Small and Medium Enterprises and Small Business Owners Express 'Regret' Over Minimum Wage Freeze Demand... Some Appeal "We Have No Choice But to Reduce Employment" (Comprehensive)

2024 Minimum Wage Set at 9,860 Won, Up 2.5%
Small Businesses and SMEs Express "Regret"

The 2024 minimum wage has been set at 9,860 won, a 2.5% increase from this year, which small and medium-sized enterprises (SMEs) and small business sectors expressed regret over. The industry’s stance was that the wage should have been frozen, considering the limited payment capacity of struggling micro SMEs and small business owners. Although the final proposal of 9,860 won, presented by the employer representatives who represent the business community, was adopted, there are even appeals that employment will inevitably have to be reduced next year, as the current minimum wage level is already difficult to bear.

On the 19th, the Korea Federation of SMEs issued a statement saying, "The SME sector’s payment capacity has deteriorated due to low growth and high interest rates, and business activities have been constrained by economic uncertainty," adding, "It is somewhat disappointing that the freeze level, which the SME sector desperately wanted, was not achieved."

[Image source=Yonhap News]

The 2.5% increase is the second-lowest raise in history, following the 1.5% increase in 2021. The industry explained that while this result was driven by appeals regarding the difficult business conditions of SMEs and small business owners, "the employer representatives’ proposal of a ‘2.5% increase’ was an unavoidable choice to minimize the burden on SMEs and small business owners who would be pushed to the brink if the already high minimum wage, which is among the highest globally, were to be sharply increased again."

The small business sector also expressed strong regret. The Korea Federation of Small and Medium Business Owners stated in a position paper, "This minimum wage decision is an irresponsible act that ignores the desperate cries of small business owners, who are the main payers," adding, "Small business owners are at a level where it is no longer possible to maintain employment." They continued, "The Minimum Wage Commission has carried out an ‘excessive increase’ by raising the minimum wage by a staggering 52.4% over the past seven years." According to a survey conducted by the Federation, the average annual operating profit growth rate of small business owners over the past few years was 1.6%, while the labor cost increase rate reached 3.7%. As of early this year, small business owners are already paying more in labor costs than their operating profits, they claim.

The mid-sized enterprise sector also expressed concerns that this decision could erode corporate vitality. The Korea Federation of Mid-sized Enterprises (KFME) said, "In a situation where crises are intensifying, such as export declines and the visibility of twin deficits in current and fiscal accounts, the Minimum Wage Commission’s decision, regardless of whether it is the employer’s proposal, is still regrettable in that it could slow down the pace of economic recovery."

Concerns Over Employment Reduction Due to Minimum Wage Increase

The industry also sees the possibility of employment reduction due to the minimum wage increase. According to a survey by the Korea Federation of Small and Medium Business Owners, if the minimum wage increases, 58.7% of small business owners expect to reduce new hires, 44.5% to cut existing staff, and 42.3% to shorten working hours of current employees in order to operate their businesses. In an emergency survey on minimum wage conducted by Korea Credit Data targeting small business owners, 65% responded that they would reduce employment next year. The Federation argued, "The result of uncontrolled increases has led to employment reduction, and it is highly likely to worsen next year."

The situation is similar for SMEs. In a recent survey by the Korea Federation of SMEs, 7 out of 10 SMEs said they would reduce employment if the minimum wage increased. More than half of respondents cited ‘minimum wage increase’ as the main factor worsening management and employment conditions. Immediate labor shortages are expected in service sectors that directly affect ordinary people, such as supermarkets, convenience stores, and gas stations. Song Yoo-kyung, president of the Korea Supermarket Cooperative Federation, said, "Due to the high minimum wage burden, service reductions such as adjusted business hours will cause inconvenience to consumers." The already difficult situation for manufacturing companies could worsen further. Eun Jong-mok, director of the Korea Welding Industry Cooperative, lamented, "Increases in electricity and gas prices are major cost factors making the management situation of small and medium manufacturers difficult," adding, "Price inflation greatly affects not only workers’ lives but also corporate management, making even the current minimum wage level hard to bear."

There were also opinions that the minimum wage decision structure, which causes repeated conflicts every year, should be changed. The KFME said, "As symbolized by this year’s record-long 110-day deliberation, discussions on reforming the minimum wage decision structure, which is distorted and repeated every year due to fights between two camps, should be actively pursued. We need to find ways to fundamentally improve workers’ lives while maximizing corporate vitality as key economic actors, including the previously taboo differentiated application by industry, region, and foreign workers." The Korea Federation of SMEs also said, "We hope that in the future, the differentiated application by industry will be implemented and institutional improvements reflecting companies’ payment capacity in decision criteria will be promptly made."

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