FKI Analyzes OECD Statistics
South Korea's minimum wage level and its rate of increase rank among the highest within the Organization for Economic Cooperation and Development (OECD) countries. Over the past five years, the minimum wage increase rate reached a staggering 44.6%, which is four times the average of the Group of Five (G5) countries. There are concerns that excessive wage hikes could increase the burden on businesses, potentially triggering a vicious cycle of 'employment reduction.'
According to an analysis of OECD statistics by the Federation of Korean Industries (FKI) on the 26th, South Korea's minimum wage as a percentage of average wages was 49.6% in 2020, ranking 3rd among the 30 OECD countries surveyed. The minimum wage as a percentage of median wages was also high, at 62.5% in 2020, placing South Korea 7th among the 30 OECD countries.
Notably, over the past five years (2016?2021), South Korea's minimum wage increase rate was 44.6%, which is four times the G5 average of 11.1%. The countries following were the United Kingdom (23.8%), Japan (13.0%), Germany (12.9%), France (6.0%), and the United States (0.0%).
Due to the rapid increase in minimum wages, the proportion of workers earning below the minimum wage also appears higher compared to major countries. South Korea's rate of workers earning less than the minimum wage was 15.6% in 2020, significantly higher than Japan (2.0%), the United Kingdom (1.4%), Germany (1.3%), and the United States (1.2%). The FKI pointed out that "while hourly labor productivity increased by 11.5% over the past five years, the minimum wage rose by 44.6%, indicating that the minimum wage increase has been very steep compared to productivity growth."
The problem lies in side effects such as employment reductions caused by excessive wage hikes. The FKI noted that the rapid increase over the past five years has excessively burdened companies. Especially considering the worsening business environment due to COVID-19 combined with the so-called three highs (high inflation, high exchange rates, and high interest rates), companies' ability to pay has become very fragile. Choo Kwang-ho, head of the FKI Economic Headquarters, expressed concern, saying, "With South Korea's minimum wage at a globally high level and various economic uncertainties persisting, the difficulties faced by small and micro enterprises with weak payment capacity are expected to intensify."
In fact, a recent survey conducted by the Korea Employers Federation and the Korea Federation of Small and Medium Business, targeting 600 small businesses, found that one in two would have to reduce employment if the minimum wage increases next year. The survey showed that companies are considering existing workforce reductions (9.8%) and cuts in new hiring (36.8%).
In response, the FKI recommended that minimum wages should be applied differentially by industry and region, considering payment capacity, productivity, and work intensity, similar to major advanced countries such as the United States and Japan. Previously, President Yoon Suk-yeol also proposed the 'differential application of minimum wages by industry' as part of his campaign pledges. The Minimum Wage Commission is expected to discuss the introduction of such a proposal at its third plenary meeting scheduled for the 9th of next month.
Meanwhile, the FKI also identified other areas for improvement, including the relatively narrow scope of minimum wage inclusion compared to major countries, the recurring intense disputes due to adversarial labor-management relations, and the excessive penalties for minimum wage violations.
Head Choo suggested, "The pace of minimum wage increases should be adjusted comprehensively considering economic growth rates and overall wage levels of workers," adding, "Differential application by industry and region, designation of special minimum wage industries, abolition or inclusion of weekly holiday allowances within the minimum wage scope, and elimination of imprisonment penalties for violations are necessary."
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