In recent weeks, the Blue House appointed financial experts to a committee for the purpose of determining the minimum wage in 2020. Despite requests from small- and medium-sized enterprises, or SMEs, to freeze this minimum for companies unable to pay increasingly high wages, this trilateral body of company representatives and labor experts decided otherwise. Again, the minimum wage will be uniform throughout South Korea in spite of the nearly 30 percent increase over the past two years; in January 2019, it rose 10.9 percent to 7530 won, or approximately 6.5 US dollars. Some experts predict that the minimum wage could continue to increase incrementally for another few years, unfortunately disregarding the capacity for SMEs to pay their workers.
In past months, the Korea Federation of SMEs has voiced its concerns regarding the alarmingly rapid rise of the minimum wage in the country. For example, Kim Ki-mun, chairman of the association, points out that for startups with fewer than 300 workers face enormous difficulty sustaining themselves for long periods of time under the Moon administration. Given the president’s campaign promise of a 10,000-won minimum wage, SMEs are feeling more pressured than ever to take few economic risks and/or employ few workers, conditions which often result in slow economic growth. On June 27, nine representatives on the previously mentioned committee failed to make an appearance for a scheduled meeting in protest.
To a certain extent, increasing the federal minimum wage could yield significant benefits for South Korea. Janet Yellen (PhD), Chair of the Federal Reserve, once asserted, for example, that “labor productivity depends on the real wage paid by the firm.” A further increase in the near future would substantially decrease employee absenteeism and turnover rates. Research also indicates that raising the minimum wage would also alleviate poverty throughout the nation. According to David Cooper, senior economic analyst of the Economic Policy Institute, “minimum wage plays a role in how employers set the wages of roughly the bottom 20 percent of the workforce.” It serves as the standard by which employers determine the wages of workers occupying higher positions, so an increase would produce a ripple effect throughout the ranks of a given company.
At the same time, one must recognize that not everything is good in excess. With more money necessary to pay for salaries, corporations are often forced to raise prices of consumer products. Consumers, when purchasing goods and services, would ultimately face increased prices. And for a startup without the advantage of brand loyalty on its side or a company experiencing a decline in revenue, this could prove ruinous.
All things considered, freezing the minimum wage in 2021 for some industries is an act of legislation the South Korean government should consider. It would not be as drastic of an approach as some may expect; plans for this are already being implemented in Ontario due to the difficulty of job creation in the province. Aside from the pure numbers of this policy, it would serve to boost the morale of the South Korean youth. Having experienced the highest youth unemployment rate in decades under the Moon administration, young adults are growing increasingly discontent with the current presidency. Even a slight concession could perhaps assuage the concerns of the people and increase the government’s legitimacy, which will be vital when passing laws related to North Korea and China in the near future.