E-mart, the nation’s largest discount store chain, has taken a bold step for its non-regular workers. The retail giant announced earlier this week that it would grant regular employee status to 10,000 workers currently employed by its in-house subcontractors.
The retailer plans to convert the status of the large number of workers next month, entitling them to stable employment until retirement age, a 27 percent salary increase and various welfare benefits, including health insurance and education subsidies.
What prompted the retailer to take the move was the recent labor audit by the government. After finding that the company had 1,978 illegally employed workers at 24 of its 146 stores across the nation, the government told it to hire them as regular workers or pay 19.7 billion won a month in fines.
True, the government forced the retailer’s hand. Nevertheless, it is worth noting that E-mart has decided to switch the status of as many as 10,000 workers at once. This would increase its labor costs by 60 billion won a year, an amount that could make a dent on its bottom line.
But the retailer opted to bear the costs to put an end to the controversy over its hiring practices and polish its tarnished image. It hopes the measure will enhance worker satisfaction and improve labor productivity.
E-mart’s decision is expected to have repercussions for other companies, private or public, that use similar employment arrangements.
In the retail sector, the impact is already palpable. Lotte Mart, one of E-mart’s rivals, said it would also give regular employee status to some 1,000 workers who are on the payroll of its in-house subcontractors but actually work as non-regular staff.
Bang Ha-nam, the nominee for employment and labor minister, said in a parliamentary hearing on Monday that he would order inspectors to look into the distribution industry as a whole, including department stores and other large retailers.
Companies in other sectors, such as autos, shipbuilding and steelmaking, must be feeling the pressure as they are well aware that the new government will soon start a drive to reduce the nation’s ever-growing non-regular workforce.
Under these circumstances, companies would do well to make voluntary efforts to change their old employment practices. They need to strictly follow the regulations on in-house subcontracting to avoid being punished for illegal practices.
More importantly, they need to take steps to gradually reduce their reliance on irregular workers and increase the regular workforce. When they employ non-regular workers, they should pay an honest day’s wage for an honest day’s work.
Domestic companies need to realize that their collective efforts to reduce labor costs could backfire by suppressing household income and dampening domestic demand. The squeeze on household income is also the primary factor behind the worsening household debt problems.
According to a recent study, corporate income grew at an annual rate of 18.6 percent in the 2006-10 period, while household income grew at a mere 1.7 percent, less than one-tenth of the corporate income growth rate.
In the period between 1975 and 1997, household and corporate incomes grew at almost identical rates ― 8.1 percent and 8.2 percent per year, respectively. This means that in recent years, corporations did not share their income fairly with workers. They can ignore the imbalance at their own peril.