hankyoreh

Members of a labor union put stickers with the word “invalid” on a signboard with “6

Raising the minimum wage does little to address the poverty issue, a researcher is claiming.

The reason, according to Korea Development Institute (KDI) senior research fellow Yoon Hee-sook, is that only around 3 out of every 10 wage earners making less than minimum wage belong to a poor household. Her argument is that the poverty issue should be viewed in terms of household standards, with policies developed from that perspective.

“The minimum wage system is limited as an approach to poverty policy,” Yoon wrote in the Sept. 8 report “A Comparative Analysis of Individual and Household Income Trends and Their Implications for Poverty Policy.”

The argument suggests something quite different from the labor community and progressives’ past message emphasizing the minimum wage system as a tool not only for relieving income inequality and improving earnings for low-wage workers but also for resolving poverty.

Yoon’s claim starts from an analysis finding that only around 30% of workers earning less than the minimum wage are members of a household earning half the median income or less. Based on Korea Labor and Income Panel data, the analysis conversely means that 7 out of 10 workers making less than the minimum wage are supplementary income sources in households that belong to the middle class or higher. An example would be a household headed by a corporate executive making an annual salary of 100 million won (US$90,900) whose child is interning at a small company after recently graduating from college.

“The structure in the past was one in which one person per family would work full-time, so that a rise in the worker’s wages meant an increase in household income,” the report said. “But the increase in women’s employment and hourly labor has complicated the relationship between wages and household income.”

“There is now a need to reexamine the efficacy of wage policies [including minimum wage hikes] and investigate suitable approaches to poverty policy that reflect the changing environment,” it continued.

In that regard, the report stressed that the government’s policy response should involve adopting a household standard rather than focusing on individual workers as is the case with the minimum wage system. Yoon cited the example of the earned income tax credit (EITC), which targets low-income households. The system is one in which taxes are refunded to low-earning households based on a comprehensive assessment of married couples’ combined income and assets.

“If a couple remains below the poverty line despite both members earning money, they can escape the poverty line simply through expansion of the current EITC,” the report suggested.

Speaking in a telephone interview with the Hankyoreh, Yoon also stressed the need for customized welfare services for households and stronger job policies in addition the EITC.

“The most important variable in terms of escaping the poverty line is the number of employed members in a family,” she said. “In that sense, we need stronger support policies to reduce difficulties encountered during the process of entering the job market.”

Yoon also pointed to the example of the Youth Employment Package, one of the South Korean government’s job assistance programs.

“The amount of living expense support provided during the job preparation period is insufficient,” she said.

The idea that the minimum wage is inefficient in terms of addressing poverty does not mean a minimum wage hike would have no significance. While the system may not be a cure-all for household poverty, it is still effective in reducing the number of poor households.

“In South Korea, the percentage of heads of household who are minimum-wage workers is high – about half – and the percentage of minimum wage workers who are middle-aged or older is higher than in the US, where most are in their teens or early 20s,” explained Lee Byung-hee, a senior fellow at the Korea Labor Institute who has closely examined issues related to the labor market and poverty.

“The efficacy of the minimum wage system as a means of checking poverty is not a matter to be taken lightly,” Lee advised.

Yoon herself stressed that her report “means that the importance of policies to increase the number of employed persons and boost employability should receive the same emphasis as income support when it comes to responding to poverty.”

By Kim Kyung-rak, staff reporter

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