A trilateral committee of labor, management and government representatives decided last week to raise the country’s minimum wage by 7.1 percent to 5,580 won ($5.50) per hour for next year. The pay increase, close to this year’s 7.2 percent increase, will affect about 2.68 million workers struggling on low income.
It was the first time in six years that a minimum wage has been set within a legal deadline. But corporate representatives walked out of a vote on the compromise deal worked out by government-appointed members at the end of marathon negotiations Friday.
The companies initially proposed a freeze, while labor demanded a 26.8 percent increase. Both sides put forward some modified proposals that fell far short of closing the gap between their stances.
It is never easy ― maybe practically impossible ― to agree on an optimal minimum wage that pays heed to the claims that an excessive raise would increase the burden on companies, particularly small businesses, and that every worker should be guaranteed enough to earn a decent living.
The Korea Employers Federation criticized the committee’s decision as “ignoring reality.” There may be cause for concern that the pay increase, far above price hikes, which have been held below 2 percent in recent years, will push marginalized businesses further into a corner, forcing them to reduce their payroll. Thus, some measures should be worked out to prevent the increased minimum wage from resulting in a decrease in employment.
From the wider economic viewpoint, however, it is necessary to take a more positive approach to raising the minimum wage and overall pay for workers. Concerns are growing that the slowing pace of wage increases is reaching a point at which it will sap the Korean economy’s growth momentum.
According to data from the central bank, inflation-adjusted wages increased by 1.8 percent on average in the first quarter of this year, the lowest rate in more than two years. The slow rise in wages has led to sluggish household consumption, which in turn holds back corporate activity and undermines the vitality of the entire economy.
Increasing the minimum wage is also required to improve income distribution in the country. It was in this context that President Park Geun-hye made a promise during the 2012 election campaign to raise the minimum wage by 40 percent over her five-year term.
The minimum wage remains at 36 percent of the average payment for employees in Korea this year, compared to 60 percent in the European Union and the 50 percent level recommended by the Organization for Economic Cooperation and Development.
The government needs to work out reasonable and specific standards for setting the minimum wage at a level that enables low-paid workers to sustain their livelihoods. Detailed standards would help reduce the room for labor-management wrangling followed by compromises by government-appointed representatives that satisfy neither side.
What should be done more immediately is to ensure the current minimum wage rule is observed by workplaces. A study by a local labor research institute found that more than 2.3 million employees were paid less than minimum wage in March. Government supervisors are to blame for neglecting their duties, with only half as many companies investigated by them from a year earlier, while complaints about violations of the minimum wage rule doubled over the cited period.