"Hong Kong's minimum wage is 870,000 KRW per month..." Why it's difficult to differentiate minimum wages for foreign domestic workers [Economic Policy Zoom-In]

Foreign domestic workers from the Philippines participating in the pilot project for foreign domestic worker management are arriving through Incheon International Airport on the 6th. Photo by Airport Photographers Group

The call to differentiate minimum wages for foreign workers arises from the cost concerns of households requiring care labor. Notably, the cases of Hong Kong and Singapore, where wages for foreign domestic helpers are very low, are frequently cited.

According to a report by the Bank of Korea, Hong Kong has implemented a system allowing individual households to directly employ foreign domestic helpers. As of 2022, there are 338,000 foreign domestic helpers, accounting for 9% of the total employed population. Among them, 47% perform childcare duties, and 46% provide elderly care. The average monthly wage for foreign domestic helpers in 2022 was approximately 870,000 KRW, with a minimum wage of about 770,000 KRW, significantly lower than the overall minimum wage (6,600 KRW per hour, about 1.38 million KRW per month). However, these wages are higher compared to the average wages of all and unskilled workers from the main sending country, the Philippines (approximately 440,000 KRW and 290,000 KRW, respectively).

In Singapore, there are 256,000 foreign domestic helpers, making up 7% of the total employed population. Singapore does not have a minimum wage system, so the minimum wage for foreign domestic helpers is delegated to the sending countries. Depending on the worker's country of origin, monthly wages range from 420,000 to 530,000 KRW. The average monthly wage is about 600,000 KRW, which is significantly lower than Singapore's overall average wage (over 4 million KRW). However, in both Hong Kong and Singapore, employers are required to provide meals, housing, medical expenses, and airfare in addition to salary.

Taiwan also allows households recognized as needing care services to hire foreign workers with government approval. As of 2020, about 240,000 foreign workers, accounting for 2% of the total employed population, provide residential care services. The average monthly wage for foreign care workers was 890,000 KRW in 2022, which is lower than Taiwan's minimum wage (approximately 1.08 million KRW).

South Korea cannot differentiate minimum wages for foreign workers because it is a member of the International Labour Organization (ILO) and has ratified one of the 10 core conventions, the 'Convention concerning Discrimination in Respect of Employment and Occupation (No. 111)'. If differentiated minimum wages for foreigners were implemented, domestic and international labor organizations could file complaints for non-compliance with the discrimination convention, and objections could arise from other member countries, the board, and the general assembly delegations. Additionally, most Free Trade Agreements (FTAs) include labor chapters that require ratification of major ILO conventions, potentially leading to international trade disputes. Singapore does not have a minimum wage system, Hong Kong has not ratified the ILO discrimination convention, and Taiwan is not an ILO member.

Therefore, if South Korea cannot differentiate minimum wages for foreign workers, there are calls to differentiate minimum wages by industry or region.

In the United States, the federal minimum wage is $7.25 per hour, while state minimum wages range from $7.25 to $17 per hour. The federal minimum wage does not differentiate by industry or size, but New York State applies regional differentiation to its state minimum wage. In Japan, local minimum wage councils in 47 prefectures determine regional minimum wages, after which labor and management in each region request revisions for industry-specific minimum wages, which the councils review and decide upon. As of 2023, the hourly minimum wage ranges from 853 yen (Okinawa Prefecture) to 1,072 yen (Tokyo).

Countries such as the United States, Japan, Germany, and Australia implement industry- or region-specific minimum wage differentiation, but in most countries, these differentiated minimum wages are higher than the national minimum wage. In Japan, industry-specific minimum wages must be higher than regional minimum wages. Although South Korea is discussing industry- or region-specific minimum wage differentiation to reduce care service costs, the examples from advanced countries suggest that the purpose differs, making realization difficult.

South Korea's small land area also poses a problem, as it makes it easy for workers to move in search of jobs. If minimum wages outside the metropolitan area, where living costs are lower, are set lower, the already problematic concentration of population in the metropolitan area could worsen. Since regional minimum wages reflect the economic level of the area, they could create discord between regions. A Ministry of Employment and Labor official said, "Labor unions will strongly oppose, suspecting the intention is to use labor cheaply and pay less," adding, "This is an issue requiring social consensus and should not be judged solely on economic grounds."

Ultimately, since it is not possible to lower the minimum wage for foreign care workers through regional or industry-specific differentiation, the only option is to keep the increase rate of South Korea's minimum wage low. During the early years of the Moon Jae-in administration, the minimum wage was rapidly increased to fulfill the pledge of reaching 10,000 KRW within three years. As of 2022, South Korea's minimum wage relative to the median wage ranks high among OECD countries. South Korea's ratio is 60.9%, significantly higher than the United States (27.4%) and Japan (45.6%). It is higher than the UK, Germany, Australia, Spain, and Canada, with only New Zealand, Portugal, Slovenia, and France above it.

A government official stated, "The minimum wage is, as the name suggests, the wage necessary for a minimum standard of living, so it is not desirable for it to be too high," and added, "Some small and medium-sized enterprises set bonuses as a percentage of the minimum wage, and such practices need to be changed."