South Korea chip workers’ bonuses puts central bank on inflation alert

Few workers can say that their bonuses have been so large that the country’s central bank takes notice.

But in South Korea, that phenomenon is playing out as workers from tech industries receive bonuses worth millions of won, prompting the Bank of Korea to warn of the upward pressure to inflation.

In a June 17 report, the central bank wrote that inflation this year has been largely powered by energy price increases due to the Iran war. But, it adds, even if that conflict subsides, inflationary pressures may gradually increase as income conditions improve and wage growth becomes more widespread.

More notably, the BOK said that the payment of large performance bonuses recently seen at some major companies in the IT sector could spread into broader wage increases, translating to upward pressure on inflation.

This comes as South Korea is already experiencing above-target inflation, with the BOK projecting that full year inflation will come in at 2.7%, above its 2% target.

The BOK’s observations come after reports that huge bonuses were paid out to employees at tech companies, especially those at chip heavyweights SK Hynix and Samsung Electronics.

While the exact amount was not disclosed by the companies, SK Hynix agreed last September to a wage deal that will set aside 10% of operating profits as bonuses for its workers.

Samsung workers had reportedly agreed that 10.5% of its semiconductor operating profit will go towards special bonuses for chip ​workers, after threatening an 18-day strike in May.

According to an unidentified union source cited by Reuters, a memory chip worker with a base ​salary of 80 million won ($52,400) is expected to receive a total bonus of around 626 million won ($410,000) this year.

SK Hynix employees are expected to receive bonuses of more than 700 million won ($454,851) if the firm achieves an annual profit of 250 trillion won this year, according to Reuters calculations.

The BOK said that normally, bonuses would not contribute much to demand pressure, as they are not permanent increases to income.

But when “special bonuses expand unusually and substantially,” wage growth could could spread to other sectors, significantly increasing both supply- and demand-side inflationary pressures, the central bank said.

“In particular, because recent IT-sector performance bonuses have been paid on a highly exceptional scale, the possibility that their actual impact could be larger than expected cannot be ruled out,” it added.