[Minimum Wage Solution]② Repeated Disruptions, Flawed Calculations... Minimum Wage Adrift Without Anchor

Disruption from the First Full Committee Meeting This Year... Conflict at Its Peak
Both Labor and Management Express "Dissatisfaction with Minimum Wage Decision"
Public Interest Committee Members Hold Casting Vote... Government Effectively Decides
Criticism of Public Interest Committee's Calculation Method: "Improvement Needed"
Experts Say "Labor-Management Conflict Must Be Reduced and Representation Increased"

"The calculation formula used by the public interest commissioners does not properly reflect the economic situation of companies." (Kim Jaehyun, Senior Manager of Wage & HR Policy Team, Korea Employers Federation)

"They brought an unheard-of calculation formula and rendered the Minimum Wage Commission itself powerless." (Park Hee-eun, Vice Chairperson of the Korean Confederation of Trade Unions)

The credibility of the Minimum Wage Commission is steadily declining. Due to repeated labor-management disruptions every year, 'half-hearted' decisions led by public interest commissioners, and inadequate minimum wage calculation formulas, dissatisfaction is growing among both labor and management sectors. Amid this situation, the first plenary meeting of the Minimum Wage Commission scheduled for the 18th was disrupted before it even began.

South Korea operates the Minimum Wage Commission with a relatively advanced tripartite structure involving labor, management, and public interest participation. However, proper agreements have been reached only a handful of times in the past 34 years. While the national economy continues to grow, the labor-management culture and decision-making structure surrounding the minimum wage remain inadequate, leading to repeated calls for improvement.

Disruption from the First Meeting... Minimum Wage Commission Loses Trust

The first plenary meeting of the Minimum Wage Commission, scheduled for 3 p.m. on the 18th at the Korea Press Center in Jung-gu, Seoul, was disrupted before it even started. Labor representatives from the Korean Federation of Trade Unions and the Korean Confederation of Trade Unions entered the meeting room and held a surprise protest demanding the resignation of Kwon Soon-won, a public interest commissioner and secretary from Sookmyung Women's University. The public interest commissioners took issue with this and refused to enter the meeting room. The commission was unable to schedule the next meeting.

The two major trade unions argue that Commissioner Kwon is unsuitable as a neutral public interest commissioner because he is the chair of the 'Future Labor Market Research Group' and was involved in creating the government's controversial working hours reform plan, which proposed a 69-hour workweek. Park Hee-eun, Vice Chairperson of the Korean Confederation of Trade Unions, criticized Commissioner Kwon at a press conference the day before, calling him "the person responsible for leading a rushed review and rendering the Minimum Wage Commission useless."

The Minimum Wage Commission and management side blamed the labor sector for the disruption. The commission stated, "The secretariat repeatedly requested the protesters to leave and maintain order inside the venue, but they did not comply," and "Despite the chairperson's prior consultation request, the worker representatives did not respond." The Korea Employers Federation also expressed "serious regret over the disruption of the meeting" and strongly urged the labor sector to approach the minimum wage deliberations with greater responsibility.

On the afternoon of the 18th, before the 1st plenary meeting of the Minimum Wage Commission held at the Korea Press Center in Jung-gu, Seoul, representatives from the Korean Confederation of Trade Unions and the Federation of Korean Trade Unions are holding placards urging the resignation of public interest commissioner Kwon Soon-won.
[Photo by Yonhap News]

Annual Repeated Disruptions... Cause is 'Inadequate Decision-Making Structure'

Although the disruption the day before was due to the labor sector's excessive protest, dissatisfaction surrounding the public interest commissioners is also significant. The biggest cause lies in South Korea's inadequate minimum wage decision-making structure.

The Minimum Wage Commission operates as a consensus body composed of worker representatives from the labor side, employer representatives from the management side, and public interest commissioners. However, labor-management agreements are very rare. Since the minimum wage system was introduced in 1988, there have been only seven years in which the minimum wage was decided by labor-management agreement. Therefore, the minimum wage is effectively decided by votes of the public interest commissioners, who are government-appointed.

According to the Minimum Wage Commission, over the past 34 years, worker representatives have abstained or partially or fully walked out of votes 14 times, and employer representatives 15 times. Last year, four worker representatives affiliated with the Korean Confederation of Trade Unions and all nine employer representatives refused to vote on the single proposal presented by the public interest commissioners and walked out. This is why conflicts between labor and management are highlighted every year during the minimum wage decision period, and meaningful agenda and discussions are missing, contrary to the original intent of the minimum wage system.

Since public interest commissioners exercise the 'casting vote' and there are no clear criteria for setting the minimum wage, criticisms abound that the influence of public interest commissioners, i.e., the government's influence, outweighs the protection of vulnerable workers or the overall economic ripple effects. In fact, during the Park Geun-hye administration from 2013 to 2016, the minimum wage increased by about 6-8% annually, but under the Moon Jae-in administration, which pledged a '10,000 won minimum wage,' the increase rate suddenly surged to 16.4% and 10.9%, sparking controversy.

