South Korea’s 30 largest companies by sales saw their labor costs hit all-time high in the first quarter this year, suggesting the widening negative ripple effect from near 30-percent hike in minimum wage over the last two years and universal cutback in statutory work hours.
According to analysis of financial statements by the Maeil Business Newspaper and market tracker FnGuide on Thursday, the nation’s top 30 firms by sales paid a combined 12.54 trillion won ($10.5 billion) to their employees during the January to March period, up 22.9 percent from the first quarter in 2017 before President Moon Jae-in was elected in May. The growth was more than 15 times faster than the 1.5 percent rise between 2015 and 2017.
Excluding the two heavyweights Samsung Electronics and SK Hynix, the combined payrolls of 28 biggest firms rose 10.4 percent to 8.52 trillion won over the same period. The swelling labor costs aggravated their balance sheet amid slow business in the first quarter.
The analysis indicates that the current liberal government’s pro-labor policies, characterized by steep minimum wage increases and a cut in working hours, have sent up labor cost and hurt hiring as well as investment.
Total operating expenditures of the 30 largest companies reached a record high of 43.63 trillion won in the first quarter, up 4.3 percent from the same period in 2017. The growth was also driven by the increased depreciation costs caused by expanded facility investment and some firms’ reflection of one-time losses amid tightening audit standards, according to data.
Increased labor cost translates into higher operating expenses and pares that much in the profit account. Operating profit is the profit a company is left with after subtracting cost of goods sold and operating expenses from revenue. Cost of goods sold is the total costs spent on producing goods sold in a company including the cost of materials and labor costs for research and development (R&D) workers. Operating expenses refer to costs associated with running a business including payroll, rent, taxes, amortization and depreciation and loss reserve.
By Moon Il-ho and Choi Mira
[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]