"If Minimum Wage Rises 13.6% Next Year, 96,000 Small Businesses with Fewer Than 4 Employees Will Close"

Fighterchi Institute Announces Research Results
Even a 1% Minimum Wage Increase Raises Closure Rate by 0.77%
If Raised as Labor Demands, It Reaches 10.5%

A study has found that if the labor sector's demand for a '13.6% increase in the minimum wage' is applied, 96,000 small businesses with four or fewer employees will close down.

The Fighterch Research Foundation announced these findings on the 10th. The study was conducted using the Hausman-Taylor estimation method. The analysis utilized data from 15 European countries spanning from 2009 to 2020.

Yoo Hanna, a senior researcher at Fighterch Research Foundation who led the study, explained, "When the minimum wage increases by 1%, the closure rate of companies with 1 to 4 employees rises by 0.77%." Small businesses pass on the increased labor costs caused by the minimum wage hike to the prices of goods and services, losing price competitiveness and ultimately shutting down.

Applying these analysis results to South Korea, if the minimum wage rises by 13.6% next year, 96,000 small businesses with four or fewer employees will close. This figure was calculated using the administrative statistics on business births and deaths from Statistics Korea. The study stated that after removing country-specific differences, it analyzed the net effect of minimum wage increases on business closures and applied it to South Korea.

According to the study's analysis, applying the minimum wage increase level demanded by the labor sector results in a 10.5% increase in the closure rate of companies with 1 to 4 employees. Currently, the labor sector is demanding a 13.6% increase in the minimum wage for 2025. If implemented, the hourly wage would rise from the current 9,860 won to 11,200 won.

Meanwhile, the study also found that when the minimum wage increases by 1%, the closure rate of 'solo entrepreneurs' without employees decreases by 0.73%. Senior researcher Yoo stated, "Small businesses without employees are not affected by the minimum wage increase and can maintain their existing prices," adding, "Based on price competitiveness, their closure rate actually decreases."

Senior researcher Yoo emphasized, "Since even a 1% increase in the minimum wage raises the closure rate of small businesses with four or fewer employees, the minimum wage increase should be restrained as much as possible."