Over the weekend, President Moon doubled down on his income-led strategy even as Korea’s higher wages backfire as firms cut back hiring to protect profit margin. Why? B/c labor market data is weak after his policy so therefore need to accelerate! Let’s talk about why this is bad. pic.twitter.com/7cJchXscdI
— Trinh (@Trinhnomics) August 27, 2018
What do LARGE firms do when costs rise? THEY OFFSHORE PRODUCTION (to places like Vietnam). Chart shows the rapid increase of FDI assets. Korean firms have raised investment in the US both in response to higher tariffs but also reduced tax rates in the US and investment incentives pic.twitter.com/wUTxWClXOh
— Trinh (@Trinhnomics) August 27, 2018
What happens when they offshore production? DEMAND FOR LABOR DECLINES – & that is precisely what happened in Korea – manufacturing jobs declined. Who is most affected? Young people. Labor force growth is the LOWEST since the GFC.
So higher minimum wage > offshore > fewer jobs pic.twitter.com/7NtfGCJ2Et
— Trinh (@Trinhnomics) August 27, 2018
What about small & medium enterprises & low-skill workers? Are they thrilled that min wage is now HIGHER (&higher in 2019)?
Nope, b/c CAPITAL is MOBILE but LABOR, esp low-skill, ISN’T.
So SMEs are stuck w/ higher costs (so they cut back hiring) & workers have fewer jobs.
— Trinh (@Trinhnomics) August 27, 2018
> Over the weekend, [South Korean] President Moon doubled down on his income-led strategy even as Korea’s higher wages backfire as firms cut back hiring to protect profit margin.
> Why? B/c labor market data is weak after his policy so therefore need to accelerate!
Simple, precise, Accurate
The result should not be unexpected: Approval for South Korea President Moon Hits New Low.
> The approval rating for South Korean President Moon Jae-in has hit a record low amid growing resistance to a recent minimum wage increase.
Curiously a “new low” was 62%. But it was 83% in the first week of May, a week after his summit with North Korean leader Kim Jong Un.
Double Down
Yesterday, Reuters reported South Korea President Moon says government to strengthen income-led growth stance.
> South Korea’s chief presidential policy adviser vowed on Sunday to not only stick with but strengthen the government’s income-led growth strategy, dismissing increasing calls to ditch the policy following a series of poor economic data.
> Poor employment and household income data released in recent weeks raised concerns that President Moon Jae-in government’s push for a sharp minimum wage hike and shorter work hours did more harm than good to Asia’s fourth-largest economy.
> “The Moon administration is seeking a paradigm shift in managing the economy, for the first time in decades,” Jang said. “The government recognizes the gravity of the recent employment and income index and will do its best to tackle the current situation by employing all policy tools.”
Loud and Clear Message
If it doesn’t work, double down. That’s the universal message from central bankers and politicians.
Mike “Mish” Shedlock
“Korean firms have raised investment in the US both in response to higher tariffs but also reduced tax rates in the US and investment incentives.”
In this instance, the Trump tariffs are good for the USA. But no one wants to talk about it here!
SK takin page out of Beijeng play book,use nothin but slave labor…leads to zero domestic demand,which forces companies to export everything (to guess where!) to stay in business.Question SK companies have to ask is slave labor (like money printing)the answer to all your problems.
As someone once said — Regardless of what politicians do, the true Minimum Wage is the same as it always has been: Zero!
A manipulated market always manipulates back. For each action, there is an equal and opposite reaction.