South Korea has set its minimum wage level for 2022 at 9,160 won ($8) per hour, up 5.05 percent from this year’s 8,720 won, after labor and business presented vastly different views on how the rate should be set to assist those suffering from the COVID-19 pandemic.
The Minimum Wage Commission chose the middle ground. Yet the agreement reached late Monday was not well received, drawing fire from both labor and business representatives.
The commission consists of 27 members, nine each from labor, business and the general public. It had until mid-July to settle on a new rate for 2022, which by law is to be formally announced by Aug. 5 and officially takes effect Jan. 1.
The new rate far surpasses what the business side argued for when the negotiations started, and is much lower than what labor groups wanted. The 440 won increase amounts to a 5.046 percent hike, but the commission rounded up the official figure to 5.1 percent.
The new hourly rate will raise wages for an estimated 4.36 million workers, according to a report from the Minimum Wage Commission released in June 2020.
Labor and business representatives clashed from early on, which forced negotiations to continue for months before the commission reached a final decision. The commission held its first plenary meeting April 20, and Monday’s meeting was its ninth plenary meeting for this year’s talks.
The labor side, consisting of members from Korea’s two largest umbrella labor groups, originally asked for an hourly rate of 10,800 won but lowered its demand to 10,320 won and eventually to 10,000 won, which would have represented a 14.7 percent increase from this year’s rate.
According to Statistics Korea data, Korea’s unemployment rate stood at 4 percent in May, but the figure was above 9 percent for those aged between 20 and 29. Officials have said the employment situation is still devastating, even though it was worse last year.
The labor side said raising the minimum wage would help those cornered in today’s stagnant job market to survive, arguing that 10,000 won would be enough to sustain low-wage workers and their families.
“The minimum wage level must be raised enough to ensure a livable life for low-wage workers, and this should be considered as a social safety net in times of crisis,” the Korean Confederation of Trade Unions said in a statement last week.
“We also emphasize that many countries have already determined to dramatically raise their minimum wage levels to overcome the (COVID-19) crisis.”
The Japanese government in May promised to raise its national minimum wage from 902 yen ($8.17) per hour to 1,000 yen per hour, and US President Joe Biden proposed a bill to raise the federal minimum wage from the current $7.25 per hour to $15 per hour.
On the other hand, business groups originally wanted to freeze Korea’s minimum wage, saying any raise would deepen the burden of small-business owners already hit hard by operational limitations resulting from the social distancing rules.
They eventually adjusted their demand to 8,850 won per hour, a 1.5 percent raise.
According to a survey of 1,018 small-business owners carried out by the Korea Federation of Micro Enterprises and released in December, 70.8 percent of respondents said their revenue had fallen since 2019, before the pandemic started.
Business representatives said two steep hikes in the minimum wage in past years -- 16.4 percent for 2018 and 10.5 percent for 2019 -- still undermined business owners’ profit, arguing that they also negatively impacted the employment situation for low-wage workers.
The final figure was proposed by the nine members representing the general public close to 11 p.m. on Monday, after labor and business failed to reach a compromise even after both sides adjusted their demands.
The agreement passed by a 13-0 vote in the absence of all business representatives and four from the labor side. The business representatives and four representatives from the KCTU left the room in protest before the vote.
Those from the Federation of Korean Trade Unions, the other major umbrella labor group in Korea, remained and voted for the new rate.
The new rate is to take effect Jan. 1, but labor and business can still object and ask the Minister of Employment and Labor to reevaluate it before it becomes official by Aug. 5. Yet no such reevaluation has ever occurred since the annual wage-setting system was introduced in 1988.
The latest agreement signifies that the Moon administration has fallen far short of President Moon Jae-in’s campaign promise to raise the figure to 10,000 won or more before the end of his five-year term.
Under the Moon administration, the minimum wage will have risen by an average of 7.2 percent per year, lower than the 7.4 percent annual hike seen while former President Park Geun-hye was in office.
The average rate of increase under the Moon administration is also lower than the 9 percent seen under the Kim Dae-jung administration and the 10.6 percent under the Roh Moo-hyun administration.
“Some might argue this was inevitable due to COVID-19, but the Kim Dae-jung administration raised the rate by an average of 9 percent per year (during the Asian financial crisis),” said Rep. Shim Sang-jung of the progressive minor Justice Party in a party meeting Tuesday.
“The Moon Jae-in government buried its own strategy of income-led growth to the ground, cornering people to real estate, stock market and cryptocurrency.”
Both the labor and business sides expressed discontent with the new rate, as the figure is far from what either side demanded going into the negotiations.
“Minimum wage hikes (from the past) with no concern of economic reality has doubled the employment instability for vulnerable population, with real unemployment among young people reaching as high as 25 percent,” business lobbying group the Federation of Korean Industries said in a statement Tuesday.
“Determining a 5.1 percent raise in this situation could push small-business owners, self-employed and businesspeople to the brink and further devastate the unemployment crisis.”
Business groups also asked the government to launch more initiatives to overcome the negative effects it foresees, adding that the commission should use objective statistical figures when carrying out their yearly negotiations.
“Small-enterprise owners expected stability in minimum wage rate to vitalize their businesses, but with the raise, they have no choice but to cut the employment they have been barely able to maintain,” the Korea Federation of Micro Enterprises said in a statement.
“In a situation where small enterprises have to pay for debt with debt, this raise will serve as a catalyst to start a vicious economic cycle by raising all sorts of costs, cutting the number of jobs and forcing businesses to shut their doors.”
The labor side, which was divided near the end of negotiations, expressed oddly different views toward the new rate, with the KCTU vocally opposing it because it fell short of its 10,000-won demand.
“A dramatic raise in the minimum wage was unavoidable to resolve the income polarization deepened by COVID-19,” the KCTU said in a statement shortly after leaving the negotiations Monday, warning of a full-scale strike in protest of the new rate.
“The year’s Minimum Wage Commission essentially deceived laborers, who have stayed hopeful until the very last year of the Moon Jae-in administration, waiting for its promise of 10,000 won to be kept.”
The FKTU, which saw its members remain seated for the negotiations until the end and voted for the 5.05 percent raise, said setting a higher minimum wage was not the only solution to address the needs of the working class. It vowed to work with the government and businesses to find other solutions.
“We wanted to break away from the tradition of holding minimum wage levels hostage without working to improve problems with unfair trading practices, rent and credit card service fees, which are deeply rooted in South Korea,” the labor group said in a statement early Tuesday morning.
“Although we have not derived a satisfying result today, the Federation of Korean Trade Unions promises to further work to ensure stability for low-wage workers, reduce polarization and resolve income inequality.”
By Ko Jun-tae (firstname.lastname@example.org