An employee counts genuine Korean 50,000 won banknotes at KEB Hana Bank’s counterfeit banknote countermeasures center in Seoul, South Korea, on August 14, 2017. The photo was taken on August 14, 2017. The won rose for the first time in four days as top U.S. national security officials sought to dampen talk of an impending war with North Korea following daily heightened rhetoric. Photographer: SeongJoon Cho/Bloomberg via Getty Images
Bloomberg | Bloomberg | Getty Images
Few workers can say their bonuses are high enough to attract the attention of a country’s central bank.
But in South Korea, the phenomenon comes as workers in high-tech industries receive bonuses worth millions of won, prompting the Bank of Korea to warn of upward pressure on inflation.
The central bank said in a June 17 report that this year’s inflation is largely due to rising energy prices due to the Iran war. However, it added that even if the conflict subsides, inflationary pressures could gradually increase as income conditions improve and wage increases become more widespread.
More notably, the Bank of Korea said the recent large performance bonus payments seen at some large companies in the IT sector could spill over into broader wage increases, leading to upward pressure on inflation.
This comes as South Korea is already experiencing higher-than-target inflation, with the Bank of Korea expecting full-year inflation to be 2.7%, above the 2% target.
The Bank of Korea’s observation came in the wake of reports that huge bonuses were paid to employees of high-tech companies, particularly semiconductor giants SK Hynix and Samsung Electronics.
Although the exact amount has not been disclosed by the two companies, SK Hynix agreed to a wage agreement in September last year that set aside 10% of operating profits as bonuses for employees.
After threatening an 18-day strike in May, Samsung employees reportedly agreed that 10.5% of the semiconductor’s operating profits would go toward special bonuses for chip workers.
Memory chip workers, who earn a base salary of 80 million won ($52,400), are expected to receive a total of about 626 million won ($410,000) in bonuses this year, according to an anonymous labor union official cited by Reuters.
If SK Hynix achieves annual profits of 250 trillion won this year, employees are expected to receive more than 700 million won ($454,851) in bonuses, according to Reuters calculations.
The Bank of Korea said bonuses would not normally contribute much to demand pressure because they are not a permanent increase in income.
But the central bank said an “unusual and significant expansion in special bonuses” could cause wage increases to spread to other sectors, significantly increasing supply- and demand-side inflationary pressures.
“We cannot rule out the possibility that the actual impact will be greater than expected, especially as performance bonuses in the IT sector have recently been paid on a highly unusual scale,” it added.
retail celebrates
While central banks are concerned, some companies are already making arrangements to allow these workers to use the money they earn over the counter.
Lee Ji-ho, vice president of the Bank of Korea, said at a press conference on the 17th, “Sales have increased significantly in Suwon and the luxury goods sections of department stores, so there is a possibility that they will gradually expand.”
According to reports in South Korean media, some employees in the tech industry are spending large sums of money on luxury goods at department stores, with some reports of employees buying bags, jewelry, and watches.
The Bank of Korea announced that in Gyeonggi Province, where major semiconductor facilities for Samsung Electronics and SK Hynix are located, card spending growth this year was relatively higher in areas near chip production centers and adjacent residential areas compared to other regions.
South Korean media outlet Chosun Ilbo reported that consumption of luxury goods is “rapidly increasing” in the southern Gyeonggi region, where Samsung and SK Hynix are headquartered.
The newspaper reported in May that sales of luxury goods at Shinsegae Department Store branch in Gyeonggi Province increased by 53.6% compared to the same period last year, with sales of high-end jewelry increasing by 146.3% and sales of luxury watches by 85.3% over the same period. Overall store sales rose 19%, the paper said.
Share prices of major Korean department store operators also rose as expectations grew that luxury goods consumption would strengthen.
Lotte Shopping, the retail arm of Lotte Group, has soared more than 148% since the beginning of the year, with its stock price rising 67% in the past three months alone.
Hyundai Department Store’s stock price has risen 120% year-to-date, and a whopping 113% in the past three months, while Shinsegae is leading the way with a 190% rise in stock price since the beginning of the year.
Most of Shinsegae’s gains have been recent, with the stock up 107% in the past three months.
