[Minimum Wage Solution] ① Will the Minimum Wage Surpass 10,000 Won for the First Time in History?

Minimum Wage Commission Holds First Full Meeting of the Year on the 18th
President Yoon's Pledge of 'Differentiated Application by Industry' Also a Key Issue
Cases in Japan Exist... But Application in Korea is Practically Difficult

Discussions between the business sector and labor unions to determine next year's minimum wage level will officially begin on the 18th. The biggest point of interest in this year's Minimum Wage Commission discussions is whether the minimum wage will surpass the historic 10,000 won mark for the first time. Labor unions argue that considering the high inflation rate, the minimum wage should be raised to 12,000 won, but the business sector strongly favors freezing the minimum wage due to economic recession and inflation concerns. They believe that a high minimum wage increase like in the past does not fit the era of 'low growth in the 1% range.'

In particular, this year, President Yoon Seok-yeol's election pledge and a long-standing business sector demand, the 'sector-specific differential application' of the minimum wage, will also be a key agenda item. Since situations differ by industry and market, the intention is to set different minimum wages accordingly to enhance fairness and efficiency. However, there are growing voices saying, "If even a single minimum wage causes repeated labor-management conflicts and disruptions, how can sector-specific minimum wages be determined?" making progress difficult.

Business Sector vs Labor Unions, 'Minimum Wage' Discussions Begin

According to the Ministry of Employment and Labor on the 18th, the Minimum Wage Commission will hold its first plenary meeting of the year at 3 p.m. to start discussions on the minimum wage. The commission consists of 30 members: 9 user representatives, 9 worker representatives, 9 public interest members, and 3 special members (director-level officials from the Ministry of Economy and Finance, Ministry of Employment and Labor, and Ministry of SMEs and Startups). The minimum wage applied this year is 9,620 won, and if next year's increase rate exceeds 3.95%, the minimum wage will surpass 10,000 won for the first time in history.

The labor unions have already proposed 12,000 won, which is 24.7% higher than this year, amounting to 2,508,000 won monthly based on 209 hours. The business sector has not yet officially stated its position but is likely to argue for a freeze as in previous years. In South Korea's structure where the minimum wage is decided through tripartite agreement, both labor and business sectors initially make excessive demands, then reduce their scope during discussions, and finally, the public interest members make the final decision by vote amid labor-management disruptions.

Many predict that reaching an agreement on the minimum wage this year will not be easy. Due to global inflation, prices of processed foods and public utilities have soared, so labor unions demand a significant wage increase. However, the business sector faces concerns about economic recession due to stringent tightening in major countries like the U.S. and South Korea, so they need to minimize labor cost burdens. Especially small business owners strongly argue for a freeze, saying, "The excessive minimum wage increases during the Moon Jae-in administration have already pushed labor costs to their limits."

President Yoon Suk-yeol is speaking at the Cabinet meeting held on the 4th at the Yongsan Presidential Office Building in Seoul.
[Image source=Yonhap News]

Low Growth in the 1% Range Era... "Wages Cannot Rise Steeply Alone"

Many in the market believe it is realistically difficult to sharply raise the minimum wage. While some increase is necessary to support the livelihoods of low-wage workers given the significant inflation, a 10-20% minimum wage increase as demanded by labor unions is considered excessive in the era of low growth in the 1% range. This also greatly diverges from the formula (economic growth rate + consumer price inflation rate - employment growth rate) that public interest members, who hold the casting vote, have used as a reference over the past two years.

Professor Kim Seong-hee of Korea University's Labor Issues Research Institute explained, "The formula used by public interest members is not appropriate," but added, "If you add the IMF's forecasted economic growth rate of 1.5% and the Bank of Korea's inflation forecast of 3.5% for this year and subtract the estimated employment growth rate, you get 4.75%." Compared to the labor unions' proposed increase of 24.7%, this is only about one-fifth and even lower than the average minimum wage increase rate of 5.025% over the past two years.

