New minimum wage faces resistance from both labor and business

The minimum hourly wage for 2023 has been set at 9,620 won, up 5% from this year, inviting heavy oppositions from both the labor and business circles. When converted into a monthly salary, it hovers around 2.01 million and 580 won (290 hours). There is a growing concern that the current wage-determining system must be revamped.

On Thursday, the Minimum Wage Commission held a briefing at the government complex in Sejong and cited the “average” forecast of the economic indices from the finance ministry, the Bank of Korea, and the Korea Development Institute as reason for a 5-percent raise, brushing off the growth rate of the newly employed (2.2 percent), a downward factor, while opting to factor in the economic growth rate (2.7 percent), the inflation of consumer goods (4.5 percent).

The officials in charge of setting the minimum wage used the same formula last year. While the Minimum Wage Law advises the considerations of “the living expenses for workers, the wage or comparable workers, labor productivity and the share of labor income,” it does not stipulate any obligation to use such formula.

“For years, the standard for wage calculations has not been very consistent,” said Park Jun-sik, the president of the Minimum Wage Commission, arguing that the formula was used for a more reasonable and predictable calculation. Asked which of the two groups was the main focus for calculations – low-income workers and small-sized businesses dealt with a hard blow from the rising inflation, he said the commission had considered the stance of both sides.

The latest announcement, however, is fueling opposition from both labor and business sectors. “Employment shock will be inevitable owing to the increase of minimum wage that is oblivious to the economic difficulties,” said an official from KBIZ. “Smaller businesses and low-skilled workers will bear the brunt of the shock from shrinking labor market. By contract, the Korean Confederation of Trade Unions claimed that a 5-percentage increase is “an effective cut in wage given the spiraling inflation,“ vowing to continue to fight for the improvement of system to fulfill the purpose of minimum wage.

Since the minimum wage system was introduced in 1988, there have been only four times when the increase rate was lower than 5 percent - September 1998 to August 1999 (2.7 percent), September 1999 to August 2000 (4.9 percent), and the two pandemic years of 2020 (2.9 percent) and 2021 (1.5 percent). Given that the minimum wage shot up by 42 percent during the five years of the Moon Jae-in administration, however, some point out that 5 percent is far from a small uptick. Experts say the officials made concessions considering the rising inflation and the purchasing power of lower-income workers when in fact, it could have been set even lower to stabilize the prices.

As the practice is repeated every year where the mediating officials are left alone to decide on the minimum wage without any labor or business representation, many are voicing their concerns that it must be put to an end. “The opinions of both labor and business sides must be heard, but when it comes to the final decision, we need a group of experts and some objective data in assessing the economic leeway,” said Professor Gwon Hyeok of Busan National University Law School. “The tug of war between the labor and the business sides we are currently witnessing won’t cut it as this can make the outcome of their negotiations less attractive from the market point of view.”