All Manufacturing Wage Growth Rate Expected to Exceed 6% This Year

Consumer Price Inflation Rate
Serves as Basis for Wage Negotiation Increases
High Inflation Causes Market Distortion

[Asia Economy Reporter Jang Sehee] As consumer price inflation rises sharply, it is forecasted that the wage growth rate per manufacturing worker will exceed 6% this year. In particular, since the consumer price inflation rate serves as an important basis for wage increases during negotiations, there are concerns that if prices rise excessively compared to wage growth, it could cause market distortions.

According to the Ministry of Employment and Labor on the 24th, the average monthly wage per manufacturing worker (based on cumulative data from January to October last year) was 4,176,936 KRW, an increase of 5.8% compared to the same period last year (3,948,796 KRW). Manufacturing includes ▲basic chemical manufacturing ▲semiconductor manufacturing ▲primary non-ferrous metal manufacturing, among others. The wage growth rate in manufacturing significantly exceeds that of wholesale and retail trade (3.7%) and accommodation and food services (0.6%). Considering that the consumer price inflation rates in November (3.8%) and December (3.7%) last year were higher than in October, the wage pressure in manufacturing is expected to increase further and surpass 6%. A Ministry of Employment and Labor official explained, "Despite the COVID-19 crisis, wages continue to rise," adding, "especially the total amount itself has increased compared to 2020."

Soaring Consumer Prices May Stimulate Wages... Continued Concerns Over 'Inflation'

The problem lies in the fact that when wage growth fails to keep up with price inflation, wage increases can act as a variable that further fuels already high consumer prices, causing them to surge. Amid growing concerns over an economic downturn due to the spread of Omicron, if inflation triggered by wage hikes intensifies, there will be no effective measures to respond. There is also concern that labor unions entering wage negotiations this year may use inflation as leverage for pressure.

Furthermore, with international oil prices continuing to rise, demand-side pressures add to the inevitability of wage increases under a 'high price' trend. For Dubai crude oil, which is mainly imported into Korea, the average price per barrel was $82.1 as of the 21st of this month, a 49.7% increase compared to the same period last year ($54.8). The CRB index, a raw material price index, also recorded 241.9 during the same period, up 39.2% from 173.9 the previous year.

Bank of Korea Governor Lee Ju-yeol also stated in this regard, "Looking at the wage growth statistics across all industries, it is true that the wage growth rate in 2021 was significantly higher than in 2020," adding, "It is difficult to rule out the possibility that price pressures will structurally increase through the interaction between wages and prices."

Experts point out that if wages are raised to increase purchasing power amid rising prices, it could lead to an inflationary phase.

Professor Kim Sangbong of Hansung University’s Department of Economics said, "If the gross domestic product (GDP) remains largely unchanged and wages are raised again to increase purchasing power, prices will rise again," adding, "Ultimately, companies will respond by reducing staff if wages rise significantly." He noted that if additional pressure to raise the already high minimum wage grows, side effects will appear throughout the market. This year’s minimum wage is 9,160 KRW, up 5.1% from the previous year.

Professor Kim Taegi of Dankook University’s Department of Economics pointed out, "The polarization of the labor market due to inflation may worsen," adding, "There could be income gaps between large corporations and the public sector, which can raise wages reflecting inflation through collective bargaining, and small and medium-sized enterprises that cannot."

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