Minimum Wage Increase in 2018…What Could Be the Outcome?
Minimum Wage Increase in 2018…What Could Be the Outcome?
  • Reporter Lee Ha-jun
  • 승인 2017.12.06 00:12
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Moon Jae-in, the president of Korea has made a pledge to raise the minimum wage up to 10,000 KRW by 2020, and it seems that the first step has been made. In 2016, the minimum wage was 6,030 KRW, in 2017 it was 6,470, and it has been raised to 7,530 in 2018. The minimum wage in 2017 compared to 2016 increased by 7.3%, and compared to 2017, 2018’s minimum wage has increased by the rate of 16.4%. The increase rate has rose tremendously, and if this rate can be maintained, by 2020, the minimum wage can exceed 10,000 KRW, as promised.
However, there are some arguments about this policy. The most obvious problem could be the decrease in employment. For example, industries including security and food service in Korea are especially affected. Study shows that more than 10,000 apartment security jobs are in danger of unemployment next year due to the minimum wage rise. This is because security guards can be replaced with security systems. In addition, many restaurants are introducing Kiosk, a machine customers can use to order by themselves, and this may lead to the unemployment of workers.
The government did come up with a plan. They promised to support small merchants and businesses. It could be direct aid through providing money, or an indirect path such as tax cuts or credit card fee reductions. On Nov. 9, the government announced the “Employment Capital Stabilization Plan”. Through this plan, employers that have less than 30 employees can apply, and by one employee that is paid less than 1.9 million KRW a month, the employer can be supported by 130,000 KRW. However, this plan is temporarily (just for a year for now), and some say it is just postponing the anxiety. In addition, will-less unemployment can occur to make the amount of employees under 30.
There are some sights that worry inflation due to minimum wage rise. The governments other policy is to increase employment in public sectors, and decrease part-time employment. Due to this policy, more employment and an increase in basic wage will occur. Along with the minimum wage increase, the employer has to bear this, and assign this cost to an increase in product or service price. In some businesses, including service, agriculture and fishing industries, a workforce is critical, and employment cannot be changed easily. Especially in these industries, a wage increase can lead to pressure to inflate the price of products or services.
Despite these worries, it might be too early to judge. The Postech Times interviewed Professor Kim Young-yong about this matter. He said “Looking at the basic model of economics, the increase in minimum wage would lead to decrease in employment. However, there is a study showing increase in employment when minimum wage rose.” The study shows that New Jersey’s fast food restaurants showed increased employment. He also mentioned, “Depending on the initial condition of each market type, the output of a government’s intervention can vary. Therefore, it is rash to make a judgement about it. More studies and researched are needed, and observing the government’s policy movement is necessary.”