President Moon Jae-in’s commem- orated his first 100 days in office on August 17. Despite not having enough time to prepare his transition into office, the Moon administration has shown incredible aptitude in creating and implementing policies. Day after day, numerous new policies have been announced by the administration. His major policies can largely be grouped into two basic categories: policies dealing with welfare and policies dealing with job creation.
In the first category, one of the most controversial decisions was regarding the minimum wage. The Minimum Wage Committee raised the minimum wage by 16.4 percent to KRW 7530 (USD 6.63) an hour, causing SME owners to protest and sparking heated debates in academic circles. Some may argue that the decision will actually raise inflation and reduce employment, causing local factories to move abroad to find cheaper labor. But the Committee believes that higher income caused by rising minimum wages would stimulate consumption, making the economy grow faster and create new job opportunities.
Another noteworthy welfare policy introduced by the Moon administration is the expansion of the basic monthly pension program from the current KRW 200,000 (USD 176) to KRW 250,000 (USD 220) to 70 percent
of the elderly population.
Furthermore, a new subsidy of KRW
100,000 (USD 88) will be provided to
every child under the age of five starting
next year. The two programs would cost an
additional total of KRW 5.7 trillion (USD
5.02 billion). President Moon further promised to reimburse major hospital
expenditures. The success of these welfare policies
critically depends on how fast the Korean
economy grows to sufficiently finance the
high price tag of these programs.
In that regard, the second category of policy, namely job creating policies, deserves more careful scrutiny. As Moon emphasized a number of times, all these welfare policies depend on job creation for their success. Jobs provide income for people and tax revenues for the government. So far, the job creation policy of the administration has taken a two track approach: one public, one private.
In the public sector, the administration plans to hire more than 810,000 public workers in five years. About 170,000 new policemen, fire fighters, teachers and other social workers are scheduled to be employed. Although opposition party members are vehemently discrediting this move, the president and his administration remain steadfast. If this unprecedented public hiring project succeeds in making people’s income and the economy grow faster, then macroeconomics textbooks might have to be revised from the orthodox Keynesian growth perspective to the heterodox ‘Moonian’ perspective.
Putting public hiring projects aside, the more practical and appealing parts of Moon’s job creation policies are the three part tax exemption programs. The first is called ‘Job Creation Tax Exemption’. If a company hires one
additional full time
employer, then the tax authority allows a
tax exemption of KRW 10 million (USD
8800). The second program is the
‘Increased Income Tax Exemption’.
According to this program, the authority
allows tax credit to 10 percent of the specified wage increase. The specified increase
in income is defined as the gap between the
actual increase in wage and the average
wage increase in the industry. The third
program is the tax exemption plan to speed
up the transfer of non-regular workers to a
regular position. If a non-regular worker is
transferred to a regular position, the tax
authority allows between KRW 5 million
(USD 4,445) and KRW 7 million (USD
6,223) in tax exemptions. Also, new FDI
firms are allowed bigger tax credits, as they
will receive 100 percent tax exemptions in
the first five years, and 50 percent in tax
credit the following two years.
Everybody knows that it is the private sector that creates jobs. And the administration has a lot of work to do in order to support the private sector on this issue. That is why the the role of foreign firms are especially crucial. Korea wants foreign firms to continue to create innovative technology and foster talent. The Moon administration clearly understands the importance of global cooperation and will no doubt work closely with foreign companies for shared prosperity.