Unstoppable Inflation, Will It Push Up the Minimum Wage?

At the Minimum Wage Commission meeting held last July, the employer and worker representatives are wearing serious expressions. From the left, Lee Tae-hee, employer representative (Head of Smart Job Division, Korea Federation of SMEs), Ryu Ki-jung, employer representative (Executive Director, Korea Employers Federation), Lee Dong-ho, worker representative (Secretary General, Korean Confederation of Trade Unions), Park Hee-eun, worker representative (Vice Chairperson, Federation of Korean Trade Unions).
[Image source=Yonhap News]

원본보기 아이콘

[Asia Economy reporters Choi Dae-yeol and Yoo Hyun-seok] "With the logistics crisis continuing for over a year and compounded by Russia's invasion, raw material prices have risen by more than 10% since the beginning of the year. However, it is difficult to immediately reflect this in delivery prices. If the minimum wage increases further, the company's situation will deteriorate rapidly." (Representative of mid-sized manufacturing company A)

"The core issue making self-employed people struggle is not the minimum wage increase but unfair trade practices, rent and commission fees, and the tyranny and bullying of large corporations. We need to seek solutions to current income inequality and social polarization through raising the minimum wage." (Statement from the Minimum Wage Solidarity on the 4th)

The minimum wage negotiations for next year officially kicked off with the first plenary meeting on the 5th. As labor-management conflicts over the minimum wage have become more intense since the inauguration of the Moon Jae-in administration, this year the 'differentiated minimum wage application by industry' advocated by President-elect Yoon Suk-yeol during his candidacy is expected to be a major issue. Han Duck-soo, the nominee for Prime Minister who will lead the next cabinet, clearly stated that steep minimum wage hikes have more drawbacks than benefits and expressed his intention to minimize government intervention, anticipating severe confrontations between labor and management.

According to related ministries and industries, the plenary meeting of the Minimum Wage Commission held that day is expected to involve discussions mainly on sharing future schedules rather than presenting concrete proposals from either labor or employer groups, as it is the first face-to-face meeting this year. This is part of the procedure following the Ministry of Employment and Labor's request for minimum wage deliberation on the 31st of last month, with a deadline set for June 29.

The industry expects it will again be difficult to reach an agreement within the set deadline this year. Prime Minister nominee Han Duck-soo told reporters, "Decisions should be made within a reasonable range. If it rises too much, say by two units, companies might reduce employment, resulting in a lose-lose situation for both labor and management."

Prime Minister nominee Han Duck-soo is answering reporters' questions as he leaves the 20th Presidential Transition Committee set up at the Financial Supervisory Service Training Institute in Tongui-dong, Jongno-gu, Seoul, on the morning of the 5th.

원본보기 아이콘

The business community argues that the recent steep rise in the minimum wage has further exacerbated difficulties in business operations, especially for small and medium-sized enterprises, small business owners, and the self-employed. The minimum wage has increased from 6,470 won in 2017 to 9,160 won this year, representing about a 42% rise over five years when calculated simply without reflecting the expanded scope of minimum wage inclusion.

The proportion of workers who do not even receive the minimum wage (minimum wage underpayment rate) has steadily increased, which employer groups explain as a side effect of the steep rise. According to the Korea Employers Federation, the minimum wage underpayment rate was 16.5% in 2019 and 15.6% in 2020, significantly higher than the early 2000s (4.3% in 2001). This is interpreted as a result of the minimum wage rising to a level difficult for employers to maintain, reducing market acceptance.

The sharp rise in energy prices such as crude oil and gas, which are entirely dependent on imports, is also expected to be an important variable in the wage deliberation process as it stimulates inflation. Last month, the consumer price index rose to the 4% range for the first time in 10 years. The prevailing view is that this upward trend will continue throughout the year.

The labor sector has consistently maintained the position that the minimum wage should be raised in line with inflation, considering the original purpose of the minimum wage. On the other hand, employer groups such as the Korea Employers Federation argue there is no basis to link inflation and the minimum wage.

Experts point out that the current minimum wage decision structure, which is sharply contested and leaves both sides dissatisfied even after decisions, needs to be revised. Professor Yoon Dong-yeol of Konkuk University said, "Instead of meeting for two or three months a year to decide, the entire decision-making process itself should be changed. Rather than being centered on commissioners lacking expertise as it is now, industrial opinions should be sufficiently reflected, and actual economic growth rates and voices from the field should be fully heard and incorporated."

© The Asia Business Daily(www.asiae.co.kr). All rights reserved.