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Scope of ordinary wage: critical to FDI (September 8, The Korea Times)
- Date : 2013.09.09
- Views : 1098
Scope of ordinary wage: critical to FDI
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In a maturing but rapidly sagging economy under a new administration, the robust provision of a predictable business environment for potential investors is of utmost importance for an economic boost. At the moment, Korea faces exactly this challenge. I have recently and often been told by many executives of foreign-invested companies, including GM Korea, that how the tangled issue of ordinary wages is resolved will decide whether they will increase investments in Korea or continue doing business here. Undoubtedly, the ongoing controversy on the scope and scale of ordinary wages is leading to mounting concerns and fears in domestic companies too, including automobile, shipping and construction companies and even small and-medium- sized enterprises (SMEs) overall.
The ordinary wage is a basic wage that guarantees the minimum average wage for workers and serves as the benchmark for calculating statutory allowances for overtime, night and holiday work. Companies should pay employees 150 percent of the benchmark ordinary wage for extra work and have to pay arrears retroactively for three years. Since the mid-80s, companies in Korea have paid, on top of the ordinary wage, a variety of bonuses and allowances regularly or irregularly such as pension subsidies, transportation expenses for the holidays, health improvement fees, bonuses during kimchi-making season, summer vacation bonuses, etc., in conformity with the instructions of the Ministry of Employment and Labor.
However, the Labor Standards Act does not clearly stipulate which items of allowances and bonuses should be included when determining ordinary wages. A Supreme Court ruling last year allowed a regular bonus to be included in calculating ordinary wages and caused substantial legal confusion, inviting an increasing number of lawsuits. As labor unions demand, if the scope of ordinary wages, through the addition of some or all regular bonuses, were to be extended, employees would enjoy a temporary and handsome wage increase, but companies could face severe financial difficulties that could lead to even the shutdown of companies.
As of the end of May, about 150 lawsuits regarding ordinary wages were filed by companies with more than 100 employees. The Korean Employers Federation estimates that immediate contingent liabilities to be borne by companies as a whole could exceed 38 trillion won, and, furthermore, that they would face an additional burden of 9 trillion won each year. It is no wonder that the executives of foreign-invested firms are perturbed by mounting uncertainties and extra burdens related to the ordinary wage issue.
Korea’s investment environment has some weaker points, such as higher wages, higher land prices and stronger labor unions, than those in China and Southeast Asian economies, as well as a system less transparent than that in Singapore and Hong Kong. For this reason, Korean companies have chosen to make huge overseas investments. As a result, between 2007 and 2012, Korean companies’ outbound foreign direct investment (FDI) reached $140.4 billion while Korea’s inbound FDI stood at a mere $45 billion, or less than a third of the outbound FDI of Korean companies.
How to cope with this? The answer is to expand supply chains and create jobs by attracting FDI in Korea’s parts, materials, and service industries as Korean companies extend their businesses abroad. At present, foreign-invested companies in Korea accounts for roughly 500,000 jobs and 20 percent of total exports. And, what they want most urgently is a predictable investment environment.
At this critical juncture, the Supreme Court’s well-timed public hearings last Thursday to settle the thorny issue of ordinary wages, in the presence of all its judges, showed sharply contrasting positions depending on labor or management. The hope is that the court will make a reasonable ruling to overcome Korea’s serious economic setbacks and create desperately needed jobs. The Ministry of Employment and Labor should improve administrative rules to clarify the wage system. And the National Assembly must exercise its wisdom to minimize confusion and uncertainties in the investment environment when enacting a new labor standard law. It is time to work out a win-win solution that can satisfy both the labor and the business in the pursuit of a predictable business environment.
http://koreatimes.co.kr/www/news/biz/2013/09/602_142408.html