The 'South Korea Minimum Wage-Induced Employment Crisis' Unexplained Even by Nobel Laureates... Self-Employed Income Declines by 4.3 Trillion Won Due to Reduced Employment

Minimum Wage Increase ≠ Job Loss Experiment
Examining BOK Data Shows It Differs from Korea's Reality

2018-2019 Over 10% Minimum Wage Hike Erased 4 Trillion Won in Income
Employment Disaster with Less Than 10,000 Job Gains Also Occurred Then

[Sejong=Asia Economy Reporter Moon Chaeseok] It has been revealed that the income of small self-employed business owners decreased by about 4 trillion won within a year due to the sharp increase in the minimum wage. As the number of 'solo owners' who cut employees or operate without hiring due to the inability to afford the minimum wage surged, the quality of service deteriorated, leading to a vicious cycle where the income of self-employed business owners declined.

David Card, a professor at the University of California, Berkeley (UC Berkeley), won this year's Nobel Prize in Economics for empirical research showing that the employment gap due to minimum wage increases is not significant, sparking renewed debate on the effects of the minimum wage in the domestic academic community. This demonstrated that the reality in Korea differs from that in the United States.

According to data related to household corporations (small self-employed business owners) from the Bank of Korea on the 21st, the mixed income, which combines operating profit and wages of small self-employed business owners, was 62.6612 trillion won in 2019, down 4.3486 trillion won from 67.0098 trillion won in 2017, the first year of the Moon Jae-in administration. In particular, compared to 2018 (66.6458 trillion won), it sharply dropped by 3.9846 trillion won in just one year, marking the largest decline since related statistics began in 2011.

The minimum wage increased from 6,470 won per hour in 2017 to 7,530 won in 2018, a 16.4% rise, and then rose by 10.9% in 2019 to 8,350 won. While the minimum wage rose nearly 30% over two years, the mixed income of small self-employed business owners decreased by more than 4 trillion won.

Hong Jang-pyo, president of the Korea Development Institute (KDI) and known as the architect of the current government's income-led growth policy, recently described it as a "half success" during a national audit. However, domestic economists analyze that the decrease in self-employed income is deeply related to the rate of minimum wage increase.

Kim Kyung-soo, honorary professor of economics at Sungkyunkwan University and former president of the Korean Economic Association, said, "Since self-employed business owners could not afford the minimum wage, they reduced employment, and as shown in the 2018 employment trends, the number of employed people sharply decreased." In fact, due to the minimum wage increase, an employment disaster occurred in July and August 2018 with employment falling below 10,000. During the same period, the number of self-employed business owners with employees also slid. As of September each year, the number dropped significantly from 1,657,000 in 2018 to 1,491,000 in 2019. It further fell to 1,332,000 in 2020 when the COVID-19 crisis broke out, and to 1,284,000 this year.

Professor Kim explained, "For example, in restaurants, the number of owners who have to do everything alone from preparing ingredients to serving increased, leading to a decline in service quality, and these factors likely had a negative impact on the mixed income of self-employed business owners."

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