[Journalism Internship] Analyzing the double-sided nature of minimum wage

[NEWS1]

From left: Nayoun Jeannie Kang, Jian Hong, Waan Choi

Next year’s minimum wage was set at 9,860 won, an increase of 2.5 percent from the current value.

The highly debated decision came after a 101-day negotiation between labor unions and business lobbying groups, the longest time ever taken to decide on minimum wage in Korea.

The 9,860 won mark fell far short of the labor union’s wishes, which originally proposed 12,210 won ($9.7), or a 26.9 percent increase from this year, and also the business owners, who were pushing for a 5.02 percent increase to 9,620 won.

For the past few months, the two sides have been attempting to find a compromise. Both agreed that the most effective solution would be raising the minimum wage while still keeping it below 10,000 won.

Labor unions have continually pointed out that raising the minimum wage is necessary, especially because the cost of living in Korea has skyrocketed.

“The rising prices are harsh, I’m just trying to live by saving money,” said an elderly woman in her 70s while shopping at a local supermarket in downtown Seoul. “Choosing products on sale, cutting costs – what else can I do in these hard times?”

“It’s not like [not eating] is a choice.”

Korean workers, on average, spent 7,761 won for their lunch in June 2023, up 24.6 percent compared to five years ago, according to data on 502 Korean workers collected by Job Korea, a job-posting platform.

Eugene Rhee, a private tutor in his 40s, was surprised to see the recent price hike of a package of banchan, the side dishes served in Korean cuisine, to 12,600 won. The same product was around 9,000 won in 2021 in a mart near his apartment.

“[Inflation] is not scaring me; it is just sad and annoying because, thankfully, I can afford it, but my pay has definitely not gone up by 25 percent,” Rhee said.

Inflation is not limited to the cost of food; the overall consumer price has risen by 7.7 percent solely in the past three years, according to Statistics Korea, almost surpassing the increase during the 1988 economic crisis.

As the general living cost increases, raising the minimum wage based on inflation and the average rise in the costs of products is necessary to ensure at least an average-quality life for people.

“Inflation has reached levels not seen in the last four decades, hitting the poorest households disproportionately…minimum wages are struggling to keep up with inflation,” the OECD pointed out in their latest minimum wage report released in December 2022.

Despite the necessity of the rise in the minimum wage, many people fear that the increase would trigger additional inflation. Businesses have been taking advantage of the public’s fear, advocating for minimal changes to the minimum wage to prevent job loss, protect small businesses, and improve the economic situation.
The research published by the Upjohn Institute testifies otherwise; most developed countries have the capacity to raise their minimum wages while still defending the most vulnerable from the brunt of inflation.

This is shown in Korea’s own real-life case study, where the consistent increase in the minimum wage over the past year has not been the core driving factor for employment or inflation.

Augmenting the minimum wage, therefore, would aid people in purchasing basic necessities, without massively affecting inflation or employment.

Some wonder whether the 10,000-won cap is necessary, then, if raising the minimum wage is beneficial.

The Korea Development Institute claims that the continued patterns of significant increases may destabilize the economy and the wage structure. Specifically, minimum wage surpassing 10,000 won could result in, at most, 69,000 unemployed workers.

Joe Shin, the chief director of Podium Edu, an English educational institute, recalled in an interview in 2006, that “as long as you were willing to accept the pay and fill in the hours, I did not feel that there was a job shortage. It was a matter of preference of what [workers] wanted…”

The abundance of jobs in the past is attributed to the low minimum wage that enabled more self-employed business owners to hire workers without a massive additional economic burden. Workers back then had free rein in the job market, unlike now, where the competition in the job market is consistently escalating.

If the minimum wage skyrockets, small businesses run by self-employed owners, who are already weighed down by taxes and additional costs to maintain their businesses, may refuse to hire more employees.

The Bank of Korea elucidates that self-employed businesses with at least one employee have been reduced by 11 percent in 2023 compared to 2018, with around 110,000 business owners relying on alternatives to maintain their budget through investments in automation or technology.

Supporters of raising the minimum wage above 10,000 won often state that the rise would motivate more workers to get involved in the market. Yet, the excessive wage rise may trigger increased product and service prices.

This superfluous augmentation would give more bargaining powers to companies over employees, as companies would hesitate to hire more workers, regardless of the unemployment problem.

Experts say that while the minimum wage is a necessary safety net, it is essential that governments keep the median income and potential distortion in mind to tackle the conflicts and prevent the minimum wage increase from negatively affecting the overall economy.

“The debate until now about whether to raise the minimum wage or not was very justified, seeing that the minimum wage was too low, but now the question becomes how the median income and minimum wage can increase together based on reflections of economic factors like inflation,” Hanyang University economics professor Lee Jung-hwan stated in a YTN interview.

“This will call for better analysis, and more structural investigation of how to improve [the minimum wage].”

Likewise, the issue of raising the minimum wage is a double-edged sword; although initially aimed at alleviating the situation of workers, it may instead reduce job opportunities, raise the cost of living, and undermine the bargaining powers of labor unions. What matters is the usage of the sword; the balance of both scenarios would determine whether the sword will be used to rescue lives in danger or to kill them.

BY NAYOUN JEANNIE KANG, JIAN HONG, AND WAAN CHOI [jeannie090802@gmail.com, jiannhong2008@gmail.com, waanchoi33@gmail.com]