A Country Where Wage Arrears Are 22 Times Higher Than Japan: In South Korea, Reporting Only Happens After Quitting?What Needs to Change [Wage Arrears Tracker] ⑤

South Korea's Unpaid Wages 22 Times Higher Than Japan, 7 Times Higher Than the U.S.
Changing the Social Attitude That Takes Wage Arrears Lightly
Stronger Penalties Needed for Unscrupulous Employers
Institutional Reforms Needed to Ensure Priority Repayment of Wage Claims

Editor's NoteLast year, the total amount of unpaid wages in South Korea surpassed 2 trillion won for the first time, and as of April this year, it is nearing 800 billion won, on track to reach an all-time high. While some may attribute this to the economic downturn, it is difficult to understand why the amount of unpaid wages in South Korea exceeds that of Japan?whose labor force is twice as large?by more than twenty times. We have investigated the reasons why South Korea has become a country where wage arrears are both common and easily incurred.

Experts say that workers who suffer from wage arrears are often ostracized within their organizations or criticized for causing trouble. They tend to hesitate to report the issue and end up filing complaints about wage arrears only after leaving their jobs.

Experts agree that recognizing the amount of unpaid wages in South Korea?which is 22 times higher than in Japan and 7 times higher than in the United States?as a 'problem' is the starting point for improvement. They advise that, in order to address the lenient social attitude toward punishing employers and the reality that victims find it difficult to obtain relief, it is necessary to strengthen penalties for wage arrears, guarantee the priority repayment rights of wage claims, and improve organizational culture.

South Korea's Unpaid Wages 7 Times Higher Than the U.S., 22 Times Higher Than Japan... "Stronger Penalties and Deterrent Effect Needed"

According to statistics from the U.S. Department of Labor as of the 29th, the economically active population in the United States is 168.26 million, more than five times that of South Korea (29.39 million). However, the amount of unpaid wages in the U.S. for fiscal year 2024 (October 2023?September 2024) is $20.67 million (about 2.77 billion won), which is only one-seventh of South Korea's unpaid wages last year, which amounted to 2.0448 trillion won. Even Japan, whose economically active population is more than twice that of South Korea at 69.57 million, had unpaid wages last year totaling 9.8 billion yen (about 930 million won), just one twenty-second of South Korea's figure.

Seungyeop Yang, Associate Research Fellow at the Korea Labor Institute

Seungyeop Yang, Associate Research Fellow at the Korea Labor Institute, stated, "The reason South Korea's unpaid wage amount is exceptionally high compared to other countries is due to certain sociocultural factors. There are a considerable number of unscrupulous employers who intentionally delay payment even though they have the ability to pay. Although compensation for labor is contractually required to be paid in money, many of these unscrupulous employers who deliberately withhold wages possess a sense of benevolence, as if they are doing workers a favor by giving them money."

He continued, "In order to change the social atmosphere that takes wage arrears lightly, penalties must be strengthened. There needs to be a deterrent effect?meaning a fear of criminal punishment?by making examples of unscrupulous employers who intentionally and habitually withhold wages, to curb the occurrence of wage arrears."

Wage Claims Must Be Able to Take Priority in Practice

Sunghee Kim, Director of L-ESG Evaluation Institute. Photo by Hyunju Park

There are also calls for institutional safeguards to ensure that wage claims can take priority in repayment even if a company goes bankrupt due to economic difficulties. Sunghee Kim, Professor at Korea University Graduate School of Labor Studies, stated, "South Korea's wage arrears problem cannot be attributed solely to economic downturns. There needs to be an institutional mechanism so that wage claims can actually take precedence over other debts."

Article 38, Paragraph 1 of the Labor Standards Act states, "Wages, compensation for industrial accidents, and other claims arising from labor relations shall be repaid with priority over taxes, public charges, and other claims in accordance with the laws concerning pledges, mortgages, or security interests on movables or claims, with respect to the employer's total assets." While this does stipulate the priority repayment right of wage claims, there is no clear definition of what constitutes the employer's total assets or specific provisions on how wage claims are to be prioritized. In addition, there are no regulations on how to penalize cases where priority repayment is not properly executed, so the provision is often criticized as being merely declarative.

Professor Kim explained, "The European Union, the United States, and others specify in detail how the priority repayment of wage claims should function, but in South Korea, the relevant provision exists only as a declarative phrase, making it difficult for workers to obtain relief during actual restructuring processes. In South Korea, creditors are mainly composed of financial institutions that prioritize debt recovery above all else, which makes it easier for wage claims to be pushed down the list."

She added, "Even though there is a wage guarantee system in which the state pays the unpaid wages on behalf of the company, it is operated only on a limited basis, so workers cannot receive the full amount of their unpaid wages. In many cases, the support is limited to a level that only helps with immediate living expenses. In order for wage claims to be prioritized, it is important to establish more detailed institutional mechanisms."

Organizational Culture That Ostracizes Whistleblowers Must Change

Ha Eunseong Labor Attorney. Photo by Park Hyunju

There are also calls to change the organizational culture in which workers who report wage arrears are ostracized within their companies. Ha Eunseong, Labor Attorney at Saetbyeol Labor Law Office, said, "Workers who are still employed face the threat of being fired if they raise issues about unpaid wages, and they are often ostracized within the organization or criticized for causing trouble, which makes them reluctant to report. As a result, they usually end up filing complaints about wage arrears only after leaving their jobs. In small industries, if it becomes known that a worker reported wage arrears at a previous job, it becomes even more difficult to find new employment, so victims become even more discouraged."

She continued, "If organizational culture does not change, no matter how detailed the legal and institutional mechanisms are, it will still be difficult for workers to exercise their rights. Employers who delay wage payments live comfortably, while only the victims suffer anxiety. In order to improve the current situation, there needs to be a corporate culture in which wage arrears are considered extremely shameful, and strong penalties must be imposed on workplaces where intentional wage arrears are repeated."