By Lee Hyo-sik
Carmakers and other manufacturers here have been grappling with rising labor costs in recent years while struggling to bolster sales amid intensifying competition and other unfavorable business conditions both domestic and abroad.
Companies are expected to face greater pressure from the government and labor unions to hike wages by larger margins in the coming years, which could chip away at their global competitiveness, according to analysts Wednesday.
They say President Moon Jae-in's pledge to raise the minimum wage and reduce working hours will likely wreak havoc on labor-intensive industries. And Moon's drive to force businesses to offer employees better job security by turning irregular workers into regular ones will further increase their financial burden.
According to CEO Score, a corporate information provider, 334 large domestic companies spent 5.9 percent of their sales to pay employees in 2016, up from 5.4 percent two years ago.
The firms paid a combined 94.26 trillion won in wages last year, up 6.4 percent from 2014, while their sales declined 1.9 percent to 1,607.6 trillion won.
In particular, carmakers and auto parts makers spent 10.2 percent of their revenues on average to pay salaries. In 2016, workers at Hyundai Motor and Kia Motors received wages equivalent to 15.2 percent and 10.3 percent of the firms' sales, respectively.
In contrast, semiconductor, smartphone and other electronics makers spent an average of 8.8 percent of their sales on employees' pay, followed by shipbuilders (8.5 percent), steelmakers (5.8 percent) and petrochemical firms (3.4 percent).
"Some industries are more burdened with rising labor costs than others," said an executive at one of the country's major business associations, who declined to be named.
"But the trend is that businesses, particularly small ones, have begun struggling with higher wages when their bottom lines fail to improve on intensifying competition, higher taxes and other unfavorable conditions."
In particular, local carmakers are wrestling with soaring wages as union workers threaten to strike year after year to press management to accept their demands. This year, except for Ssangyong, workers at Hyundai, Kia, Renault Samsung and GM Korea voted to go on strike.
"Union workers, who demand a steep wage hike every year, have been the biggest corporate risk for Hyundai and other local carmakers," the executive said. "The union's excessive demands have made it more difficult for the companies to hone their core competence and invest in R&D activities. If the court sides with unions by recognizing bonuses and other financial incentives as part of base salaries, the carmakers will further lose their competitive edge."
He said a 16.4 percent increase in the hourly minimum wage to 7,530 won next year will place a heavier financial burden on Korea Inc. He said the government campaign to reduce working hours and turn contract workers into permanent ones will hike labor costs even higher.
"Labor-intensive, small enterprises will be most affected by the minimum wage hike, fewer working hours and strengthened job security," the executive said. "These changes, driven by the government to increase households' disposable income, will increase labor costs for corporations."
Carmakers and other manufacturers here have been grappling with rising labor costs in recent years while struggling to bolster sales amid intensifying competition and other unfavorable business conditions both domestic and abroad.
Companies are expected to face greater pressure from the government and labor unions to hike wages by larger margins in the coming years, which could chip away at their global competitiveness, according to analysts Wednesday.
They say President Moon Jae-in's pledge to raise the minimum wage and reduce working hours will likely wreak havoc on labor-intensive industries. And Moon's drive to force businesses to offer employees better job security by turning irregular workers into regular ones will further increase their financial burden.
According to CEO Score, a corporate information provider, 334 large domestic companies spent 5.9 percent of their sales to pay employees in 2016, up from 5.4 percent two years ago.
The firms paid a combined 94.26 trillion won in wages last year, up 6.4 percent from 2014, while their sales declined 1.9 percent to 1,607.6 trillion won.
In particular, carmakers and auto parts makers spent 10.2 percent of their revenues on average to pay salaries. In 2016, workers at Hyundai Motor and Kia Motors received wages equivalent to 15.2 percent and 10.3 percent of the firms' sales, respectively.
In contrast, semiconductor, smartphone and other electronics makers spent an average of 8.8 percent of their sales on employees' pay, followed by shipbuilders (8.5 percent), steelmakers (5.8 percent) and petrochemical firms (3.4 percent).
"Some industries are more burdened with rising labor costs than others," said an executive at one of the country's major business associations, who declined to be named.
"But the trend is that businesses, particularly small ones, have begun struggling with higher wages when their bottom lines fail to improve on intensifying competition, higher taxes and other unfavorable conditions."
In particular, local carmakers are wrestling with soaring wages as union workers threaten to strike year after year to press management to accept their demands. This year, except for Ssangyong, workers at Hyundai, Kia, Renault Samsung and GM Korea voted to go on strike.
"Union workers, who demand a steep wage hike every year, have been the biggest corporate risk for Hyundai and other local carmakers," the executive said. "The union's excessive demands have made it more difficult for the companies to hone their core competence and invest in R&D activities. If the court sides with unions by recognizing bonuses and other financial incentives as part of base salaries, the carmakers will further lose their competitive edge."
He said a 16.4 percent increase in the hourly minimum wage to 7,530 won next year will place a heavier financial burden on Korea Inc. He said the government campaign to reduce working hours and turn contract workers into permanent ones will hike labor costs even higher.
"Labor-intensive, small enterprises will be most affected by the minimum wage hike, fewer working hours and strengthened job security," the executive said. "These changes, driven by the government to increase households' disposable income, will increase labor costs for corporations."
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