SMEs and Small Businesses: "Minimum Wage Should Be Differentiated by Industry and Size"

Second Minimum Wage Committee Meeting on the 25th... 'Differentiation' as the Key Issue
Self-Employed Facing Closure Crisis Due to COVID-19 and High Inflation
"Differentiation Should Start with Industries Having High Rates of Below-Minimum Wage"

A banner displaying this year's minimum wage information is hung at the Western Employment Welfare Plus Center in Mapo-gu, Seoul, where the first meeting of the Minimum Wage Commission to decide next year's minimum wage level is scheduled for the 2nd. Previously, the first plenary meeting, which was supposed to be held on the 18th of last month, was canceled without starting as labor representatives staged an indoor protest demanding the resignation of Kwon Soon-won, a public interest committee secretary and professor at Sookmyung Women's University. Photo by Yoon Dong-ju doso7@

Voices from the small and medium-sized enterprises (SMEs) and small business sectors are growing louder, calling for the minimum wage next year to be differentiated by industry and company size. They argue that the uniform application of the minimum wage is shrinking employment and negatively impacting the national economy.

The "minimum wage differentiation" was a campaign pledge of the Yoon Seok-yeol administration. During his presidential campaign, President Yoon repeatedly mentioned the need to distinguish minimum wages by industry and region. Last year, the Minimum Wage Commission voted on a plan for industry-specific differentiation, but it was rejected. Since then, the government has conducted research to examine the ripple effects of differentiation. The completed report was submitted to the Minimum Wage Commission in March. As the full commission meetings to decide next year’s minimum wage have begun in earnest this month, differentiation has rapidly emerged as a key issue.

Industry-specific differentiation was legally established when the minimum wage was first introduced in South Korea in 1988. According to Article 4, Paragraph 1 of the Minimum Wage Act, the Minimum Wage Commission "may distinguish by type of business" when setting the minimum wage. In the first year of implementation, differentiation was applied only to manufacturing businesses with 10 or more employees, but due to strong opposition from labor groups, this provision has been dormant for over 30 years. The growing demand for differentiation this year from SMEs and small business sectors, as the country approaches the era of a 10,000 won minimum wage, is due to the increasing number of self-employed people facing closure risks amid the combined effects of COVID-19, high inflation, high interest rates, high exchange rates, and high wages.

The industry argues for differentiation based on the "minimum wage underpayment rate," which is the proportion of workers earning below the minimum wage. According to data from the Korea Employers Federation based on Statistics Korea figures as of August last year, the minimum wage underpayment rates by industry were 36.6% in "Agriculture, Forestry, and Fisheries" and 31.2% in "Accommodation and Food Services," both exceeding 30%, whereas "Professional, Scientific, and Technical Services" (2.8%), "Information and Communication" (3.1%), and "Manufacturing" (4.6%) were all below 5%. The overall industry average was 12.7%. By company size, businesses with fewer than 5 employees had the highest underpayment rate at 29.6%, followed by those with fewer than 30 employees at 19.9%, 30 or more employees at 4.6%, and 300 or more employees at 2.3%. The smaller the service business and the smaller the scale, the higher the minimum wage underpayment rate. Choi Se-kyung, head of policy consulting at the Small and Medium Business Research Institute, said, "Since there are differences in the ability to pay minimum wages by industry and size, the minimum wage should be differentiated accordingly." She added, "If concerns about stigma or entrenchment of low wages arise, an alternative could be to lower the minimum wage increase rate as done overseas, while allowing higher increases through labor-management agreements."

There has also been discussion about piloting differentiation targeting vulnerable industries. Seo Jeong-heon, head of the Human Resources Policy Office at the Korea Federation of SMEs, said, "It is necessary to prioritize implementation starting with industries that have the highest minimum wage underpayment rates or those designated as special employment support industries." Choi also advised, "Differentiation should be applied at least temporarily to small business sectors severely affected by COVID-19."

The startup sector emphasized that consideration should extend beyond simple industry classification to various work types. Song Myung-jin, leader of the Startup Alliance, said, "We must not overlook the increasing number and types of gig workers, such as Baemin Connect delivery workers who deliver briefly after work or Coupang Flex drivers using their own cars." He suggested, "There are clearly people, like early-stage startups, who voluntarily work below the minimum wage, so how to protect these individuals should also be discussed simultaneously."

There is also an opinion that government involvement is essential in the differentiation process. Cha Nam-su, head of policy and public relations at the Korea Federation of Small and Medium Business, said, "The minimum wage increase rate should be applied lower to industries with high minimum wage underpayment rates, but the government should compensate for differences between industries through measures such as the job stabilization fund introduced during the previous administration." He added, "Only then can the first step toward differentiation be taken."

Meanwhile, following the first full meeting of the Minimum Wage Commission held on the 2nd, the second full meeting will be held on the 25th. The Minimum Wage Commission must decide the minimum wage level and submit it to the Minister of Employment and Labor within 90 days from the date of the review request. The Ministry of Employment and Labor submitted the review request to the Minimum Wage Commission on March 31. The Minimum Wage Commission must decide next year’s minimum wage by June 29.

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