Senior Research Fellow Oh Gye-taek of the Korea Labor Institute said, "In the past, our economy's growth rate of 7-8% was taken for granted, so many private companies had wage increases of over 5%. But now that our economy has entered a low-growth phase, sustainability must be considered," adding, "I think the minimum wage increase rate will inevitably decline from 5%."

Considering that nearly 3 million workers still earn less than the minimum wage, some argue that a pace adjustment is necessary. According to a recent analysis by the Korea Employers Federation, 2,756,000 workers (12.7%) earned less than 9,160 won last year in the labor market. Although this is lower than in 2021 (3,215,000 workers, 15.3%), it remains high. This means many workplaces cannot keep up with the high minimum wage, indicating low acceptance of the current minimum wage.

Will Sector-Specific Differential Application Be Implemented? Experts Say "Not Easy"

This year, the sector-specific differential application of the minimum wage is expected to be a key agenda item. Article 4, Paragraph 1 of the Minimum Wage Act stipulates that "the minimum wage may be set separately by type of business," so if there is labor-management agreement, applying different minimum wages by sector is not impossible. However, due to strong opposition from labor unions, it was only applied in the first year of the minimum wage system in 1988 and has not been implemented even once in the following 34 years.

Last year, it was also scrapped due to labor opposition, but this year, a research report on sector-specific differential application conducted by the Korea Labor Institute at the request of public interest members was submitted to the Minimum Wage Commission, so pressure from the business sector is expected to increase. A Ministry of Employment and Labor official said, "The report was sent to the commission, and more concrete discussions between labor and business sectors will take place at the plenary meeting." Considering the sensitivity of the issue, the ministry has not yet disclosed the report to the National Assembly or the public.

Among experts, many believe sector-specific differential application is realistically difficult. Senior Research Fellow Oh said, "It is difficult to decide the minimum wage annually even at the national level (Minimum Wage Commission), and since sectoral organizations are not well developed in South Korea, it is impossible to negotiate and decide the minimum wage by sector every year," adding, "It might be possible if pushed through, but the confusion and costs generated may outweigh the benefits."

Professor Kim also pointed out, "Globally, except for countries like Japan and Canada, few countries apply different minimum wages by sector, which means minimum wage and sector-specific differential application do not fit well together," adding, "It is difficult to determine the criteria for setting different minimum wages, and even if done, there could be stigma effects on sectors with frozen wages and significant harm to low-wage workers, so it is not easy."

On the 12th, O Sehee, president of the Korea Federation of Micro Enterprise, and small business owners held a press conference announcing the 2024 minimum wage demand proposal at the Korea Federation of Micro Enterprise in Yeouido, Seoul. Photo by Kim Hyunmin kimhyun81@

Japan Also Easing Gaps... KEF Says "Introduce Gradually"

Looking at overseas cases, Japan, Belgium, Mexico, Brazil, Indonesia, and Australia apply minimum wages differentially by industry and region. Among them, Japan, which has had the greatest influence on South Korea's wage system, sets minimum wage targets by administrative districts called 'Todofuken' every July. After review by the Central Minimum Wage Council, regional minimum wages are decided, and upon requests from specific industry labor and management, industry-specific minimum wages are set.

However, Japan decides industry-specific minimum wages at levels higher than regional minimum wages, so the situation differs somewhat from South Korea. The reason the South Korean business sector advocates sector-specific differential application is to allow workplaces that cannot afford a uniform minimum wage to pay lower wages. Especially, Japan has decided to reduce regional differentials starting this year to ease the minimum wage gap between urban and rural areas.

The business sector insists that sector-specific differential application must be pursued to increase acceptance of the minimum wage, but given practical issues, it should be introduced gradually starting with necessary sectors. Yang Geun-won, head of the Wage and HR Policy Team at the Korea Employers Federation, said, "Labor unions have blocked even mentioning differential application, so discussions have not progressed," adding, "It is already possible to try differentiated application starting with sectors that cannot afford the minimum wage."