Public Interest Committee's Mediation Proposal Finalized by Vote
1.5% Minimum Wage Increase, Lowest Rate in History
Focus on Overcoming COVID-19 Economic and Employment Crisis
All Labor Representatives Walk Out... Two Management Members Abstain from Vote
[Asia Economy Reporter Kim Bo-kyung] Next year's minimum wage has been set at 8,720 won, an increase of 1.5% (130 won), the lowest rate ever. This decision takes into account the economic downturn and employment crisis caused by the impact of the novel coronavirus disease (COVID-19). This marks the second consecutive year of slowing the pace of minimum wage increases following last year.
The Minimum Wage Commission decided at around 2 a.m. on the 14th to raise next year's minimum wage by 1.5% from this year to 8,720 won. This was the result of consecutive 8th and 9th plenary meetings held overnight starting the previous day. The minimum wage resolution was a single proposal presented by Chairman Park Jun-sik and nine public interest members.
The public interest members held a press conference immediately after the meeting to explain the criteria and background for the minimum wage decision. They stated that the 1.5% increase rate is the sum of "this year's economic growth forecast of 0.1%," "this year's consumer price inflation forecast of 0.4%," and "1.0% improvement in workers' living expenses."
Next year's minimum wage increase rate is the lowest in the 33 years since the minimum wage system was introduced. During every economic crisis, the minimum wage increase rate has been in the 2% range. During the International Monetary Fund (IMF) bailout crisis from September 1998 to August 1999, the minimum wage increase rate was 2.70%. Right after the financial crisis in 2010, it was 2.75%, and this year, influenced by the US-China trade conflict and Japan's export restrictions, it was set at 2.87%.
The public interest members cited the uncertainty of the COVID-19 situation, economic recession, and concerns over worsening employment instability as reasons for proposing the lowest increase rate ever.
Chairman Park Jun-sik said, "Today's decision was a painful one with significant meaning in protecting jobs, the labor market, and economic agents from a long-term perspective, and in strengthening the sustainability of our economy."
Professor Kwon Soon-won of Sookmyung Women's University, the public interest members' secretary, said, "During the minimum wage deliberation process, I visited many workplaces. I met and interviewed about 20 institutions and organizations," adding, "I judged that companies' responses amid the COVID-19 crisis would significantly threaten jobs."
He added, "In uncertain situations, companies first adjust costs by reducing labor. I thought the negative impact on workers caused by the job reduction effect in the labor market, which could result if the minimum wage rose beyond expectations, would be much greater."
Regarding the evaluation of the "lowest increase rate ever," Professor Kwon said, "The minimum wage amount has already grown large," and "It is difficult to make a simple horizontal comparison." He explained that the 2.70% increase during the foreign exchange crisis corresponded to 40 won in amount, and the 2.75% during the financial crisis corresponded to 110 won. In terms of the increase amount, it is not the lowest ever.
The sharp rise in minimum wage increase rates to 16.4% and 10.9% in 2018 and 2019, respectively, after the inauguration of the Moon Jae-in administration, is also analyzed as a cause of this decision. Following last year's 2.87% increase, this effectively marks the second consecutive year of slowing the pace of minimum wage increases.
Professor Kwon said, "Considering the cumulative minimum wage increase rate under the current government, it would average around 8%." He added, "The increase rate level should be judged comprehensively. It is unreasonable to judge solely based on the minimum wage increase rate applied in 2021."
Meanwhile, on the same day, the public interest members played an active role by proposing a review promotion range setting the minimum wage floor and ceiling at 8,620 won to 9,110 won (0.35% to 6.1%). They also made mediation efforts by demanding that labor and management submit advanced proposals. In the third revised request, the management side submitted 8,630 won, and the labor side submitted 9,110 won. However, as it became difficult to narrow the gap further, labor and management requested the public interest members to present a single proposal.
The public interest members' proposed minimum wage level (8,720 won) was immediately opposed by the Federation of Korean Trade Unions (FKTU), which stormed out of the meeting room. Following the Korean Confederation of Trade Unions (KCTU), the FKTU-recommended members also refused to discuss, resulting in all nine worker representatives leaving. Lee Dong-ho, Secretary-General of the FKTU, said at a press conference, "The public interest members said there would be no increase above 1.5%. There was no room for further negotiation. The FKTU will conclude this year's minimum wage negotiation by walking out." Two employer representatives from the Small Business Association, who had argued for a cut or freeze in the minimum wage, also left in protest. Subsequently, seven employer representatives and nine public interest members voted, with nine in favor and seven against the public interest members' proposal, which was finally approved.
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