Minimum Wage '10,000 Won Battle' Amid Inflation Crisis

Announcement of Labor Sector's Initial Minimum Wage Demand on the 21st
Raw Materials, Logistics Costs, Labor Costs... Speed of Price Increases
Clear Differences Between Labor and Management... Public Interest Committee Member Holds Casting Vote

Seoul Myeongdong Restaurant District Scene
[Image Source=Yonhap News]

The Yoon Suk-yeol administration's first discussions on the minimum wage will officially begin this week. While the labor sector is expected to propose a minimum wage plan in the "10,000 won range" as in previous years, concerns are growing that a sharp increase in the minimum wage amid worsening domestic and international inflation could place a heavy burden on the Korean economy. Small business owners and self-employed individuals, already strained by rising raw material prices and labor shortages, may consider giving up employment or downsizing their businesses.

According to the Ministry of Employment and Labor on the 20th, the Minimum Wage Commission will hold its 5th plenary meeting on the 21st to start discussions on the increase rate for next year's minimum wage. When the labor and management sectors present their initial minimum wage demands ahead of the full meeting, the overall outline of this year's minimum wage discussions is expected to take shape. Since 2015, the labor sector has consistently demanded a minimum wage in the 10,000 won per hour range, and this time is also expected to argue for at least the low 10,000 won range, while the management sector is likely to demand a freeze.

This year's minimum wage is 9,160 won, and even a 9.17% increase next year would bring it into the 10,000 won range. At a forum hosted by the two major labor unions last month, the labor sector mentioned that the appropriate minimum wage reflecting a proper living wage should be 11,860 won, which is 29.5% higher than the current level. The problem is inflation. With supply chain instability due to the Ukraine crisis already causing significant increases in raw material prices, logistics costs, and oil prices, adding labor cost burdens could further fuel soaring inflation.

Earlier, the Korea Economic Research Institute reported in 2020 in a report titled "The Impact of Minimum Wage on Inflation" that a 1% increase in the minimum wage results in a 0.07 percentage point rise in inflation. Simply put, if the minimum wage is raised as the labor sector demands, the domestic inflation rate could increase by an additional 2 percentage points or more. The institute explained at the time that "a rapid rise in the minimum wage could cause side effects such as inflation and job losses."

In this case, small and medium-sized enterprises (SMEs) and self-employed individuals might give up employment en masse, leading to a reduction in jobs. According to the Korea Federation of SMEs and the Korea Employers Federation, nearly half of self-employed individuals and SMEs are currently struggling to keep up with rising labor costs relative to their business conditions. Especially in sectors like accommodation and food services, where labor shortages have worsened since COVID-19, the impact of rising labor costs and price increases could be greater.

Kim Ji-yeon, a research fellow at the Korea Development Institute (KDI), said, "Sectors like accommodation and food services, which already face labor shortages, are under increasing wage pressure," adding, "An increase in the minimum wage could affect dining-out prices." However, Kim also explained, "Since there is wage pressure due to labor shortages, the impact of the minimum wage increase might be limited."

Given the significant differences in positions between labor and management regarding the minimum wage, the nine public interest commissioners are expected to play a 'casting vote' role again this year. The nine public interest commissioners are selected by the Ministry of Employment and Labor from experts in related fields such as academia and appointed by the president; all were appointed during the Moon Jae-in administration. Therefore, the situation is not favorable to the management sector. In the previous plenary meeting, most public interest commissioners voted against the proposal for sector-specific minimum wage differentiation, resulting in its final rejection.

However, since President Yoon Suk-yeol has expressed a negative stance on sharp increases in the minimum wage since his candidacy, it is also analyzed that the public interest commissioners will find it difficult to approve a large increase. During his candidacy, Prime Minister Han Duck-soo said about the minimum wage, "It should be decided at a very reasonable level," adding, "If it rises too much, companies might reduce employment, resulting in a lose-lose game."

The legal deadline for next year's minimum wage deliberations is the end of this month. However, due to intense labor-management conflicts, the Minimum Wage Commission has rarely met the legal deadline. The final announcement deadline for the minimum wage is August 5 each year, and considering objection procedures, deliberations must be completed by mid-next month at the latest.

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