[The Editors' Verdict] SMEs in the Era of 100 Million KRW Salaries

Kim Min-jin, Head of the Ministry of SMEs and Startups

Among listed companies, Kakao had the highest average annual salary for employees last year. The average annual salary of about 2,000 male employees at Kakao was 217 million KRW. The average for all 3,500 employees, including women, was 172 million KRW. KB Financial Group had 170 million KRW, SK Telecom 162 million KRW, and Samsung Electronics 144 million KRW. Samsung Electronics' salary is the average for 113,500 regular employees. There are numerous large companies with over 10,000 employees, such as POSCO or major banks, as well as startups, where the average salary exceeds 100 million KRW.

The polarization of the labor market is severe. Wage and working hours issues are among the biggest challenges cited by small and medium-sized enterprise (SME) owners. This was true 10 or 20 years ago and remains so today. Shortening working hours is also related to wage increases and productivity, so both ultimately come down to wages and money. For business owners, wages are a cost. Efforts to reduce production costs are natural, but labor is different in nature from machinery or raw materials. This is because the source is people. Therefore, it is difficult and complex. According to data from Statistics Korea on wage earners' income results (as of December 2020), the average monthly income for large companies was 5.29 million KRW, while for SMEs it was 2.59 million KRW. The difference remains large at 2.04 times.

SMEs suffer from chronic labor shortages amid employment difficulties. The solution is far off. People will flock to places that offer high salaries, good working environments, and strong name value, while the opposite will happen elsewhere. A former chairman of the Korea Federation of SMEs once publicly argued that "wages at large companies should be frozen for five years." The reason was that the wage gap was so severe that SMEs could not be competitive. Some SME owners still express similar views today. Although it reflects their frustration, it is also sincere. However, no one believes their ‘sincerity’ will be realized. Ultimately, wages are determined by the market.

There is no sharp solution to polarization, but it is not that there are no methods at all. If rules are supplemented to enable fair competition, gradual improvements will be possible.

The delivery price linkage system is one such method. This system mandates that increases in raw material prices be reflected in delivery prices. If raw material prices rise by 50% but delivery prices increase by only 10%, the remaining 40% must be borne by SMEs. Research also shows that when inflation rises, the decrease in operating profit for SMEs is three times that of large companies.

Unfair trading practices between prime contractors and subcontractors must also change. When meeting with representatives of subcontractors, many cannot even speak up properly. They are overly cautious of the large prime contractors. I have heard multiple times that they are pressured relentlessly. The government must pay special attention to this.

It is also essential that SMEs with technological capabilities actively expand overseas through the infrastructure of large companies or receive financial support through funds. Win-win cooperation, such as incentives for excellent partner companies and support for smart factory technologies, should become routine. The perspective that views large companies’ efforts for SMEs as charity or benevolence must be abandoned. Approaches differ drastically depending on whether it is seen as social return or responsibility versus charity. Starting from here, nurturing SMEs will become routine, and the gap will be narrowed even slightly.