The Inernational Monetary Fund (IMF) advised the South Korean government to determine its rate of increase in minimum wage in line with labor productivity growth and reduce support for small and medium-sized enterprises (SMEs) in stages.
“Labor reform and commodity market reform are the key to a higher potential growth rate and more jobs should be created in the private sector with labor market flexicurity enhanced,” the IMF pointed out, continuing that a rise in wage exceeding labor productivity improvement can lead to a decline in industrial competitiveness. In South Korea, the minimum wage rose by no less than 29.1 percent last year and this year, hitting small firms and businesses hard and negatively affecting domestic economic situations.
“Enterprises should be less regulated and entry barriers should be lowered,” the IMF went on to say, adding, “At the same time, existing protection for companies should be reduced so that manufacturing portfolios can be diversified and the service industry can be opened more with the private sector taking a bigger role.”
The IMF also said that it supports the South Korean government’s supplementary budget plan and the plan needs to be expansionary enough for the sake of economic growth, job creation and more balanced economic indices. “In the long term, tax reform is required for innovation, efficiency improvement and more growth,” it added, stressing that much more fiscal income is necessary with a change in population structure ongoing.