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Wage gap narrows, just slightly

But study confirms that the wage rise has hurt small businesses
May 22,2019
When it comes to the minimum wage, it’s not all bad news.

One government study has found that the rapid increase in hourly pay has indeed had the impact already noted by many. Small businesses have reduced staff numbers and reduced working hours in an effort to deal with the higher labor costs.

Yet another study finds that the higher minimum wage has succeeded in a way: The wage gap seems to have closed slightly.

“Many of the companies surveyed said they either reduced the number of employees or cut back on working hours,” said Nho Jong-jin, the Seoul National University of Science and Technology business administration professor who conducted the government-commissioned study.

The study, undertaken between November last year and April this year, examined the impact of the minimum wage increase on businesses. The businesses that were surveyed included wholesale and retail establishments, restaurants, small manufacturers and automotive parts suppliers, which are most sensitive to the higher minimum wage.

In 2018, the minimum wage was increased 16.4 percent. It was further increased 10.9 percent this year. In just two years, the minimum wage has gone up 29 percent.

Nho said wholesalers, retailers and restaurants were affected the most.

“In the case of wholesalers, retailers and restaurants, the business owners have been adjusting employee working hours in hopes of limiting the increase in the overall wages,” Nho said. “There were also cases where the business owners increased the participation of family members in their businesses.”

He said some companies have been increasing their stock of reserve workers, people brought in only for short periods of time when the workload spikes.

As much as the minimum wage increases hurt, they may have also helped a bit.

A study by Kim Joon-young, a researcher at Korea Employment Information Service, found that the minimum wage increases have had a positive impact on the wages of those employed.

The study found that the Gini coefficient last year was 0.333, which is lower than the 0.351 two years ago. A higher Gini coefficient indicates a wider income gap.

The study found that the average hourly income of people in the lowest 10-percent-bracket last year rose nearly 20 percent to 8,400 won ($7). This is a significant increase from the 7.9-percent increase in hourly pay in 2017. The top 10-percent-bracket received an average of 63,900 won per hour, up only 8.8 percent in 2018.

“Last year, the relatively sharp increase of wages of those with lower incomes explains the reduced income inequality,” Kim said.

The researcher added that the ratio of workers who made less than two-thirds of the average income as of June last year was 19 percent, which is a 3.3 percentage point drop from 22.3 percent the previous year. Two-thirds of average is considered lower income.

This is the first time that the ratio of low income people has fallen below 20 percent of all workers since the study was first compiled in 2008.


BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]