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Central bank joins wage worries

Fast increases in the minimum may reduce incomes and hours
Dec 15,2018
The Korean central bank has joined other institutions issuing warnings about the rapid rise in the minimum wage, publishing a study indicating that fast increases have a negative impact on low-income workers and small businesses while widening the wealth gap.

According to a Bank of Korea study, as the minimum wage rises, lower-income employees will work fewer hours and their monthly incomes will actually decline as companies look for ways to minimize labor costs.

Company productivity will also be affected.

When 1 percent of all workers benefit from the minimum wage rise, the working hours of those benefiting from the increase fall 2.3 hours a month and they receive 10,000 won ($8.80) less income per month, according to the study. Those earning less than the current minimum wage lose 2.1 hours of work a month and 12,000 won of income.

“When the minimum wage is increased, companies will be looking for ways to reduce labor costs, including automation or cutting working hours or even the owners jumping in on the work,” said Lim Hyun-joon, at BOK who co-authored the report.

The study was based on raises made between 2010 and 2016 and exclude the minimum wage decisions made last year and this year due to a lack of data.

The report noted that considering the annual rise in the minimum wage between 2008 and 2017 average 6 percent, the 16.4 percent jump this year and the 10.9 percent for next year are high.

Those affected by the minimum wage hike on average work 177.9 hours a month and receive a monthly paycheck of 890,000 won. Those earning less than the minimum wage worked 178.4 hours a month with a monthly wage of 830,000 won.

The average workers monthly wage is roughly around 2.7 million won.

The study has found that those affected work mainly in the service industry, including the lodging and restaurant sectors, wholesale and retail as well as the real estate and art, sports and leisure businesses.

In the lodging and restaurant sector, 28.9 percent earn less than the next year’s minimum wage, while 20.9 earned less than this year’s minimum wage. In real estate, the ratio was similar, with 28.9 percent earning less than the next year’s minimum wage and 21.8 earning less than the current minimum wage.

The manufacturing industry is less affected, as only 4.53 percent of the workers earn less than next year’s minimum wage level, while only 2.8 percent earned less than the current minimum wage.

“The report is not against raising the minimum wage but whether the government should come up with measures as the hike could have negative effects,” said Lim.

Recently the Moon Jae-in government has been changing its economic policy tone. While it still champions income-led growth, even President Moon has been concerned over the speed of increases.


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