[Economic Insight] The Yellow Envelope Act Follows the Path of Moon Administration's Three Major Policy Failures

Jaehyung Jung, Chief of Sejong Central Reporting Headquarters and Economic Policy Specialist

The Moon Jae-in administration implemented some effective policies, such as its response to the COVID-19 crisis, but it also made significant policy mistakes. The three most problematic policies were the rapid increase in the minimum wage, the nuclear phase-out, and the adoption of real estate policies similar to those of the Roh Moo-hyun administration.

Starting with real estate policy, the Moon administration’s approach led to a sharp surge in housing prices in Seoul. This was one of the main reasons the Democratic Party lost the 20th presidential election. The sense of deprivation among the nearly 50% of Seoul residents who do not own homes, as well as among people in other regions, was significant. The administration once again entrusted Suhyeon Kim, who oversaw real estate policy during the failed Roh Moo-hyun administration, with the same responsibilities. The same demand-suppression measures were repeated, such as heavy taxation and regulations on multiple homeowners, resulting in another policy failure. The “one smart property” strategy became widespread, causing Seoul housing prices to soar, and even in the outer districts such as Nowon, Dobong, and Gangbuk, the price of a 99-square-meter apartment exceeded 1 billion won. These prices have remained at that level to this day. This is a stark contrast to the Lee Jaemyung administration, which managed to curb housing prices to some extent through the June 27 measures, including a 600 million won cap on mortgage loans.

The nuclear phase-out policy was contradictory: while the government promoted exporting nuclear power plants abroad, it pursued nuclear phase-out domestically, raising concerns in the United Arab Emirates (UAE), the export destination for the Barakah nuclear plant. As a result, then-Chief Presidential Secretary Im Jongseok had to be urgently dispatched to allay their concerns. Domestic nuclear-related companies lost work opportunities, and university students increasingly avoided nuclear-related majors, leading to the collapse of the nuclear ecosystem. This occurred even as nuclear power was being recognized internationally as an eco-friendly, carbon-free energy source. Ultimately, it took considerable time and expense to restore the situation to its previous state.

The “10,000 won minimum wage” was a campaign pledge of Moon Jae-in, the Democratic Party candidate in the 19th presidential election. He promised to raise the minimum wage to 10,000 won within three years, by 2020. Given that the minimum wage was 6,470 won in 2017, reaching 10,000 won by 2020 would have required an average annual increase of about 16%, totaling 54.5%. Despite opposition from self-employed groups, economists, and the media, who presented various arguments and evidence against it, the policy was pushed through. The result was a reduction in jobs. Self-employed individuals, who were barely breaking even, responded by introducing kiosks, relying on family labor, and shortening business hours. Although these jobs were not highly paid, they were nevertheless valuable, and many disappeared. The Moon administration raised the minimum wage by 16.4% for 2018, its first year in office, then lowered the rate to 10.9% for the following year. For 2020, the increase was just 2.9%, to 8,590 won, falling far short of the 10,000 won target. The increase for 2021 was only 1.5%, effectively leaving the minimum wage unchanged. This was an acknowledgment of the negative effects caused by the rapid minimum wage hikes, but by then, many jobs had already disappeared.

The Lee Jaemyung administration is taking a different path from the Moon administration. It is working to shed its left-leaning image and is positioning itself as a “pragmatic government.” In real estate policy, it is not trying to solve issues through tax hikes, and in the nuclear sector, it has maintained the previous administration’s stance, as demonstrated by the successful bid for the Czech nuclear project. However, labor issues are an exception.

Despite opposition similar to or even greater than that faced during the minimum wage debate, the administration remained unmoved on the Yellow Envelope Act (amendments to Articles 2 and 3 of the Trade Union and Labor Relations Adjustment Act), and the Democratic Party ultimately passed the bill. I will omit the specific arguments and evidence, as they are already well known. In the end, many side effects and negative consequences are likely to emerge. The Ministry of Employment and Labor says it will create guidelines to mitigate these effects, but even ministry officials know these guidelines will not be effective. Many provisions in the law are ambiguous, so whichever side-labor or management-cannot accept the situation under the guidelines will likely seek a court ruling. This will require significant time and expense for society as a whole.

Kim Yongbeom, Policy Chief of the Presidential Office, commented on the Yellow Envelope Act, saying, “If the concerns materialize, we can simply revise the law again at that time.” Domestic companies will be looking for opportunities to move overseas. Coincidentally, due to the Korea-US tariff negotiations, there is a need to make large-scale investments in the United States. Not only large corporations but also subcontractors will likely use this opportunity to relocate to the US or other countries. Foreign companies will be reluctant to make new investments, and those already in Korea may seek to withdraw.

The Moon administration’s real estate policy, nuclear phase-out, and minimum wage policies were only revised after their many negative consequences became clear. It is like destroying the barn, losing the cow, and then repairing the barn. The Yellow Envelope Act is likely to produce the same result.