While the minimum wage has always been a sore issue in the employer-employee relationship, the latest announcement from the government has once again fed fuel to the fire on debate about the working environment. On July 12, the Blue House stated the minimum wage for 2022 will be set at 9,160 Korean won, a 440 won increase compared to the minimum wage in 2021, which nearly amounts to a five percent increase. Some argue that this increase is well-deserved, while others state that the increase is taking one step closer towards suffocating smaller businesses. Thus, although 2022 is still yet to come, the fiscal prospects of the year are already ablaze in discussion.

Stipends and Settlements

A minimum wage, in its most basic state, is defined as the lowest remuneration that employees are to be paid for their labor. Originally instituted as a method to prevent employers from abusing their workers with inhumane pay rates, the modern minimum wage has evolved. While its original meaning of a social standard indicating the smallest amount of payment needed for basic human life remains, it also stands as a point of leverage between employers and their respective laborers.

South Korea, since the institution of its first minimum wage laws in 1988, has seen the standard increase every single year, although the amount by which it was raised varied. The decision on how much the minimum wage should be increased has always been a matter of conflict for both the employer and the employee, which has led to a long-standing feud between the Federation of Korean Trade Unions (FKTU) and various employer bodies over the ages.

The road leading up to the settlement on the 2022 minimum wage was less smooth than usual. Both parties involved in the debate agree on one thing — that the final minimum wage is not to their liking. On one side of the equation, the FKTU has called the new minimum wage a “sub-par solution to improving the quality of the average laborer’s life,” while several employers’ members argued that the final result was “hard to find fair and logical.”

Changes and Consequences

Professor Kim Seik (Department of Economics) explains the situation by first elaborating on the specific ramifications of the increase for three different cases. “The first case,” Professor Kim describes, “is the potential for their wage to increase. This is further divided into two circumstances where one can either be receiving a wage below the new minimum wage, or a wage that is already higher than the new standard but is dependent on a salary step system, where one’s pay is increased incrementally according to experience. The latter is the case the laborers are in favour of, because most of the corporations that are beheld to a certain extent to their labor unions — public enterprises, government subdivisions and larger conglomerates — are run on a salary step system.

“The second and third cases are where an individual’s income can either not change, or become zero due to their dismissal,” continues Professor Kim, “and while the former is merely a case of someone being unaffected by the change, the latter is related to companies having to lay off some of their employees.” Professor Kim ties this in with how increasing the minimum wage affects both employer and employee. On the employer’s side, they have the option of either accepting the income loss due to higher salaries and closing or firing employees due to fiscal pressure. The latter case is what causes problems, and the factor that negates attempts to over-raise the minimum wage. The employees on the other hand are handed either a method to deal with inflation — higher wages — or a layoff. This directly leads to the decrease of open jobs for lower income laborers, essentially polarizing the workforce.

The conflict seems to have been exacerbated further by the coronavirus disease (COVID-19) that has been wreaking havoc on the lives of many small business owners. The recent increase to level four restrictions on social distancing has resulted in many businesses losing customers, and subsequently, a drastic drop in profit. The wages that the owners must pay their workers have not decreased, however, meaning that the only option left to them is to tighten their belts and hold on until the end of the pandemic.

Thus, news that the minimum wage is to be increased in 2022 was not taken well by many of these business owners already hanging from a twig on the edge of their metaphorical cliff. Professor Kim takes a different approach towards the issue, however. He states that “it is clear COVID-19 has had no noticeable effect on the decision of the new minimum wage, considering how large the increase was.”

This ties in with how the solution to the situation seems to lie. The primary effort on adjusting society to fit the new minimum wage must be focused on cushioning the impact that businesses must face — relaxing credit card taxes, providing more employment taxation benefits, and arranging temporary government handouts are all valid examples of doing so. A simultaneous movement, however, needs to be made towards utilizing the situation as a backdrop towards instituting further workforce reforms to consider the requests of the employees too.

Thus, the matter of importance here is balance. While raising the minimum wage has been an annual issue, it has always entailed more than its fair share of conflict, along with a variety of different issues not limited to the fiscal status of the country, but also the political divide between employers and employees that is slowly looming beyond the horizon as a constant problem. The constant fight has brewed into something entirely different to the point that dealing with the problem requires what one could consider a political manoeuvre rather than an economic one. This removes us to the point of balance; uttermost care is necessary when deciding such matters, and whether that has been the case this year, we have but to wait to find out.