Domestic Wage Growth Rate 2.6 Times That of G5... A Factor Pressuring Inflation Increase

Hankyung Research Institute Publishes Report Comparing Five Major Countries

[Asia Economy Reporter Kiho Sung] Over the past 20 years, the average wage growth rate of workers in South Korea has been more than twice as high as that of the major five countries (G5). This has led to claims that labor costs have acted as a factor pressuring inflation.

The Korea Economic Research Institute under the Federation of Korean Industries announced this on the 26th through a report comparing the trends in labor cost increases between South Korea and the G5 countries (United States, Japan, Germany, United Kingdom, France).

The report stated that the annual average salary per wage worker in South Korea increased by 43.5%, from $29,238 in 2000 to $41,960 in 2020. The annual average salary per person was calculated based on Purchasing Power Parity (PPP).

Meanwhile, during the same period, the annual average salary per person in the G5 increased by 16.5%, from $43,661 to $50,876. South Korea's wage growth rate is 2.6 times the G5 average. Additionally, South Korea ranked second in wage growth among the 11 OECD member countries with populations over 30 million.

The Korea Economic Research Institute pointed out that although labor costs are rising sharply, the pace of labor productivity growth is not keeping up.

Analyzing statistics from 2004, when domestic labor-related indices began to be compiled, through 2019, a 15-year period, the institute found that labor costs per manufacturing worker in South Korea increased by 88.2%, while labor productivity rose by only 73.6%. During the same period, the average labor cost increase rate and labor productivity index growth rate in the G5 were 36.1% and 30.8%, respectively. The Korea Economic Research Institute conveyed that such increases in labor costs are placing a significant burden on companies.

Analyzing 1,369 domestic listed companies with available data on sales, operating profit, and salaries from 2011 to 2021, the institute found that labor costs increased by 54.5%, which is 3.1 times the sales growth rate of 17.7% during the same period.

While the increase in labor costs was partly due to an increase in employees, considering that the number of employees rose by only 4.7% (from 1,196,000 in 2011 to 1,252,000 in 2021) during the same period, the Korea Economic Research Institute analyzed that wage increases had a greater impact.

Kim Yongchun, head of the Employment Policy Team at the Korea Economic Research Institute, said, "Compared to major countries, South Korea has imposed excessive labor cost burdens on companies for years due to rigid labor laws and a seniority-based wage system. Wage increases not linked to performance or productivity limit the autonomy of workforce management and can further intensify recent inflationary pressures."

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