On the 18th, participants are performing at the press conference held in front of the Korea Press Center in Jung-gu, Seoul, titled "Demanding a Significant Increase in the Minimum Wage, Guaranteeing the Independence and Fairness of the Minimum Wage Commission, and Calling for the Resignation of Public Interest Commissioner Kwon Soon-won." Photo by Yonhap News.

Inadequate Public Interest Commissioners' Calculation Formula... Labor and Management Call for Improvement

The 'calculation formula' used by public interest commissioners when creating mediation proposals is also controversial. If labor and management cannot reach an agreement, public interest commissioners propose an amount calculated through a formula, and the remaining commissioners vote to decide. In recent two years, public interest commissioners have used the formula: 'economic growth rate forecast + consumer price inflation forecast - employment increase forecast.' The Minimum Wage Act lists living expenses, labor productivity, and labor income distribution ratio as decision criteria, but since it is difficult to create a formula considering all these factors, the public interest commissioners have arbitrarily created this formula.

The management side protests that the formula does not reflect companies' ability to pay, and the labor side argues that it does not reflect the living expenses of vulnerable workers. Kim Jaehyun, Senior Manager at the Korea Employers Federation, said, "The formula used by public interest commissioners may be appropriate for companies setting wages, but it is not suitable for setting the minimum wage," adding, "Labor-management discussions have been going in circles for decades, and the structure where public interest commissioners decide in the middle repeats; it must be reformed somehow."

The volatility of the 'forecasts' used in the public interest commissioners' formula is also problematic. The minimum wage deliberation period runs annually from late March to late June, and during this time, the annual inflation rate and economic growth rate forecasts for the year must be derived, which involves great uncertainty. This is especially true in years like this one, when it is difficult to grasp domestic and international economic directions due to U.S. monetary policy, international oil prices, and China's growth rate. Even the Bank of Korea has recently frequently adjusted its forecasts.

In January, February, and March this year, the consumer price inflation rates were high at 5.2%, 4.8%, and 4.2%, respectively, but the formula uses the Bank of Korea's annual forecast of 3.5%, which expects a high start and low finish, making it difficult to persuade the labor side. Although there is finalized data from the previous year, applying that figure would create a two-year gap with the next year's minimum wage, which is also difficult.

However, without a formula, the increase rate could fluctuate wildly every year as it did during the Moon Jae-in administration, reducing predictability. On the other hand, if the formula is too fixed, the existence of the Minimum Wage Commission, which gathers labor and management opinions, becomes unnecessary. Therefore, among experts, there is a strong voice that the formula should be used but developed in a way that includes labor and management participation to increase acceptability.

Lack of 'Representation' in Labor and Management... Voices of Youth and Small Businesses Must Be Heard

Some also point out that, besides public interest commissioners, the current labor and management participants in the Minimum Wage Commission lack representation. In particular, South Korea has a unionization rate of only 14%, yet the Korean Confederation of Trade Unions and the Federation of Korean Trade Unions represent the entire labor sector, which is an unusual structure.

Im Musong, Visiting Professor at Inha University and former Chairperson of the Seoul Regional Labor Relations Commission, said, "We should consider a system that reflects the voices not only of organized workers and employers but also unorganized workers directly affected by the minimum wage, small business owners, and job seekers among youth, middle-aged, and elderly groups."

Looking at overseas cases, there are several ways countries determine minimum wages. Some countries like China and Canada have government-determined minimum wages; others like the United States have legislatures decide; some like the Czech Republic and Ireland have labor-management negotiations followed by government decisions; and others like South Korea have commissions composed of labor, management, and public interest commissioners decide.

Since decisions made solely by labor and management negotiations are less likely to reach agreement, and legislative decisions risk turning minimum wages into political compromises, many believe the current commission system is the most advanced. Many developed countries such as the United Kingdom, Germany, and Japan also set minimum wages through commissions.

Experts: "Reducing Labor-Management Conflicts... Building Consensus is Best"

Therefore, to improve the current problems, it is analyzed that the Minimum Wage Commission's function should be maintained while reducing labor-management conflicts and adding objective data investigations. Although Commissioner Kwon Soon-won's resignation is the stated reason for the disruption of the first plenary meeting the day before, the underlying cause is deep-rooted distrust and conflict among labor, management, and government.

Professor Lee Sang-min of Hanyang University's Department of Business Administration said, "Social dialogue is better than unilateral government decisions, but the current structure is practically one where the government decides," adding, "It is desirable for labor and management to make autonomous decisions in the future, but the differences between labor and management are large, so it is not easy."

He continued, "Although not perfect, there have been many recent attempts through experts to narrow opinions by providing objective information and data investigations," and explained, "Accumulating such efforts and forming consensus between labor and management is the best approach."

Professor Im said, "Since direct participation by labor and management tends to expand conflicts, some suggest forming a commission centered on public interest experts with labor and management only submitting opinions," adding, "It may be difficult for labor and management to concede existing authority, but measures to ease excessive conflicts seem necessary."