"Refusing Severance Pay and Weekly Holiday Allowance"... Minimum Wage Increase Boosts 'Fragmented Employment'? [News Explanation]

Labor Costs Are a Cause of Increased Split Employment
But Economic Downturn and Pandemic Also Burden Employers
Number of Ultra-Short-Term Workers Continues to Rise Every Year

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The number of ultra-short-term workers has reached an all-time high, raising warning signs in the employment market. This can be interpreted as a signal that employers face increased labor costs while workers face a shortage of quality jobs. There are also criticisms that excessive minimum wage hikes have increased labor costs, fueling 'split employment.'

Ultra-short-term workers refer to those working less than 15 hours per week. According to the Labor Standards Act, workers who work less than 15 hours a week are excluded from receiving weekly holiday pay and are not required to enroll in national pension, health insurance, or employment insurance. Provisions for severance pay, holiday pay, and annual leave do not apply either.

From the employer's perspective, when labor costs increase, they have no choice but to prefer 'split employment.' For example, if one part-time worker previously worked 15 hours a week, the employer might hire two workers to work 7 and 8 hours respectively, thus avoiding the burden of weekly holiday pay and severance pay. On the other hand, workers associate the increase in ultra-short-term workers with job instability and uncertainty. Not only do they not receive weekly holiday pay or severance pay, but their wages are also low due to the limited working hours.

Job seekers are looking through the job posting board. Photo by Yonhap News

Looking at the annual statistics of 'Workers by Working Hours' from the Statistics Korea National Statistical Portal (KOSIS) on the 22nd, the number of ultra-short-term workers tended to increase significantly around the years when the minimum wage was sharply raised.

In 2018-2019, when the minimum wage was significantly increased, the number of ultra-short-term workers exceeded 1 million. In 2018, the minimum wage hike was the largest ever, rising about 16.4% from 6,470 won the previous year to 7,530 won. This was due to the consensus formed around the Moon Jae-in administration's pledge to raise the minimum wage to 10,000 won. That year, the number of ultra-short-term workers increased by 14% from 960,000 the previous year to 1,095,000.

In the following year, 2019, the minimum wage rose by 10.9% to 8,350 won, and the growth rate of ultra-short-term workers also showed double digits. The number increased by 18.9% (207,000 people) from 1,095,000 to 1,302,000.

However, there are rebuttals that minimum wage hikes are not related to the deterioration of employment quality. In August last year, the Korean Labor Economics Association conducted a survey on the effects of minimum wage application targeting 3,070 businesses and 5,583 workers from November to December last year. The results showed that 8 out of 10 businesses (79.93%) responded that the minimum wage increase did not affect employment. Only 9.67% of businesses said employment decreased due to the burden of minimum wage hikes.

In fact, factors affecting the number of ultra-short-term workers include not only minimum wage but also economic recession, epidemics, and more. The COVID-19 pandemic is a representative example. During the COVID-19 period, the minimum wage increase rates were ▲2.87% in 2020 (8,350 won → 8,590 won) and ▲1.5% in 2021 (8,590 won → 8,720 won), which were far below the average minimum wage increase rate of 6.6% over the past 10 years (2015-2024). However, the number of ultra-short-term workers rose from 1,304,000 in 2020 to 1,512,000 the following year, an increase of about 15.9% (208,000 people). This is attributed to the severe impact on self-employed businesses due to social distancing measures.

Even after the pandemic ended, the number of ultra-short-term workers has continued to increase every year, setting new records. This is seen as an effect of the economic recession freezing the employment market. The number of ultra-short-term workers increased to ▲1,570,700 in 2022 ▲1,600,000 in 2023 ▲1,742,000 in 2024.

Some attribute the increase in ultra-short-term workers to the spread of the 'Gig Worker' culture. Gig workers are those who enter into short-term contracts and take on one-off jobs according to the employer's needs, including various jobs such as delivery, substitute driving, translation, and design.