[Column] Labor-Respecting Government Stumbled by Minimum Wage

[Sejong=Asia Economy Reporter Moon Chaeseok] The labor sector has proposed a 23.9% increase in the minimum wage for 2022. If this goes as planned, the minimum wage will rise from 8,720 won per hour to 10,800 won.

The labor sector's demand for raising the minimum wage is aimed at resolving inequality and boosting consumption. The labor side stated, "Economic inequality and polarization have worsened due to COVID-19," and "To address this, a significant increase in the minimum wage is necessary." Although the business sector has not yet presented its initial minimum wage proposal for next year, it is highly likely to suggest a freeze-level amount.

It is understandable why the labor sector demands a substantial wage increase. Having more money in their pockets can immediately help improve their circumstances, even if only slightly.

However, stakeholders such as the business sector have trauma from the precedent of the Moon Jae-in administration's rapid minimum wage hikes in its early years. The minimum wage increase rate decided during the first year of the administration was 16.4%, and in 2019 it reached 10.9%. Combined over two years, this exceeds 27%.

Following the sharp increases, there was backlash and the unprecedented COVID-19 crisis, leading to a sharp reduction in the increase rates to 2.9% and 1.5% in the third and fourth years, respectively. However, the initial two years' increase rates remain vividly etched in memory. Especially when looking at the minimum wage increase rates decided over the past four years, one can clearly see the policy failures of the current administration. The early minimum wage hikes reflected the government's enthusiasm to promote income-led growth, while subsequent changes hinted at a policy shift.

A business sector official recently met with us and compared the Park Geun-hye administration, which raised the minimum wage evenly by 7-8% annually, with the current administration. This official diagnosed, "On an annual average basis, there is not much difference between the minimum wage increase rates of the Park Geun-hye and Moon Jae-in administrations," adding, "In the first two years of the current administration, excessive pro-labor moves caused greater damage to companies." The general atmosphere is that the minimum wage is unlikely to rise by more than 20% this year. The government's overreach has even shaken the national agenda of a labor-respecting society.