Minimum wage increased by 16.4%, the biggest hike in history

Posted on : 2017-07-17 19:05 KST Modified on : 2017-07-17 19:05 KST
Large increase is part of administration’s plans for income-driven growth, and is set to have ripple effects throughout the economy
530 won per hour
530 won per hour

The 2018 minimum wage is being increased by 16.4%, a rate of increase more than double the 7.4% average for the past five years.

The decision helps clear the way for President Moon Jae-in to honor his election pledge to institute a minimum wage of 10,000 won (US$8.87) by 2020. With 23.6% of all workers (4.63 million people) affected by the 2018 minimum wage hike, observers are calling for efforts to insure compliance and close analysis of the ripple effects the sharp increase will have on the economy.

The minimum wage was set at 7,530 won (US$6.68) an hour at a plenary session of the Minimum Wage Commission on July 15. The increase of 1,060 won (US$0.94) per hour is the largest in history, while the rate of increase is the fourth highest ever at 16.4%. The steep minimum wage hike is also consistent with the new administration’s policy keynote of “income-driven growth”: a higher minimum wage is one of the key policy approaches to achieving a positive feedback loop for the economy by increasing wage income and promoting consumption among low-wage workers.

Indeed, the administration‘s policy emphasis seemed to be reflected in the commission’s review of the minimum wage.

Minimum hourly wage
Minimum hourly wage

“With the five [major party] candidates in last year‘s presidential election all saying they would achieve a 10,000-won minimum wage within five years, there needed to be at least a 9.9% rate of increase next year,” a commission source said.

“The administration is currently working on measures according to its road map for increasing [the minimum wage] to 10,000 won in three years,” the source added.

“Labor and management were unofficially given upper and lower ceilings so they could negotiate within that framework, with the presumption of support measures for the minimum wage hike,” the source explained.

The final figures presented were 7,300 won (US$6.47) by management (a 12.8% increase) and 7,530 won by workers (16.4%). Six of the nine public interest commission members opted for the workers’ plan, which provided for a larger increase than the 15.6% in the administration‘s guidelines.

The sharp increase in the minimum wage is expected to mean sweeping changes for the labor market. At 4.63 million, the number of workers whose wages will be changed by the 2018 hike is the largest in history. As the minimum wage standard increases, the number of workers impacted also jumps substantially. The proportion of workers amounts to 23.6%, a 6.2-percentage point increase from 17.4% this year. With 2.64 million workers - 13.6% of all workers - cited as earning below minimum wage in a 2016 Statistics Korea supplementary survey to its economic activity census, it remains impossible to predict what influence the large hike will have on the labor market. Small businesses and enterprises have openly said in the past that they will be forced to reduce hiring if the minimum wage is increased.

The results of Minimum Wage Commission voting to raise the 2018 minimum wage to 7
The results of Minimum Wage Commission voting to raise the 2018 minimum wage to 7

It’s for this reason that experts who previously stressed the need for a higher minimum wage, while welcoming of the increase, also called for efforts to ensure compliance and close examinations of the hike’s ripple effects.

“Higher wages are essential for income-driven growth, and a minimum wage hike is the only measure the administration can take on the behalf of vulnerable workers who are unable to rely on a union to raise their wages,” explained Park Tae-ju, a research professor at the Korea University Institute for Research on Labor and Employment.

“I welcome this large-scale minimum wage increase,” Park added.

Kim Yu-seon, a senior research fellow at the Korea Labour & Society Institute, predicted the hike would result in “reducing the wage gap and improvements in worker living standards,” but stressed the need for “active supervision of working conditions to prevent the market from failing to comply with the increased minimum wage.”

Jung Yi-hwan, a professor of economics at the Seoul National University of Science and Technology, said, “This is a situation where no one can predict what effect a sharp increase in the minimum wage will have, with some fears that it will result in a large drop in employment.”

“Since the administration is committed to continuing to increase the minimum wage going ahead, it’s going to need to establish measures ahead of time for the different scenarios that could arise,” Jung said.

By Park Tae-woo, staff reporter

Please direct questions or comments to [english@hani.co.kr]

button that move to original korean article (클릭시 원문으로 이동하는 버튼)

Most viewed articles