Minimum Wage Finally Exceeds 9,000 Won... Business Community "Devastated" "Angry"

"Small Business Realities Ignored... Labor and Public Interest Commissioners Must Take Responsibility"
"Foreign Workers' Wages Rising... Labor-Labor Conflicts, Possibility of Overseas Relocation"
Criticism of Decision-Making Structure... "Need to Reduce Disputes and Increase Predictability"

[Image source=Yonhap News]

Next year's minimum wage surpassing 9,000 won, considered the 'psychological threshold' by the business community, is expected to increase the cost burden on small and micro enterprises and small business owners. Especially amid the recent resurgence of COVID-19, the crisis faced by small business owners is clearly worsening. This could lead not only to increased labor costs but also to various side effects such as job losses, conflicts between domestic and foreign workers, and relocation of factories overseas.

Small Business Owners: "Minimum Wage Increase is Devastating"

The Korea Federation of Small and Medium Business expressed concern that this minimum wage hike will act as a catalyst for a vicious cycle pushing the small business sector into crisis. They explained that rising minimum wages lead to increased costs → job losses → increased loans for self-employed individuals → increased business closures. With the recent elevation of social distancing to level 4 in the metropolitan area due to the COVID-19 resurgence, effectively imposing a 'curfew,' the minimum wage increase is expected to further weigh heavily on small business owners.

Self-employed individuals could not hide their despair upon hearing the news of the minimum wage increase. They said that even the current minimum wage (8,720 won) is difficult to afford due to the COVID-19 situation, and they foresee inevitable employment reductions. A convenience store owner in Songpa-gu, Seoul, said, "Business is already tough, so a 440 won per hour increase is a huge burden," adding, "Rent will likely rise next year, so I am worried." He continued, "Most convenience stores are already not hiring part-timers or only one or two, so families will have no choice but to work more themselves."

Kim (50), who runs a franchise cafe in Namyangju, Gyeonggi Province, expressed, "I feel devastated by the news of the minimum wage increase," and lamented, "I have been barely surviving for over a year, but now it feels even more hopeless." He said, "I am personally running the cafe from early morning to night on weekends to reduce part-time labor costs," and added, "It feels like no matter what we do, it's never enough to ease the cost burden on self-employed people."

Small business owners are already in a serious crisis. According to the Bank of Korea, the number of self-employed individuals who took out loans last year was 2,384,000, a 24.6% increase compared to 1,910,000 in 2019. During the same period, the outstanding loan balance for self-employed individuals increased by 118 trillion won. According to data from the Ministry of SMEs and Startups, the number of store demolition support cases surged from 4,583 in 2019 to 11,535 last year. In a survey conducted earlier this month by the Korea Federation of Small and Medium Business among 1,026 small business owners, 87.2% of respondents said it would be difficult to pay labor costs if the minimum wage increased.

[Image source=Yonhap News]

Small and Medium Enterprises Struggle with Labor Costs... Considering Overseas Relocation

The manufacturing sector expects that the minimum wage increase will raise wages for foreign workers, who are heavily affected, potentially causing not only a drain of national wealth but also intensifying 'labor-labor conflicts' between domestic and foreign workers. A representative from the small and medium enterprise sector said, "Foreign workers receive relatively higher compensation than domestic workers because they are provided with lodging and meals," adding, "If the minimum wage rises, domestic workers may lose motivation, worsening the work atmosphere and escalating labor-labor conflicts." When wages of minimum wage workers increase, the wage gap with higher-paid workers narrows, leading to inadequate compensation for key and skilled personnel.

Due to rising labor costs, there are also movements toward relocating factories overseas. Choi, CEO of a casting company in the metropolitan area, said, "The problem is that if we raise wages for foreign workers subject to the minimum wage, we have to raise wages for other employees as well," adding, "We only employ foreign workers because we cannot afford to go overseas financially, but if circumstances allowed, we would like to move the factory abroad."

Kim, who runs an aluminum processing company in Anseong, Gyeonggi Province, said, "Wages should be proportional to productivity, but the minimum wage ignores this and rises every year," and added, "A friend who moved his factory to Vietnam three years ago said local production workers earn about 150,000 to 200,000 won per month, greatly reducing labor cost concerns." On top of this, regulations pressuring small and medium enterprises are numerous, including the 52-hour workweek, the 'National Holiday Act' expanding substitute holidays, and the Serious Accident Punishment Act set to be enforced in January next year.

Business Community Raises Criticism: "Concerns Over Worsening Unemployment"

The Korea Employers Federation (KEF), which represented employers in negotiations, criticized, "We appealed for the survival of marginal and micro enterprises, employment stability for vulnerable groups, and job creation, but the public interest commissioners ignored the reality of those pushed to the brink," adding, "The labor sector and public interest commissioners, who repeatedly engaged in selfish struggles while ignoring economic realities, must take responsibility for all problems arising from this."

The Federation of Korean Industries (FKI) also released a statement saying, "The minimum wage has increased sharply by an average of 7.7% annually over the past four years, greatly exceeding the average annual economic growth rate (2.7%) and inflation rate (1.1%) during the same period," and warned, "The minimum wage hike, ignoring economic realities, is worsening the business environment and pushing merchants, self-employed individuals, and entrepreneurs to the brink, raising concerns about worsening unemployment." The Korea Chamber of Commerce and Industry argued, "The minimum wage increase is exacerbating management difficulties for small and micro enterprises and small business owners and may further deteriorate the employment market."

[Image source=Yonhap News]

Previously, these major economic organizations had expressed concerns that the sharp rise in the minimum wage over the past 3-4 years has caused small and self-employed business owners feeling the burden to close their shops or reduce jobs, damaging the employment market. According to related industries such as refining and distribution, the minimum wage rose by a total of 32.8% from 2017 to 2020, and the number of self-service gas stations without employees nationwide increased by more than 40%, from 3,169 in 2017 to 4,460 last year. A fast-food franchise installed unmanned ordering machines, which can be set up at about 10% of the monthly minimum wage, in 60% of its stores, resulting in a reduction of 1,230 part-time jobs.

"Minimum Wage Debate Should Reduce Social Conflict and Disputes"

A user representative of the Minimum Wage Commission said, "9,000 won is the psychological threshold for small and micro enterprises and small business owners," and predicted, "The market will be shaken as the leading digit changes." Regarding the decision by public interest commissioners, he said, "Public interest commissioners will eventually return to academia or research institutes and cannot help but be influenced by government policies or labor sector pressures." A representative from the Korea Federation of SMEs lamented, "Although the economy is recovering, this is only true for large corporations and export companies," and added, "Small and medium enterprises dependent on large corporations for supplies are struggling due to rising raw material prices and market imbalances, but these realities were not reflected in the minimum wage discussions."

Criticism was also raised about the minimum wage decision structure, which repeatedly breaks down every year and whose results are not accepted by either labor or management. Professor Kwon Hyuk of Pusan National University said, "Social conflicts recur every year due to the minimum wage, and the absence, withdrawal, or breakdown of labor and management members of the Minimum Wage Commission raises doubts about whether this system is sustainable," advising, "We need to reduce exhausting debates in the minimum wage decision process and seek ways to increase the predictability of the minimum wage."

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