UPDATE : 2017.12.7 목 16:59

[Vol. 76] Bitter tug-of-war over minimum wage hike

박선주 기자l승인2016.11.30l수정2017.11.26 19:25

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The minimum wage in Korea has been increasing annually through the negotiations of the Minimum Wage Council. Heated arguments break out every year, but the decision satisfied neither the labor nor the management. This is because there is a huge gap between the proposal of management and labor about the minimum wage increase- “Freeze vs. 10,000 won.” In fact, 10,000 won minimum wage is a hot potato. Laborers claim that the minimum wage should be increased by over 60% to improve the living standards of low-income workers, whereas the employers strenuously oppose the hike. Take a deeper look at the details for and against this issue below.

Barely making ends meet on the current minimum wage

“10,000 won minimum wage an hour, which is 2,090,000 won monthly wage for those who work 209 hours per month, is the possibility of life where workers are able to dream about tomorrow without debt,” said Cho Hyeong-rae, policy director of Gyeongnam Youth Union. As for the new minimum wage, 6,470won, calculated on a standard of eight working hours a day, the daily minimum wage rate is 51,760 won and the monthly rate comes to 1,352,230 won; however, it is too low to live on. Cost of living of single-person households suggested by the Minimum Wage Council in 2016 was 1,673,803 won. The wage based on the minimum wage covers only 80 percent of the cost of living the council suggested. Furthermore, if a breadwinner gets paid the minimum wage, the problem appears more serious. Cost of living of two-person households is 2,740,000 won and three-person households’ is 3,300,000 won. Having a relationship, marriage, and birth are none of their business for those who live on the minimum wage.

Possible reinvigoration of domestic economy

The economy operates on a simple principle: When people spend money, the economy grows. Economists say that a wage raise makes straightforward economic sense. Globally, as economic inequality has been becoming more severe, the middle class and the lower class cannot afford purchasing, which makes the recession prolong. Accordingly, the importance of the minimum wage increase has been highlighted to overcome the economic crisis. In fact, many countries including the U.S., Britain, Germany, and Russia are planning to drastically increase the minimum wage, expecting the virtuous cycle of economy activation in the long term recession. For example, California in the U.S. decided to increase current minimum wage, 10 dollars, to 15 dollars by 2022. It results from Fight for $15 movement which laborers who are paid minimum wage have claimed for several years. Russia also announced that they would raise the minimum wage by about 20 percent from July. In the case of Germany, Katja Kipping, who is the chairperson of the Left Party, reported that the pay raise to 8.5 Euro led to the increase of purchase as well as employment, so influenced on the alleviation of poverty. 

Huge financial burden on small and medium enterprises

Monthly income of 45 percent of self-employed people over 50s is below 1,000,000 won according to a report from National Pension Research Institute in 2015. For now, many owners of small businesses such as gas stations, convenience stores, and PC bangs run the business all on their own without workers because they cannot afford to hire, or some even make less money than their part-time workers do. In this situation, a minimum wage hike is more likely to make the small and medium enterprises suffer badly. Around 2,000 small business owners from 18 organizations including Korea Small Business Association, Korea Federation of SMEs, etc., held a rally for the minimum wage freeze on July 12th. They argued that the minimum wage increase is such a unilateral resolution only for employees and urged realistic improvement of the minimum wage raise. It is asserted that the circumstance of the small medium-sized business owners who actually pay the wage should be reflected when determining the minimum wage.

Destructive influence on employment

Many believe that technically, a minimum wage rise gives pressure to management and, consequently, leads to investment decrease and employment shrinks like a layoff. Several researches on employment effect of minimum wage increase back up the argument. A recent study conducted by Lee Jung-min, an economics professor at Seoul National University, analyzed that as minimum wage increases by 1 percent, employment, based on 44-hour-work job per week, decreases about 0.14 percent. Plus, as stated by a discussion paper, competition in minimum wage raise of the political sphere and its harmful effect, it is predicted that if the minimum wage is increased to 10,000 won, employment will decrease in the scale of 506,000 laborers which accounts for 8.2% of 61.68million laborers whose wage is in between 6,030 won and 10,000 won. In Korea, the number of workers involved in small business is as high as to be the second highest rank among OECD countries. The chances are a minimum wage hike directly relates to employment fall. On top of that, uneducated or unskilled workers can be deprived of a job because managers are likely to employ productive workers. That is, a minimum wage hike may result in fewer job opportunities for low-income, low-skilled workers. The minimum wage which is supposed to protect labors can rather encourage disappearance of their job. 

The laborers have been crying out for 10,000 won minimum wage, which comes to 2,090,000 won monthly wage. Korea Employers Federation, however, has anticipated that 1,030,000 won would be enough to live on as for 2017, which is being criticized by the laborers. Likewise, the gap of monthly pay they argue is so huge that it is more than double. It seems the management and laborers are too much apart although living in the same society. Considering that the economic influence of minimum wage is significant, it is hard to be decided in one side’s favor. A researcher from Washington Center for Equitable Growth, Ben Zipperer, asserted “The minimum wage raise policy encompasses its benefit as well as the opposite effect.”


박선주 기자  sunjup1103@hanmail.net
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