Kyunghyong Submits Objection to 'Minimum Wage 9,160 Won'... Requests Reconsideration Based on 4 Grounds

[Asia Economy Reporter Kim Hyewon] The business community has raised objections to next year's minimum wage increase proposal and has called for a reconsideration. There are concerns that the minimum wage for next year (9,160 KRW per hour) will exacerbate the difficulties faced by small and micro enterprises and small business owners who are enduring the COVID-19 crisis, and will also negatively impact the employment of vulnerable workers.

The Korea Employers Federation (KEF) announced on the 25th that it submitted an "Objection to the 2022 Minimum Wage Proposal" to the Ministry of Employment and Labor on the 23rd. KEF pointed out four specific issues: the excessive increase in the minimum wage, insufficient consideration of the difficulties faced by the main payers of the minimum wage, the lack of differentiated application by business type, and the basis for calculating the 5.1% increase rate.

First, KEF stated that despite the difficulty in finding factors justifying the minimum wage increase based on the four decision criteria exemplified in the Minimum Wage Act (living costs, wages of similar workers, labor productivity, income distribution), the minimum wage for next year has been excessively raised. According to KEF, among the criteria exemplified in the law, the minimum wage level compared to the median wage representing wages of similar workers and income distribution has already exceeded 60%, which can be considered an appropriate upper limit. The relative level of Korea's minimum wage is among the highest even compared to G7 advanced countries and ranks high within the OECD (8th out of 30 countries as of 2021), indicating no justification for a minimum wage increase from the perspective of wages of similar workers.

Additionally, Korea's labor productivity growth rate over the recent 3 years (2018?2020) or 5 years (2016?2020) falls significantly short of the minimum wage increase rate, indicating no justification for a minimum wage increase from the labor productivity perspective.

KEF also noted that past minimum wage increases in Korea have not shown clear effects on improving income distribution. From the living cost perspective, the current minimum wage already exceeds the living costs of low-wage, unmarried, single workers who are the policy target of the minimum wage, making it difficult to find justification for a minimum wage increase from the perspectives of income distribution and living costs. A KEF official pointed out, "To improve the quality of life for vulnerable groups, multifaceted policies such as the Earned Income Tax Credit (EITC) should be considered rather than minimum wage increases that have many side effects."

KEF believes that if the 2022 minimum wage is finalized at 9,160 KRW per hour, considering the weekly holiday allowance, the effective minimum wage in Korea will reach 11,000 KRW per hour (for workers working more than 15 hours per week), which most small and micro enterprises and small business owners will find difficult to bear. Moreover, many forecasts suggest that small and micro enterprises and small business owners have not yet recovered from the difficulties caused by COVID-19 and are unlikely to fully recover by next year, raising concerns that this minimum wage increase will impose a heavy burden on them.

KEF emphasized that despite the diverse differences in payment capacity, working conditions, and productivity across industries, the uniform minimum wage increase has resulted in a 40.4 percentage point gap in the rate of minimum wage non-compliance between industries (42.6% in accommodation and food services vs. 2.2% in information and communication), making it practically impossible for some industries to accept the minimum wage. Especially given Korea's very high minimum wage level and the varying degrees of COVID-19 impact across industries, KEF criticized the Minimum Wage Commission for adhering to a single minimum wage system based on past practices, which is difficult to accept.

KEF also viewed the basis for the 5.1% increase rate announced by the Minimum Wage Commission as inappropriate to apply at the current time. In the past, minimum wages were decided regardless of this method, and considering that the current minimum wage is already excessively high, applying this method suddenly only in this year's review is unacceptable. Furthermore, this formula is more suitable for determining an average wage adjustment rate considering the overall macroeconomic level of the national economy, but small and micro enterprises and small business owners, who are the main payers of the minimum wage, have weak growth potential and cannot be considered representative of the national economy average. Applying this formula directly without considering this is seen as unreasonable.

KEF pointed out that the minimum wage increase rates in major advanced countries (G7) where the 2022 minimum wage increase was decided are not high, and since the relative levels and recent increase speeds of minimum wages differ significantly between these countries and Korea, simple comparisons are inappropriate. Wages become much harder to increase once they reach a certain level, and since Korea's minimum wage level has already exceeded 60% of the median wage and reached the top tier among advanced countries, the limits of further increases must be considered.

Ryu Ki-jung, Executive Director of KEF, said, "Although there has been no precedent for reconsideration in the history of Korea's minimum wage, this objection procedure should not be a mere formality," and added, "We hope the government will not ignore the urgent appeals from the field and will seriously consider whether to conduct a reconsideration."

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