Thread by @Trinhnomics

President Moon raised minimum wages in hope that will be a boon for consumption & growth. Instead, it hurt small businesses the most as they can't offshore (big ones accelerate move to Vietnam etc) so they cut jobs or have erosion of profit margin.

reuters.com/article/us-sou…

The private sector gradually shrinks, whether you are a small medium enterprise (reducing costs & reduction of profits) or large firms that just reduce costs by moving offshore or those that can't have declining profits.

So what happens? INVESTMENT DECLINES. JOB LOSSES.

And?

As the private sector deteriorates, what happens is that there is A RISING NEED FOR THE PUBLIC SECTOR (Master Keynes staging a comeback).

So Pres Moon expands social welfare. Creates jobs just for jobs in public sector as the private sector slows.

He proposes a larger budget👈🏻

Of course by now, with profits falling so much for Korean firms & people more hopeless w/ worsening economic conditions & fewer jobs, what do they want?

An expansion of the welfare system as they need that now b/c the private sector has to shrink investment & costs to survive 👌🏻

By the way, South Korean firms are doing pretty badly & Korea's stock market has been under-performing the region.

Why? Because Pres Moon policy raises input costs - labor - and also raises taxation for large firms.

Meanwhile, Taiwan does the opposite. It has RESHORING policy👈🏻

Taiwan has incentives for Taiwanese firms that want to move home & makes it much more friendly to in Taiwan

As a result, consumption & investment rise in Taiwan as the private sector thrives. Taiwan growth accelerates & exceeds North Asia's performance & surpasses Korea's growth

The deceleration of investment & especially exports in South Korea is the SHARPEST in the region.

These things aren't just cyclical in nature as other economies have the same issue. Korea's exacerbated by policy that impact firms' competitiveness & let's not forget firms employ!

So his pro-labor policy of raising the minimum wage sharply has backfired big time. But instead of reversing it, Pres Moon has doubled down on this.

He has reshuffled the cabinets many times w/ the same results - exports still falling in Nov & imports WORSE.

So, here we are.

In case u are wondering, min wage in South Korea is now KRW8,350 & usuing the 1179.1 FX rate today then it is USD7.08 (FX rate vary).

How did it get there? 10.9% increase in 2019, followed by a massive increase of 16.4% in 2018. That means that it has risen 29% since end 2017 👈🏻

Allow me to explain why the min wage situation in South Korea has dampened growth, esp small enterprises.

Rose 29% to KRW8,350 or USD7.08 so roughly the same as the USA. Taiwan is cheaper at TWD150 or USD4.9
Korea is 44.5% more expensive than Taiwan. Moon made Korea expensive👈🏻