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Stalemate over minimum wage signals need for structural reform

Published: 03 Jul. 2025, 00:00

Members of the Minimum Wage for All campaign hold a press conference and performance on the steps of the Sejong Center for the Performing Arts in Jongno District, central Seoul, on the morning of June 11. They are calling for the hourly minimum wage to be raised to 11,500 won ($8.50) next year, a 14.7 percent increase from this year’s rate of 10,030 won. [NEWS1]

As labor and business groups continue to clash over next year’s minimum wage, the annual tug-of-war shows little sign of resolution. The legal deadline for the Minimum Wage Commission to complete its deliberations—June 29 — has already passed. The labor side initially proposed a 14.7 percent hike to 11,500 won ($8.50) per hour, but later lowered its offer to 11,260 won, a 12.3 percent increase. The business side, which first called for a freeze, revised its position upward to 10,090 won, or a 0.8 percent increase. Despite narrowing, the gap between the two sides remains a substantial 1,150 won.

While labor groups argue that the minimum wage has not kept pace with inflation over the past two years, a longer-term view tells a different story. Over the past decade, the cumulative minimum wage increase has been 89.3 percent — more than four times the 21.2 percent increase in consumer prices. Much of this divergence is a consequence of the rapid hikes implemented during the Moon Jae-in administration.

Minimum wage decisions must consider the payment capacity of small businesses and self-employed shop owners. More than 3 million workers currently earn less than the minimum wage. Raising the rate too aggressively could push more workers out of the formal system, defeating the very purpose of minimum wage protections. This year, the average monthly income of small business owners stood at 2.09 million won, nearly identical to the minimum wage’s monthly equivalent of 2.06 million won. Korea’s business closure rate rose for the second consecutive year in 2023, reaching 9 percent — with higher closure rates particularly among small-scale retailers and restaurants.

Despite this, a proposal to apply the minimum wage differently by industry was rejected in a recent vote by the commission, despite backing from employers and small business representatives. Such calls for reform being continually dismissed signals deeper dysfunction within the system itself.

This year again, the final decision will likely come down to a vote to compromise on a plan offered by the commission’s public-interest members. Few other countries determine their minimum wage through a confrontational model akin to collective bargaining. The current 27-member structure of the Minimum Wage Commission has long been criticized for being too large for meaningful deliberation, and too politicized to provide sound policy.

Both the Moon and Yoon administrations pledged to bring more experts into the process and to base decisions on economic and labor market indicators. However, such reforms have repeatedly been blocked by opposition from labor groups.

The Minimum Wage Commission meets on July 12, 2024. [YONHAP]

One recent proposal by the National Policy Planning Commission suggests splitting minimum wage hikes into two stages annually to soften their impact. But that would only delay — not resolve — the shock. It is time to review alternatives proposed by experts, such as establishing base guidelines at the national level informed by economic data, and allowing local governments to adjust the rate based on regional conditions.

Korea’s current minimum wage system, introduced in 1986 under a military government, is outdated. Reform is overdue.

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.