Congratulations to A, let’s get to the salary table too … an erupting concern



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As wages have risen dramatically, primarily for information technology (IT) and large corporations, industry concern about inflation is increasing.  The photo shows the Samsung Group Solidarity Union demanding a large salary increase on the 8th of last month.  Yunhap news

As wages have risen dramatically, primarily for information technology (IT) and large corporations, industry concern about inflation is increasing. The photo shows the Samsung Group Solidarity Union demanding a large salary increase on the 8th of last month. Yunhap news

The winds of wage increases and incentives, which began in the gaming industry, are spreading to large companies. There are observations that the rate of increase in the minimum wage, which was low for two years, could also increase again this year. It is also analyzed that the increase in wages can generate inflation, which increases inflation as a whole in line with the economic recovery.
According to the Bank of Korea on the 28th, Korea’s expected inflation rate for March this year rose 0.1 percentage points to 2.1%. This means that the rate of increase in consumer prices is expected to register 2.1% for one year. The expected inflation rate was 1.8% until January of this year, but it increased even more in March after it rose to 2.0% in February. The expected inflation rate of 2.1% is the highest since July 2019. The rate of increase in consumer prices is also decreasing. It increased from 0.5% in December last year to 0.6% in January this year and shot up to 1.1% in February.

Economists believe that inflation could rise further. This is because the January-February figures did not reflect salary increases for information technology (IT) companies and large corporations. This year, game companies have increased their annual salary from 8 million won to 20 million won, and Samsung Electronics also decided to increase their average annual salary by 7.5% this year.

“Wage increase without productivity improvement … just raise prices and devour industrial competitiveness”
The burden of corporate labor costs increases, leading to a decline in employment and investment.

“Congratulations on the salary negotiation for Electronic A. Let’s go to the ‘salary price cake’ (sky high).”

‘Blind’, an anonymous bulletin board exclusively for office workers, talks about company salary increases every day. The main content is that our company also has to raise wages. The expectation that wages will rise is also spreading. However, if wages increase without increasing productivity, firms are forced to reduce employment, investment and production. There is growing concern that inflation could increase and national income decrease.

○ The inflation pressure increases

The Bank of Korea put the wage level outlook for January-March this year at 112. It was the highest after February (116) last year, just before the Corona 19 crisis. If this index exceeds 100, it means that more people predict that wages will increase in the future.

The desire to increase wages this year started in the gaming industry. Gaming companies such as Webzen (20 million won) and NCsoft (13 million won based on development work) Nexon (8 million won) Netmarble (8 million won) and Vespa (12 million won) have increased salaries from 8 to 20 million won. year. Samsung Electronics and LG Electronics also decided to increase their annual salaries by 7.5% and 9.0%, respectively. Workers are baffled by successive wage increases.

This is the result of a competition for talent in which gaming and Internet companies compete for developers and data analysts. In addition, ‘Generation MZ’ (Generation Millennials + Gen Z born after 1995) shared company information such as salaries and incentives in real time through SNS and requested a salary increase that also had an impact.

Some analysts say that growing demand for wage increases may increase inflationary pressure (ongoing inflation). This is the result of the recent rise in prices of raw materials and agricultural products, and the government and the BOK released money in response to the Corona 19 crisis. There is concern that if wage increases are added, the range of Inflation will increase even more in the future.

However, it is noted that a wage increase without an improvement in productivity will result in a side effect of rising prices while undermining industrial competitiveness. Professor Park Young-beom from Hansung University’s Department of Economics said: “If the salary increase continues, it will lead to the demand for salary increase from workers of the same or similar type of business.” He said.

The burden of labor costs for companies is increasing relatively. The share of labor income, which is the share of labor income, such as wages, in total national income, was the highest ever at 65.5% in 2019. Compared to 63.5% in 2018 , increased 2 percentage points. This is because the operating surplus, which means corporate profit, etc., decreased by 6.9% in 2019, while the wages of workers (employee compensation) increased by 3.4%.

○ Earnings from work may decrease

There is also concern that jobs and incomes will decline if demand for wage increases continues throughout the industry without improving productivity. This means that the minimum wage can be drastically increased, causing another problem. The Moon Jae-in administration increased the minimum wage by 16.4% in 2018 and 10.9% in 2019. As a consequence, small businesses and the self-employed, where minimum wage workers mainly work, they have significantly reduced their employment. According to the National Statistical Office, in 2018, small businesses with fewer than five workers and self-employment decreased by 240,000.

There is also a growing voice that the industry as a whole needs to increase labor productivity due to the exit of the zombie companies. This means that labor productivity must be improved and the gap between wages, which is increasing, must be reduced.

According to the BOK’s ‘March 2021 Financial Stability Report’, the proportion of companies with an interest compensation ratio (operating income ÷ interest expense) less than 1x at the end of last year was 40.7% of the Listed and unlisted companies surveyed (2,175), which was 3.4 percentage points. If the interest compensation ratio is less than 1x, it means that the operating profit cannot even cover the interest expense. The proportion of companies with an interest compensation rate lower than 1x is 30.9% in 2016, 32.3% in 2017 and 35.7% in 2018, which is increasing every year.

The rise of zombie companies is undermining the competitiveness and labor productivity of the entire manufacturing industry. According to the BOK, the labor productivity of zombie companies is only 48% of that of general companies. The BOK estimates that if the number of zombie companies does not increase, the labor productivity of general companies will increase by an average of 1.01%.

Reporter Kim Ik-hwan / Baek Seung-hyun [email protected]

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