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Kicker: OPINION (MINIMUM WAGE)

The Raise of Minimum Wage

Who is it for?

By Dong- wook Kim, Editor

smartpodo@kakao.com

  Due to the fourth pandemic, the sales damages are inherited to not only self-employers but to the students who are looking for part-time positions. The movement of self-employers is extraordinary. Reducing labor costs is unavoidable since the minimum wage in 2022 has been confirmed at 9,160 won. Increasing the minimum wage is expected to affect self-employers and students economically. What is the purpose of increasing the minimum wage? What are the side effects of this decision?

What is a Minimum Wage System?

  Minimum wage system is a system for protecting low-wage workers. Some non-regular workers fail to receive a decent amount of wage. The government intervenes in the process to set the minimum wage between the labor and the management. This system stabilizes workers’ lives and improves the quality of the workforce to contribute to the sound development of the national economy. The policy leads to avoid competitive approaches based on low wages and promote fair competition between the companies by requiring proper wages to be paid.

Current State of the Minimum Wage System

Ranking of OECD Countries by National Minimum Wage (Unit: USD)

  As of 2020, the minimum wage was 8,590 won. However, from 2021 this year, it has increased 1.5% year-on-year to 8,720 won. The increase of the minimum wage seems to show a right upward graph as the years go by. However, Korea’s minimum wage is lower than other OECD countries. The OECD recommends a minimum wage of 50% of the average wage for all workers. Compared to OECD data, the minimum wage of 8,590 won decided by the minimum wage commission recently is ranked 12^th behind Spain. If the government set the wage to 10,000 won, it is estimated to rank ninth, between the United Kingdom and Canada.

The Irony of the Workers Against the Rising Wage

  According to the Korea Federation of Small and Medium Business, they held a survey of about seven hundred job seekers on the 2022 minimum wage. Surprisingly, 63.8% answered that the wage should be the same or lower than 2021. By age group, those in their 60s and older were the highest at 80.8%, followed by those in their 20s at 67.3% and those in their 30s at 64.4%. Common sense would be a 100% agreement for the workers if there is a raise. However, job seekers’ response to next year’s minimum wage hike appears to be based on the judgment that the rise of the wage will not make self-employed people look for a part time job. 

Workers Protesting about the Rising Minimum Wage

Increase or decrease in employment of low-wage workers when wage is increased by 1%

  It is the same case with the regular workers. Jobs are estimated to be reduced if there is a rise of minimum wage. According to this chart that explains the increase or decrease in the employment of workers, the low-wage jobs with less than five people will cut about 9% of the current employers. If the minimum wage is raised by 1%, the mining industry will cut 13.9% of its employers, while wholesale and financial insurance industries will cut 7.4%, respectively. To summarize, the steeper the minimum wage rises, the greater the effect of employment reduction happens. Before the job seekers get paid more, the reality is that they are having a hard time getting a job or laid off in their jobs.

Government Support for Self-Employers: Pie in the Sky

  You may ask what is the relationship between the government support and the minimum wage? The self-employers are not fully responsible for the rising minimum wage. There is some governmental support for self-employers and for even medium-sized businesses. The government has decided to provide government subsidies maximum of 130,000 won per worker per month to medium-sized businesses and small businesses with less than 30 employees which will be burdened by the minimum wage hike next year. According to the Ministry of Strategy and Finance, about three million workers across the country are expected to benefit. Critics criticize that this is an infinite loop to avoid criticism. If there is a raise, the government will support more workers. But where does the money come from? In the end, the taxes that the employer pay will cover the budget to support themselves.

In the Long Run, Inflation

  It is true that the raise of the minimum wage will stimulate the consumption of low-income workers in the short term, but in the long run, it will lead to inflation. One of the analysts in a securities company analyzed the relationship between the price stimulation and income. It has been confirmed that households receiving the minimum wage had less consumption expenditure. On the other hand, the household with the increased income spent more money. As earned income increases, consumption is significantly increased. At the same time, the higher income elasticity of consumption of households not affected by the minimum wage can also be identified. Thus, in order to expand overall consumption, it is interpreted that the increase rate of ordinary wages should be raised rather than just raising the minimum wage.

  The more it is worth compared to the figure of labor, the better. However, if it is somewhat beyond the threshold, everyone in society can have a crisis together. The same is true of the minimum wage hike. The raise of the wage is not necessarily good for the self-employed, but also for the workers as the majority of the opposition comes from the latter. Setting wages in consideration of prices and the economic situation should be carried out carefully.

Sources:

https://www.donga.com/news/Society/article/all/20200715/101971077/1

https://www.hani.co.kr/arti/society/labor/923223.html

https://www.donga.com/news/Economy/article/all/20210713/107936116/1

https://www.investopedia.com/terms/i/inflation.asp