Experts Say "Wage Increase Trend in Industry Used as Material for Interest Rate Hike"

Wage Increase-Driven Inflation Deepening Leaves No Choice but to Use Interest Rate Hike Card
Continued Vicious Cycle of Wage Hikes and Price Increases May Undermine Overall Economic Stability

[Image source=Yonhap News]

[Asia Economy Reporter Seo So-jung] "The widespread wage increase trend sweeping through the industry is heightening the necessity for interest rate hikes."

As the wage increase momentum triggered by the IT sector rapidly spreads across the entire industry, economic experts foresee wage factors emerging as a key variable in the future direction of monetary policy. In a situation where concerns over an economic downturn due to the Omicron variant persist, if wage increases trigger a sharp rise in prices leading to intensified inflation, the use of interest rate hikes becomes inevitable.

Professor Sung Tae-yoon of Yonsei University’s Department of Economics expressed concern, saying, "The structure where price increases lead to wage hikes, which in turn stimulate further price increases, is already taking hold in the United States," adding, "In Korea as well, as wages rise, the possibility of additional price pressures is increasing."

Experts particularly pointed out that even if some wage increases due to inflation are unavoidable, indiscriminate across-the-board raises unrelated to performance should be avoided. This is because a continuous vicious cycle of alternating wage and price increases could severely undermine the overall stability of the economy.

Professor Kang Sung-jin of Korea University’s Department of Economics stated, "It is not a big problem to provide performance-based rewards for areas where individual companies excel, but the issue arises when the ripple effect extends to general companies with poor performance, leading to an overall wage increase atmosphere," adding, "In a situation where domestic and international uncertainties have increased due to the prolonged Ukraine crisis, this can become a burden on corporate management and negatively impact the entire industry."

In Korea, where the IT industry holds a significant share, the strong performance of these companies amid the COVID-19 situation has led to a widespread atmosphere of large-scale performance bonuses, which closely affects other industries. This can also become a burden for the monetary authorities ultimately responsible for price stability.

Professor Kang said, "In the case of the United States, concerns over the interaction between prices and wages have made big rate hikes a foregone conclusion, and a recession is expected from the second half of next year," adding, "From the Bank of Korea’s standpoint, unable to control wage increases, it has no choice but to respond through interest rate hikes."

Professor Emeritus Kim Jung-sik of Yonsei University’s Department of Economics mentioned, "In South American countries, the vicious cycle between prices and wages has further deepened the economic crisis," and noted, "With abundant liquidity in the market, the interaction between wages and prices is intensifying, making it highly likely to become a factor for the Financial Monetary Committee’s future interest rate hikes."

This content was produced with the assistance of AI translation services.