hankyoreh

S. Korea‘s minimum wage compared with OECD average

After the Korea Economic Research Institute (KERI) claimed that South Korea has the highest minimum wage of the advanced economies in the Organization for Economic Cooperation and Development (OECD), a new report has refuted KERI’s claim as baseless and asserted that South Korea’s minimum wage is actually around the OECD average. This new report also said that KERI exaggerated its claim that the minimum wage’s rate of increase over the past two years has been higher than in any other advanced economy and argued that KERI distorted its figures to sabotage President Moon Jae-in’s policy of income-led growth. KERI is affiliated with the Federation of Korean Industries (FKI).

The new report, titled “An International Comparison of the Minimum Wage,” was published by the Korea Labor and Society Institute (KLSI) on May 6. According to the report, South Korea’s minimum wage has increased from US$5.7 in 2017, to 5.9 euros in 2018, and to 6.4 euros in 2019, reaching the average among OECD member states.

“In 2017, South Korea’s minimum wage was below the OECD average of US$6.2, ranking 14th of the 29 OECD countries that have a legal minimum wage system. Even in 2018 [during the presidency of Moon Jae-in], the minimum wage was below the OECD average of 6.2 euros, ranking 13th among 25 countries. It wasn’t until 2019 that the figure reached par with the OECD average of 6.4 euros, with South Korea still ranked 12th among 25 countries,” said Kim Yu-seon, the author of the report and the KLSI director.

The report also said that the ratio of the minimum wage to the average wage in South Korea was 41.4% in 2017, similar to the OECD average of 41.1%, ranking 15th of the 29 member states. “Wage inequality has been worsening since the 2000s, leading various countries to become more interested in the minimum wage. At the same time, the ratio of the minimum wage to the average wages in the OECD has continued to increase, from 39.9% in 2000 to 41.1% in 2017,” Kim said.

This report sheds new light on KERI’s statement on May 2 that, when South Korea’s 2019 minimum wage of 8,350 won (US$7.15) was compared to minimum wage levels in the 27 OECD member states with a minimum wage, South Korea ranked 7th in terms of the ratio of its minimum wage to its gross national income (GNI).

The biggest difference between the two institutes’ findings is that the KLSI compared the minimum wage with average wages while KERI compared it with the GNI, which includes the income not only of wage earners but also of the self-employed. When the income of the self-employed is as low as it is in South Korea, the ratio of the minimum wage to GNI becomes more pronounced.

“When the minimum wage is compared to the gross national income, it’s affected by a variety of factors, including the [workforce] share of the self-employed, income levels, work hours, and employment rate. That’s why the OECD official statistics only provide the ratio of the hourly minimum wage and average income (median income) for each country. KERI is attempting to pull the wool over people’s eyes by using indices that don’t appear in the official statistics,” Kim said.

KERI responded by saying that it derives its figures “by referring to comparative data for minimum wage by income level in major countries, drawing from the major labor and economic indices prepared by the Minimum Wage Commission for its use in reviewing the minimum wage.”

But the Minimum Wage Commission’s data includes the caveat that “exact comparisons are limited by differences between the units applied and the scope of inclusion for the minimum wage in each country, as well as differences in the year when the minimum wage was applied and the year when the per capita gross national income was calculated.”

The KLSI report also said there were five countries in which the minimum wage has increased by a double-digit rate in 2018 (South Korea 16.4%, Turkey 14.2%, Latvia 13.2%, Czech Republic 10.9%, and Slovakia 10.4%) and five countries in 2019 (Lithuania 38.4%, Turkey 26%, Spain 22.3%, Canada 12.6%, and South Korea 10.9%). The two-year rates of increase in Lithuania and Turkey were 46.2% and 43.9%, respectively, higher than South Korea’s rate of 29.1%. That also stands in contrast to KERI’s emphasis that South Korea’s two-year rate of increase was the highest among the 15 OECD member states with a per capita gross domestic product (GDP) of at least US$30,000.

“Two years into the Moon administration, the FKI is resorting to bizarre tactics to hinder the policy of income-led growth,” said an official with the Special Committee on Income-led Growth, which reports to the Presidential Commission on Policy Planning.

By Kwack Jung-soo, business correspondent

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