“Is this the candlelight government? Stop the minimum wage cut!” Banners written with these words were held high by the People’s Joint Action who gathered up in front of the Blue House on June 4. Words on the banners were urging President Moon Jae-in and the government officials to reject the minimum wage cutting act. This situation had been derived from the continuous discord sandwiched in between the working class, who seek a higher minimum wage and the employers who want low labor cost for their production.
▲ Demonstration against the minimum wage cutting act. Provided by the Green Party
South Korea has been applying the minimum wage policy since 1953 and the present minimum wage in 2018 is set at 7,530 won, which is the highest ever in South Korean history. On July 14, the Minimum Wage Council announced that the minimum wage for next year in South Korea had been set at 8,350 won per hour. The wage had risen by 10.9 percent compared to the previous figure, which is the first time that the minimum wage has exceeded 8,000 won per hour. Furthermore, if this amount actually gets applied to the labor market in 2019, it will be breaking the preceding record of 7,530 won.
According to a research by Yonhap News, the government should increase the minimum wage 15.2 percent by 2019 and raise the same amount by 2020 too, in order to fulfill its public pledge of 10,000 won per hour. The 16.4 percent increase from year 2017 to 2018 demonstrates how urgent the government is in increasing the rate of minimum wage. Unfortunately, this epic plan seems to be hampered by some social conflicts, especially due to the business communities’ strong backlash.
Red Alert to the Workers
After the announcement of next year’s minimum wage by the Minimum Wage Council, those from the side of laborers insisted that the result is taking hope away from the low-wage workers from an increased employment. “According to cases of United States (US) and Germany, raising minimum wage affects the employment of the society in a positive way,” said David Cooper, a senior economic analyst of the US Economy Policy Institute. He added that the raising of minimum wage will also increase consumers’ demand which eventually swell incomes of small businesses.
Another major reason for raising minimum wage is to show respect for the rights of the laborers. Advocates of high minimum wage believe that the minimum wage system can prevent employers from exploiting disadvantaged workers such as the youths, the seniors, the disabled, and the foreigners. In fact, the policy was initially designed for these socially weak factory workers during the period of Industrial Revolution in the 19th century. However, it seems that minimum wage’s original purpose is not satisfying the workers.
Employers Rising in Revolt
One noticeable part of the dispute is that employers who run small stores or businesses are equally unsatisfied with the newest minimum wage. “The newest minimum wage for 2019 seems to be more focused on the laborers’ side. The employers wanted the minimum wage to freeze but since it increased by 10.9 percent, it’s great hike is closer to the employees’ demand,” commented Professor Park Ji-soon (School of Law). Moreover, there are voices saying that is an opinion that claims the unemployment rate of the society will eventually rise as the minimum wage rises, and this goes against the laborers’ sides of the argument. Since the minimum wage rate is usually applied to those who work for small businesses, a high minimum wage is nothing more than an imposition on the employers who pay them.
▲ Professor Park Ji-soon. Photographed by Oh Ju Shin
Raising minimum wage can affect the welfare of companies too, because they have to utilize a bigger percentage of their profit to pay their workers. This mechanism would cause another dispute between the two forces, even if minimum wage increases due to the laborers’ strong demand. Furthermore, advocates of a high minimum wage say a high salary would reduce turnover and heighten worker loyalty, but since higher wages mean higher than other workers, it is hard to conclude that raising minimum wage can satisfy the workers who desire for more income.
Solving the Minimum Wage Dispute: House of Cards?
Discussing the appropriate level for the minimum wage is a solution for the argument that is focused on the employer-employee relationship. However, in another perspective of franchise-head office, a few other matters seem to be more severe. Franchise royalties, which the franchise owners should pay to the brand’s head office, are excessively expensive for those who run franchise stores. Professor Park added that these owners also have to afford the store rent fees and credit card fees, and these payments become a heavy burden for the storekeepers.
Moreover, the government’s primary goal of stabilizing the lives of the working class by raising the minimum wage level seems to be beating the air. Some experts are concerned that a high minimum wage might lower the employment ratio of the low-income group; the likelihood of low-paid workers losing their jobs due to the burden felt by the employers by a raise in wages would go up. Furthermore, since it is hard to affirm that all working age people in the low-income group are employed, raising the minimum wage cannot be a practical solution for the poor strata. In order to effectively assist the working class, the government must concentrate on improving the Earned Income Tax Credit (EITC) system or low-income group support systems, not on raising the minimum wage.
Nevertheless, if it is inevitable to raise minimum wage, differentiating the minimum wage in according to regions could be a solution to the dispute. “Since price levels differ across the regions, the government can think of differentiating the minimum wage by its area,” said Professor Park. He mentioned that discrimination of the minimum wage according to jobs is excessively ideal which does not reflect the main purpose of the minimum wage to guarantee people’s living. However, setting up the regional minimum wage could be a possible solution for the dispute, because the price levels differ across many areas.
Some experts point out that the minimum wage controversy is trapped in a never-ending cycle with no way out like a Mobius strip. If either side takes a step backward, the minimum wage controversy will vanish. Unfortunately, neither of the two sides is making a concession and they are continuously repeating the same process of verbal battles. Professor Park said, “Actually, there is a problem with the fact that the minimum wage has risen by nearly 30 percent in two years. There is un uppermost limit that EITC or low-income groups supporting policies could do, so it is important to deal with the minimum wage level. The point is to take a long-term view with this controversy, without raising the minimum wage such dramatically.” It seems that the government should stick to figuring out solutions with substantial effect by listening to both sides of the labor users and the laborers, which could turn out to be easier with compromising attitudes of the stakeholders.