Dismal job data released Wednesday have heightened the need for President Moon Jae-in’s administration to abandon its ill-conceived policy, which has sought to increase employment by expanding fiscal expenditure and imposing heavier burdens on employers.
The country’s unemployment rate reached 4.5 percent in January, the highest level for the month since 2010, according to figures from Statistics Korea. Last month saw the number of jobless Koreans rise to a 19-year high of 1.22 million, up 204,000 from the year before.
Compared with a year earlier, the number of employees rose just 19,000 in January, the lowest increase since August last year.
The worsening unemployment in the country, which contrasts with tightening job markets in other major advanced economies, seems to have been caused mainly by the Moon government’s misguided policy.
As part of its income-led growth drive, the minimum wage hiked by double digits in 2018 and 2019, pushing employers -- particularly small businesses that struggle to absorb rises in labor costs -- to cut their payrolls.
The number of employees in the sectors of distribution, restaurants, accommodations and facilities management, which have been hit hard by the steep minimum wage increase, decreased 183,000 on-year in January.
Other pro-labor measures pursued by the government, coupled with a lack of progress in regulatory reforms, have discouraged local companies from making new investments and hiring more workers.
The Moon administration has focused on adding jobs in the public sector with taxpayers’ money. Last month, the number of employees in the health and social welfare sectors shored up by fiscal support climbed by 179,000 from a year earlier.
In response to the disappointing job data for January, Minister of Economy and Finance Hong Nam-ki announced a plan to get public institutions, which combined are set to hire 23,000 people this year, to employ an additional 2,000 workers.
But it is obvious that increasing public sector jobs cannot be a fundamental solution to the deteriorating unemployment problem.
Not only have jobs been lost in the service sector, but manufacturing jobs have continued to disappear amid a slowdown in key industries and corporate restructuring. The manufacturing sector lost 170,000 jobs in January.
The government’s goal to increase the number of employees by 150,000 on-year in 2019 now seems beyond reach.
Hong, who doubles as deputy prime minister for economic affairs, repeated a pledge to reinvigorate the private sector to help create more jobs -- but without putting forward concrete plans to carry it out. He said the government would announce a series of measures to boost industrial competitiveness and corporate activity within the first half of the year.
He stopped short of mentioning the need to draw up a supplemental budget to help fund job programs. It would undermine fiscal discipline to implement extra spending plans for three consecutive years. Moreover, creating short-term jobs with additional funds would do little to fundamentally improve employment conditions.
The government should focus on lifting the regulatory and labor restrictions that have weighed on companies in order to increase employment over the long term.
It is also necessary to consider lowering corporate tax rates to encourage local firms to make more investments here.
The Moon administration raised the maximum corporate tax rate to 25 percent from 22 percent last year. This move resulted in levies collected from companies increasing by 11.8 trillion won ($10.4 billion) from a year earlier to a record high of 70.9 trillion won in 2018. But domestic private investment decreased for the first time in six years, while overseas investment by Korean companies reached the highest level on record.
Effective policy changes would require Moon to make a shift in his economic philosophy and ditch the income-led growth drive, which critics say has led to worsening unemployment and widening income inequality.
The trio of presidential economic aides who advised Moon to adopt the misguided policy have all stepped down. Moon still says it is time to accelerate efforts and reap results from the ill-conceived policy. The latest job data, together with other downward indicators, have shown his view to be out of touch with the reality of actual economic conditions.
There is no reason for Moon to adhere to this dysfunctional policy until he leaves office in 2022.