hours each day.

"Instead of creating jobs, the changes could make it harder to maintain the jobs that exist now," said Kim, president of the Korea Oil Station Association.

To try to coax the private sector to hire more, Moon has pledged the government will pay for the salary of every third youth employee hired by small companies for three years.

But a spokesman for Arbeit Workers Union, representing some 1,000 part-time employees at convenience stores and fast food outlets, like the local McDonalds unit, said the government needs to do more to help small businesses so that they can afford to pay more.

"We understand that it would be illogical to ask businesses to pay higher wages when they have no ability to pay," Choi Gi-won, the union spokesman, said. "But the minimum wage has to be raised."

(Reporting by Hyunjoo Jin and Joyce Lee; Writing by Se Young Lee, Editing by Soyoung Kim and Simon Cameron-Moore)

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