The Two Faces of Inflation
Bae Jaehong (Policy Research Team)
Workers, ordinary people, small and medium-sized business owners and the self-employed are enduring the pain of the economic recession with their entire bodies.
With the outbreak of COVID-19 at the end of 2019 and its spread across the world, workers, ordinary people, small and medium-sized merchants and the self-employed were inevitably hit hard by the impact on the economy of each country’s policies to prevent the spread of the virus such as border closures.
People’s movement rapidly decreased as more people began working from home and many restaurants and cafes closed due to the lack of customers. In order to overcome the crisis, each country has injected huge amounts of money to restore the economy, but workers, ordinary people, small and medium-sized business owners and the self-employed are still experiencing much hardship.
Recently, inflation-related news has been heavily covered in the media. Korea’s consumer price index rose to 3.2% in October 2021 and has been steadily on the rise, reaching 5.4% in May 2022. The rise in cost of living that consumers actually feel is now 6.7%. Industrial products rose by 8.3% over the previous year, while agricultural products rose by 4.2%. The cost of public utilities such as electricity, gas, and water also surged 9.6%.
▲ The cost of living index is indicated in blue; the consumer price index in red (Source: Korea Daily)
The same is true in the United States. This February, the U.S. consumer price index was 7.9%. However, in June it rose to 9.1%. In other words, inflation is not particular to any specific country. The same thing is occurring across other capitalist countries.
▲ U.S. consumer price inflation trend, unit: % of the previous year (Source: Donga Ilbo)
As prices rise, company profits are bound to rise in proportion. In the case of Samsung Electronics, according to the FnGuide, the financial data firm, the 2022 annual operating profit for Samsung Electronics is estimated at 58.29 trillion won. With an increase of 8.7% from the previous year, it is expected to record an all-time high. In addition, the four domestic oil refineries (SK Innovation, S-Oil, GS Caltex, and Hyundai Oilbank) all recorded the largest operating profits ever recorded on a quarterly basis.
In contrast, workers and ordinary people have reached a point where they have to worry about their livelihoods due to constant inflation. When inflation occurs, the corresponding wage of workers should also rise. In Korea, in particular, where the proportion of low-wage workers is high, the minimum wage should be raised to an appropriate level where people do not have to worry about their livelihood. In terms of the ratio of low-wage workers among OECD member countries, the U.S. ranks first with 24.91%, followed by Korea with 23.5%. However, the reality of working class people is only one of deterioration. For example, it is estimated that there are approximately one million public officials in Korea. If you look at their salaries, adding various allowances and deductions to the minimum wage, you get a monthly wage of 1.83 million won. The government also capped the salary of level 5 civil servants and below at 1.7%.
Since 2016, workers have insisted on a minimum wage of 10,000 won. Even in 2018, when so-called income-led growth gained strength in politics, the minimum wage did not exceed 10,000 won and was only raised to 7,530 won (increasing 16.4% from the previous year). The minimum wage for 2023 has been announced and confirmed at 9,620 won. Not surprisingly, it still falls below 10,000 won.
▲ Korea’s minimum wage trend. The bar graph shows the minimum wage (won), and the line graph shows the increase (%). (Source: Newspim)
▲ Workers protesting the low wage growth rate compared to the inflation rate (Source: Screen capture of MBC News Desk)
The government and corporations have actively opposed the increase in minimum wage for workers. It is the familiar logic of corporations that a wage increase encourages inflation and that the unemployment rate will rise when inflation rises. However, this logic is mere fiction. According to a press release from the National Statistical Office in March 2022, the employment rate has risen and the unemployment rate has fallen.
Employment rate for age group 15-64 rose 2.1% from the previous year to 67.8% (OECD standard of comparison)
Youth employment rate (age group 15-29) rose 3.0% from the previous year to 46.3%
Unemployment rate fell 1.3% from the previous year to 3.0%
Youth unemployment rate (age group 15-29) fell 2.8% from the previous year to 7.2%
The number of employed rose by 831,000 people from the previous year to 27,754,000 people
▲ (Source: Statistics Korea press release)
Ultimately, only when workers’ pockets are filled can economic activities be carried out without any impact on inflation. When the real wage of workers decreases, consumption demand decreases, which in turn causes firms to reduce production and raise prices to pass on the interest burden. If this situation worsens, it turns into ‘stagflation’ in which inflation continues while the economy goes into recession. Hence, in order to keep this demand even at a minimum, wages must be raised at the rate of inflation or higher. It must be preserved so that real wages do not fall and demand does not decrease. Without an increase in workers’ wages, it is impossible to avoid a situation in which the damage of inflation is passed onto consumers and workers. Regardless of economic recession, everyone has basic rights. Livelihood issues, housing issues, the right to health care and education, etc. Inflation only exacerbates the polarization between the rich and poor, filling the pockets of companies, especially large corporations, while working-class people worry about their livelihood. Even in a situation where the livelihood of workers and ordinary people are imperiled due to inflation, companies pursue profits on capital, as the state steps in to prevent workers’ resistance. An economic crisis can occur at anytime. What is important is that the capitalist economic system aggravates the polarization of the rich and poor. It is time to do away with economic inequality and think about a new economic system without the exploitation of workers and ordinary people.