Korea’s Minimum Wage Fight Heats Up in Moon’s Last Year

(Bloomberg) -- The minimum wage is hotly contested every year in South Korea. This year the issue is more fraught than usual.

Businesses say they can’t afford to pay much more after the drubbing they took during the pandemic. Workers say the crisis has already put off long-overdue raises and has made inequality worse. They may all have a point.

Meanwhile, President Moon Jae-in’s legacy hangs in the balance. Elected on a platform of raising living standards for ordinary people, Moon is now in the last year of his term and although he’s made progress he’s still far short of delivering the 10,000 won per hour, or $8.75, minimum wage he promised.

Moon took office in 2017 pledging to raise minimum pay by the equivalent of about $3. Big bumps in 2018 and 2019 got workers a little less than two-thirds of the way there, but progress mostly stopped with the pandemic. At about $7.60, an hour’s work at today’s minimum wage isn’t enough to buy two McDonald’s Big Macs at Korean prices.

Now, with the recovery picking up and inflation rising, labor unions are demanding a whopping 20% hike. If realized, Moon will just about hit his target.

But workers aren’t likely to get all or even most of what they’re asking for when the wage commission makes its decision in the coming weeks. The group representing businesses in the negotiations is arguing for a 0.2% raise.

Small companies, which employ most of the country’s lowest paid workers, say they’re still struggling with Korea’s virus restrictions and haven’t benefited from the booming exports that are helping big companies like Samsung Electronics Co. or Hyundai Motor Co.

One think tank run by the Federation of Korean Industries, a prominent business group, says meeting Moon’s wage target could trigger as many as 300,000 job losses.

That’s the kind of argument that business groups tend to make, but whether higher wages really lead to less hiring is an open question.

The 16% minimum wage hike pushed through by Moon for 2018 is often cited as the reason job growth slowed that year. Yet employment made a comeback in 2019, despite an 11% increase in the minimum wage that year. In the two years taken together, the economy actually added businesses and jobs, according to the Korean Confederation of Trade Unions.

Another open question is whether raising the minimum wage is an effective way to drive the income-led growth Moon has championed to broaden prosperity and reduce the country’s reliance on exports.

Many analysts argue the strategy hasn’t been successful, but a comparison of Korea’s consumption growth with the economy’s overall growth suggests that consumers did somewhat better after the wage hikes of 2018 and 2019 than before them. Spending collapsed in 2020, of course, but that’s due to the pandemic.

With the minimum wage this year up just marginally from 2020’s level, advocates of a substantial hike now have a different case to make. Overall pay has risen about 4% so far this year, outpacing gains in Korea’s minimum wage for the first time in data going back to 2011.

©2021 Bloomberg L.P.