"Inefficient Method of Determining South Korea's Minimum Wage... Legal Decision-Making Should Be Introduced"

Korea's Minimum Wage Determination Method Inefficient Compared to Major Foreign Countries
Severe Annual Conflicts Due to Labor-Management Confrontation Highlight Need for Improvement

[Asia Economy Reporter Changhwan Lee] There is a growing call to improve South Korea's minimum wage determination system, which is considered inefficient compared to major overseas countries.

While South Korea’s Minimum Wage Commission faces severe conflicts every year, causing social controversy, major foreign countries determine minimum wages through legislation or by applying regional and industry-specific differentials, resulting in fewer disputes and lower social costs.

The Korea Industrial Alliance Forum (KIAF) stated on the 20th that although South Korea hopes to decide minimum wages through negotiation and agreement between labor and management at the Minimum Wage Commission, in reality, conflicts and confrontations over minimum wage levels persist between the two sides.

According to KIAF, since the minimum wage system was first implemented domestically in 1988, out of a total of 32 minimum wage determination processes, only 7 were decided by labor-management agreement.

The remaining 25 times, minimum wages were decided by voting, but in such cases, if the proposed increase was low, labor representatives would boycott, and if high, employer representatives would boycott, causing meetings to break down in most cases. Meetings have almost annually broken down, leading to significant social cost waste and reduced effectiveness, contrary to the system’s original purpose.

In particular, South Korea has too many factors to consider when calculating the minimum wage, such as workers’ living expenses, wages of similar workers, labor productivity, and income distribution ratio, and the hostile relationship between labor and management causes confrontations every year.

Therefore, it was argued that South Korea should adopt a statutory method like advanced countries, where minimum wages are directly determined by law, or extend the decision cycle and introduce methods such as regional and industry-specific differentials to reduce social controversy.

The statutory method, as in the United States, where minimum wages are directly determined by law, has the advantage of being very cautious since the decision follows the same procedures as general legislation amendments, allowing for the collection of diverse opinions from all sectors of society.

In the U.S., the federal minimum wage has been fixed at $7.25 per hour since July 24, 2009, remaining unchanged for 11 years. States can individually determine their minimum wages; as of this year, 16 states maintain the federal minimum wage level. There are even five states with no minimum wage at all.

On the other hand, 20 states, including California ($14), Washington ($13.69), and Massachusetts ($13.5), have individually raised their minimum wages. The Biden administration’s plan to raise the federal minimum wage to $15 per hour by 2025 is also a result of considering the statutory procedure.

Recently, concerns about side effects such as job losses due to rapid minimum wage increases have emerged in the U.S., so it is expected that the amendment process will proceed after reviewing opinions from various sectors.

Regional and Industry-Specific Differentials Should Also Be Considered

Many countries apply differentials according to region or industry. Nearby Japan, for example, has a minimum wage council similar to South Korea’s, which proposes target figures, and minimum wages are determined regionally with consideration of local conditions. China also allows provinces and autonomous regions to determine their own minimum wages.

The business community sees the need to amend the current Minimum Wage Act, which requires annual minimum wage decisions, to extend the decision cycle to the medium and long term. This would increase predictability for companies, reduce the burden on marginal industries, and protect wage workers in terms of employment stability over the long term.

There are also criticisms that South Korea’s minimum wage increase rate is too fast. According to a survey by the Federation of Korean Industries based on International Labour Organization (ILO) statistics, South Korea’s minimum wage increase rate over the past five years (2016?2020) was 9.2%, the highest among Asian countries.

Jung Manki, chairman of KIAF, said, "The current system requires minimum wages to be decided annually, which tends to provoke labor-management conflicts every year. Considering this, we should benchmark systems like those in the U.S. to minimize conflicts between labor and management."

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