Hankyung Research Institute "If wages rise 1%, prices increase 0.6%... Need to control the pace of increase"

[Asia Economy Reporter Park Sun-mi] There is a growing argument that the impact of wage increases on inflation has become greater than in the past, necessitating a slowdown in the pace of wage hikes.

On the 21st, the Korea Economic Research Institute announced that the proportion of wage increases contributing to inflation rose from 8.6% just before the outbreak of COVID-19 to 10.0% after the outbreak.

The institute pointed out, "In the current situation where the influence of wage increases on inflation has grown, if additional wage hikes are implemented, there is a concern that inflation will accelerate."

It also stated that a 1% increase in wages leads to a 0.6% rise in consumer prices and a 0.8% decrease in production. Compared to 2016, South Korea's wage growth rate in 2021 was 10.53%, the second highest among the five major countries (South Korea, United States, Japan, Germany, United Kingdom), following the United States. On the other hand, South Korea showed the lowest GDP size and labor productivity among these five countries.

Lee Seung-seok, a senior researcher at the Korea Economic Research Institute, said, "Over the past five years, wages in South Korea have risen rapidly compared to economic scale and labor productivity," adding, "Rapid wage increases unsupported by labor productivity cause a decline in production and ultimately can lead to job losses and wage decreases. Therefore, wage levels and increase rates appropriate to the economic scale and production level must be established." He continued, "Consumer price inflation has already entered the 6% range as of June," expressing concern that "if the recently discussed wage increases are actually implemented, inflation will worsen further."

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