SEOUL--When Lee Gyu-il, 55, a veteran banker at South Korea's largest lender lost his job early this year, he felt he had little choice but to set up his own business, joining the ranks of a legion of older workers feeling stuck in an economic rut.

For the past month, Lee has been selling hearing aid devices at a corner of an ear clinic in the western city of Incheon. He ended his 29-year career with Kookmin Bank when he was placed under a wage peak program that cuts wages of employees past a certain age every year until they retire.

"The whole country is just sending out long-serving workers in the name of creating jobs for the youth without making sufficient effort to create new jobs," Lee said.

That program is among several that President Moon Jae-in's government is using under a growth model whose signature policies include a hefty rise in minimum wages, creation of more public-sector jobs and a shorter working week.

Moon came into office in May 2017 promising to create jobs, raise wages and boost domestic demand. Instead his policies have led to rampant unemployment as thousands of small businesses were shuttered, slowed the economy to a crawl and forced the government to spend billions of dollars in handouts to the youth and jobless.

As growth falters in South Korea from a domestic spending slump and trade frictions, companies burdened with higher wage costs have cut jobs or given up hiring. The cap on work hours has also reduced workers' salaries and posed another regulatory hurdle for employers.

Yet, even as thousands of workers take to the streets to strike against job conditions, the president has asked parliament for a massive expansion in next year's budget that he says is needed to fight "grave economic conditions".

Investors and Koreans worry the new budget will be more of the same ineffective fiscal policy, with proposals to pour money into creating jobs and welfare. And if the government's aggressive spending fails to lift the economy out of the mire, more Koreans will find themselves relying on handouts to get by.

"Higher fiscal spending is OK, but when private sector vitality weakens, a grand shift in the government's policy stance is needed," said Lim Young-tae, head of economy analysis team at the Korea Enterprises Federation, an employers' group.

"However justifiable, the current government's economic policies are executed too hastily."

Moon's approval ratings have fallen to half the 84 percent peak when he took office, and respondents to polls have cited economic mismanagement as the top reason.

To be sure, the government has significantly expanded benefits for the poor and elderly, which have long lagged global standards despite the country's rapid economic development.

South Korean presidents have single terms but wield a strong influence in the selection of their successors, meaning Moon has little incentive to change his left-wing stance. Last year, he replaced a finance minister who didn't wholly agree with his pro-labor policies.

PRIVATE JOBS FALL

The legislature has until early December to approve the 2020 budget bill, in which the government wants to boost spending by 9.3 percent from what was already record fiscal expenditure last year.

While the government gloats over a 60.9 percent employment rate among those aged 15 and older, the economy is projected to grow just around 2 percent this year, its weakest in a decade. Jobs are forecast to rise a meager 0.7 percent.

Choi Jong-yeal, 53, who runs a convenience store in the southern city of Daegu, says he now has to work very long hours and barely makes the minimum wage.

"It's getting worse and worse for convenience stores as the whole economy is weak, more people are opening new shops after losing jobs, and wages and rents are rising fast since the Moon administration came in."

The number of small businesses employing one or more workers dropped by 94,000 or 5.7 percent in the nine months to September, data shows, the highest pace since the 1997/98 Asia financial crisis, as Koreans laid off workers or shut their businesses.

A fourth of the total 9.7 trillion won in extra budgets introduced last year and this year was spent on expanding welfare and jobless support. Public infrastructure spending of the sort that created jobs in the past amounted to just 7 percent of the total.

"Every good intention doesn't work for the good," said Yoon Ji-ho, head of research at eBest Investment & Securities.

The government's assumption that a rise in incomes will boost spending and business profits has been turned on its head, he said, because of the unforeseen impact of a forceful jump in wages.

"The result was increased layoffs and decreased spending, which in turn led to narrower corporate profits and investment."

South Korea's stock market has been an underperformer, despite the stellar earnings and growth at a handful of companies such as Samsung Electronics. It has trailed the MSCI index for Asia-Pacific excluding Japan by some 14 percent over the past 2-1/2 years.

Foreign investors no longer have faith in Moon's promise to fix transparency and governance problems at the chaebol conglomerates.

Frank Benzimra, head of Asia equity strategy at Societe Generale in Hong Kong, says he doesn't really expect valuations to increase and hence mostly buys or sells based on the trend in earnings.

"There were some expectations that the government would change this, but it's going to take some time," he said.