Impact of Minimum Wage Increase... Up to 41,000 Self-Employed with Employees Decrease

Estimated 33,000 to 41,000 Employer-Employing Self-Employed Workers Decreased Due to 16.8% Minimum Wage Increase

Overall Job Impact is Limited

[Asia Economy Reporter Kim Min-young] A study has revealed for the first time that the number of self-employed workers with employees decreased by up to 41,000 due to the sharp minimum wage increase in 2018.

According to the paper titled "The Impact of Minimum Wage Increase on the Self-Employed: Focusing on the 16.4% Minimum Wage Increase in 2018," presented on the 3rd by Yang Jun-seok, Research Fellow at the Urban Management Research Office of Daejeon-Sejong Institute, and Jang Yoon-seop, Senior Researcher at the Regulatory Impact Assessment Center of the Small and Medium Business Institute, the number of self-employed with employees who decreased due to the 16.4% minimum wage increase in 2018 is estimated to be between 33,000 and 41,000.

This paper is the first to analyze the impact of minimum wage increases on the self-employed. Until now, most studies on minimum wage increases have focused on the correlation between minimum wage hikes and the total number of jobs.

To determine how much the number of self-employed with employees decreased due to the 2018 minimum wage increase, the study calculated the minimum wage impact rate by comparing the 2018 minimum wage increase with the average increase of 7.5% over the previous three years (2015?2017).

Applying the estimated effect of 0.621 percentage points from the third quarter of 2018 to identify the maximum negative effect of the increased minimum wage impact rate, the decrease rate in self-employed with employees was found to be -2.55%. The actual number of self-employed with employees in 2018 was 1,651,000, which is about a 2.67% increase compared to 1,608,000 in 2017.

If the minimum wage had increased by 7.5% in 2018 as well, the growth rate of self-employed with employees would have been 5.22% (2.67% + 2.55%) instead of 2.67%, and the total number would have reached approximately 1,692,000.

Accordingly, the estimated decrease in the number of self-employed with employees due to the minimum wage increase is about 41,000 (1,692,000 - 1,651,000). In other words, the sharp rise in the minimum wage eroded the growth in the number of self-employed with employees that would have otherwise occurred.

However, the study also concluded that the decrease in self-employed with employees has a limited impact on the overall job market. As of August last year, the total number of self-employed was 5,662,000, of which only 1,535,000 (about 27.1%) were self-employed with employees. The remaining approximately 70% are one-person self-employed or self-employed with unpaid family workers, who are effectively outside the influence of minimum wage increases. Therefore, the decrease in self-employed with employees has a minimal effect on the overall job market.

Senior Researcher Jang Yoon-seop explained, "Since this study assumed a hypothetical case where the 2018 minimum wage increased by the average of the previous three years, 7.5%, it is difficult to definitively state that the minimum wage increase caused the decrease in self-employed with employees." He also noted, "There is a limitation in that it is difficult to determine whether the reduced growth in self-employed numbers was due to business closures or a decline in new startups."

Meanwhile, earlier in February last year, Professors Kim Dae-il and Lee Jung-min from Seoul National University’s Department of Economics analyzed the population aged 25 to 65, a major source of labor supply, in their paper titled "Employment Effects of the 2018 Minimum Wage Increase." They argued that a 1 percentage point increase in minimum wage coverage rate led to a 0.14 to 0.16 percentage point decrease in the employment growth rate for full-time jobs.

Professor Kim Dae-il stated, "This estimate can be interpreted to mean that about 25% of the decrease in full-time jobs in 2018 compared to the same month in the previous year is a result of the minimum wage increase."

This content was produced with the assistance of AI translation services.