Hankyung Research Institute "Over 10 Years, Per Capita Labor Cost Growth Rate Higher in SMEs Compared to Large Corporations"

Hankyung Research Institute "Low-income workers face job loss and reduced earnings... Minimum wage decisions must consider companies' payment capacity and productivity"

[Asia Economy Reporter Ki-min Lee] A recent study revealed that over the past decade, the labor cost increase per worker in small and medium-sized enterprises (SMEs) with fewer than 300 employees was higher than that in large corporations. This has led to claims that when determining the minimum wage, the payment capacity and productivity of companies should be taken into account, as low-income workers are losing jobs and experiencing reduced earned income.

The Korea Economic Research Institute (KERI), under the Federation of Korean Industries, stated in its report titled ‘Analysis of Corporate Labor Cost Trends from 2008 to 2018’ on the 13th that while the average monthly labor cost per worker in large corporations increased by 28.4% over 10 years, it rose by 44.8% for workers in SMEs.

Analyzing data from the Ministry of Employment and Labor’s Corporate Labor Cost Survey, KERI found that from 2008 to 2018, the average monthly labor cost per regular worker in companies with 10 or more employees increased by 35.4%, from 3,836,000 KRW to 5,194,000 KRW. For large corporations, it rose from 4,918,000 KRW to 6,317,000 KRW, a 28.4% increase, while SMEs saw an increase from 2,956,000 KRW to 4,279,000 KRW, a 44.8% rise. KERI explained that in both large and small companies, statutory labor costs within fixed and overtime wages and indirect labor costs were the main factors driving up labor costs.

Labor costs consist of ▲fixed and overtime wages ▲bonuses ▲performance incentives as direct costs, and ▲statutory labor costs such as the four major social insurance premiums ▲retirement benefits ▲non-statutory welfare expenses ▲recruitment and training costs as indirect costs.

First, KERI analyzed that both direct and indirect labor costs increased faster in SMEs than in large corporations. The average monthly direct labor cost per worker rose by 38.1%, from 3,003,000 KRW in 2008 to 4,146,000 KRW in 2018. In large corporations, it increased by 30.0%, from 3,783,000 KRW to 4,917,000 KRW during the same period, whereas SMEs saw a 48.5% increase, from 2,369,000 KRW to 3,517,000 KRW.

Among these, the average monthly ‘fixed and overtime wages’ per worker, which was 2,332,000 KRW in 2008, rose by 45.1% to 3,383,000 KRW. By company size, SMEs’ ‘fixed and overtime wages’ increased by 53.4%, from 2,063,000 KRW to 3,165,000 KRW, while large corporations saw a 37.1% rise, from 2,663,000 KRW to 3,650,000 KRW.

During the same period, the average monthly working hours combining regular and overtime work decreased faster in SMEs by 7.5%, compared to a 6.0% decrease in large corporations. However, SMEs’ ‘fixed and overtime wages’ rose faster than those of large corporations. ‘Bonuses and performance incentives’ increased by 15.0% in SMEs and 13.1% in large corporations, respectively.

Additionally, the average monthly indirect labor cost per worker increased by 25.8%, from 833,000 KRW to 1,048,000 KRW. While large corporations saw a 23.3% increase from 1,135,000 KRW to 1,400,000 KRW during the same period, SMEs experienced a 29.8% rise from 587,000 KRW to 762,000 KRW.

Among indirect labor costs, the average statutory labor cost per worker increased by 46% in SMEs, from 202,000 KRW to 295,000 KRW, and by 36% in large corporations, from 322,000 KRW to 438,000 KRW. Retirement benefits, which increased by an average of 22.8% over 10 years, rose by 33.8% in SMEs and 16.1% in large corporations. Conversely, non-statutory welfare expenses, which increased by an average of 18.4% during the same period, rose by only 0.7% in SMEs but by 31.1% in large corporations.

KERI explained that the rapid increase in ‘fixed and overtime wages’ among direct labor costs and the rise in statutory labor costs due to the increase in the four major social insurance premium rates were the main causes of the increase in indirect labor costs.

Choo Kwang-ho, Director of the Job Strategy Office at KERI, pointed out, “Over the past 10 years (2008?2018), the rapid rise in ‘fixed and overtime wages’ among direct labor costs and statutory labor costs including the four major social insurance premiums among indirect labor costs in SMEs have been factors driving up labor costs.” He emphasized, “Considering that the minimum wage underpayment rate increased from 10.8% in 2008 to 15.5% in 2018 due to rising labor costs, and that low-income workers are losing jobs and experiencing reduced earned income, it is necessary to reflect companies’ payment capacity and productivity when deciding the minimum wage.”

Meanwhile, the gap in labor costs between industries in 2018 was 6,264,000 KRW, an increase of 1,322,000 KRW compared to 2008. The industry with the highest average monthly labor cost per worker in 2018 was the electricity and gas sector at 8,818,000 KRW, which was 1.7 times higher than the overall average of 5,211,000 KRW. This was followed by finance and insurance (8,773,000 KRW) and manufacturing (5,922,000 KRW). The industries with the lowest labor costs were business facility management (2,554,000 KRW), accommodation and food services (3,353,000 KRW), and real estate (3,812,000 KRW).

KERI explained that the difference between the electricity and gas sector, which had the highest labor costs, and business facility management, which had the lowest, in 2018 was 1.32 million KRW higher than the 4,942,000 KRW gap between the highest (finance and insurance) and lowest (business facility management) industries in 2008.

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