[Why&Next] How Will Minimum Wage Be Decided Amid Labor-Management Struggle...Next Week's Turning Point

[Image source=Yonhap News]

As the possibility of next year's minimum wage surpassing 10,000 won for the first time in history is anticipated, the business and labor sectors have begun intense negotiations. Since the labor and management sides have clashed from the early stages of deliberations over key issues such as 'differential application by industry,' a difficult path is expected until the final minimum wage decision is made. One side is trying to raise the minimum wage 'sufficiently,' while the other aims to lower it 'without difficulty,' leading to sharp conflicts of interest. As labor and management continue to confront each other until the last moment, the final result is expected to be announced around the 18th, beyond the deliberation deadline.

Labor Proposes 27.8% Increase Despite Economic Downturn

On the afternoon of the 11th, the Minimum Wage Commission held its 10th plenary meeting at the Government Complex Sejong to continue discussions on next year's minimum wage. Earlier, both sides expended considerable effort debating the differential application by industry, and at the meeting on the 9th, they submitted the initial proposal and a first revision. The labor side initially demanded 12,600 won, a 27.8% increase compared to this year, but lowered it to 13.6% in the revision, about half the original rate. This appears to be a strategy to start high and secure as much as possible. The business sector, which initially proposed freezing the wage at 9,860 won, submitted a revision raising it by 10 won to 9,870 won. The gap narrowed from 2,740 won to 1,330 won, but the difference remains significant. The Minimum Wage Commission is expected to request a second revision at this meeting.

The minimum wage decision process involves labor and management submitting initial proposals, followed by mediation by public interest commissioners who act as arbitrators, presenting multiple revisions to narrow the gap. If the gap remains after revisions, the public interest commissioners set a 'deliberation promotion range.' They establish upper and lower limits for the minimum wage to help labor and management reach an agreement. Last year, the public interest commissioners set the deliberation promotion range between 9,820 won and 10,150 won (a 2.1% to 5.5% increase), after which labor and management submitted successive revisions, narrowing the gap from 2,590 won to 180 won.

Will the 'Growth, Inflation, Employment Rate' Formula Be Applied Again This Year?

If labor and management fail to narrow their differences even after the deliberation promotion range is presented, the public interest commissioners prepare a mediation proposal as a final measure and put it to a vote. In the past two years (2021?2022), the public interest commissioners determined the increase rate using a formula that adds the economic growth rate and inflation rate, then subtracts the employment growth rate. Applying this formula again this year would easily push next year's minimum wage over 10,000 won. Whether the public interest commissioners will use this formula again this year remains uncertain. There is no clear provision in the law. Article 4 of the Minimum Wage Act states only that "the minimum wage shall be determined considering the living expenses of workers, wages of similar workers, labor productivity, and income distribution rates."

The criteria used by the Minimum Wage Commission to calculate the minimum wage have varied each year. Sometimes no basis was presented at all, or unheard-of indicators such as living cost improvement factors and negotiation consideration factors were used. This has led to suspicions that the amount is predetermined and the calculation formula is adjusted afterward to fit. Since labor and management each present indicators that suit their interests and flood the debate with diverse claims, it has become structurally difficult to reach an agreement. In fact, since the introduction of the minimum wage system in 1988, the minimum wage has been decided through labor-management agreement only seven times. Because labor and management find it difficult to agree, public interest commissioners often hold the casting vote, leading to criticism that political logic beyond market prices influences minimum wage decisions.

Professor Seok Byung-hoon of Ewha Womans University’s Department of Economics said, "The minimum wage is a policy wage, not an equilibrium wage determined by supply and demand logic," adding, "The minimum wage determination formula should be refined, and the government's role in this process should be further strengthened."

The Ministry of Employment and Labor must publish next year's minimum wage in the official gazette by the fixed announcement date of the 5th of next month, as stipulated by the Minimum Wage Act. Considering the objection procedures, the Minimum Wage Commission should decide the minimum wage by the 16th, 20 days before the fixed announcement date, but many expect the decision to be made on or after the 18th, surpassing the deadline again this year.