[FOUNTAIN]Some doubts about the minimum wage

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[FOUNTAIN]Some doubts about the minimum wage

The purpose of a minimum wage is to guarantee a stable life for workers. The idea was introduced in the 19th century to ensure that workers did not live in absolute poverty. Later, after the Great Depression, the policy spread widely, with the help of the International Labor Organization. In Korea, where economic growth was the top priority for a long time, a minimum wage did not become law until 1986.
It is clear that its purpose is to protect workers. But there is disagreement about whether it does what it is intended to do. Many economists believe the minimum wage causes unemployment. The U.S. economist David Friedman said raising the minimum wage is like raising taxes on employers. If it goes up, so do the odds of an employee losing his job, because a company with a greater burden is likely to reduce its workforce. They could raise their prices instead, but that would reduce sales.
When prices rise, demand decreases. Since the basic cab fare was raised in Seoul, there have been more empty taxis on the streets. The same principle can be seen in the decline in cigarette sales when prices rose. In the labor market, reduced demand means unemployment.
There are many responses to this argument. One is that employees must be paid enough to be motivated to work. Another is that the more they are paid, the more they will consume, which stimulates the economy. These arguments emphasize employees’ welfare and the redistribution of income. Most European economists favor the minimum wage. In America and Canada, though, the connection to unemployment is emphasized. (It may or may not be a coincidence, but is an amusing fact that unemployment in Europe is usually higher than in America or Canada.)
The minimum wage in Korea is 2,840 won ($2.82) per hour, or 641,840 won per month. Recently, the Korean Confederation of Trade Unions demanded it be raised to 3,900 won per hour and 815,100 won a month. Workers may be in a weaker position than their employers, but they are better off than the unemployed. How would a jobless person view this demand? Would it give them the hope of a better life once they find a job, or would it make them worry more about the odds of finding one?


by Nam Yoon-ho

The writer is the leader of the family news team at the JoongAng Ilbo.

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