Hankyung Research Institute: "Rapid Minimum Wage Increase Eliminated Jobs for Low-Wage Workers"

[Asia Economy Reporter Changhwan Lee] A study has found that the rapid increase in the minimum wage led to the loss of jobs for low-wage workers. According to the analysis, about 30% of unemployed individuals subject to the minimum wage in 2018 lost their jobs due to the sharp rise in the minimum wage that year.

On the 23rd, the Korea Economic Research Institute (hereinafter KERI) revealed this in its report titled "The Impact of the 2018 Minimum Wage Increase on Employment." The minimum wage in 2018 was 7,530 KRW, marking a 16.4% increase from the previous year, the highest rate of increase in 17 years since the 16.6% rise in 2001.

KERI used the latest data from the Korea Welfare Panel to identify the 2018 minimum wage application group?those who earned more than the minimum wage in 2017 but less than the 2018 minimum wage. They then tracked and compared the 2018 employment status of this minimum wage application group and a non-application group using a Difference in Differences analysis method to assess the impact of the significant 2018 minimum wage increase on employment.

The analysis showed that the 2018 minimum wage increase significantly reduced the employment rate of minimum wage recipients across all comparison groups.

When using the group earning up to 120% of the minimum wage as the comparison group, the employment rate of minimum wage recipients decreased by approximately 4.1 percentage points due to the 2018 increase. When the comparison group was set at 130% of the minimum wage, the employment rate dropped by about 4.6 percentage points.

Using the 150% minimum wage group as the comparison group, the employment rate decreased by approximately 4.5 percentage points. Summarizing these results, it can be seen that the 2018 minimum wage increase led to a decline in the employment rate of minimum wage recipients ranging from 4.1 to 4.6 percentage points.

Considering that the unemployment rate of the minimum wage application group in the panel sample was 15.1% in 2018, the report explains that about 27.4% to 30.5% of the unemployment rate among this group can be attributed to the rapid minimum wage increase in 2018. This suggests that roughly 30% of unemployed minimum wage recipients lost their jobs due to the 2018 minimum wage hike.

Yoo Jinseong, a research fellow at KERI, stated, "The rapid increase in the minimum wage in 2018 appears to have had a negative impact on employment," adding, "Future increases in the minimum wage should be restrained, and if increases are unavoidable, sharp hikes should be avoided."

Yoo also argued, "If a minimum wage increase is inevitable, it is necessary to raise it gradually to mitigate employment shocks. Since Korea has a unified minimum wage, it is worth considering applying differentiated minimum wages by industry."

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