As talks on next year's minimum wage hike get underway in earnest, a study found that if the 16.3% increase sought by labor groups materializes, more than 440,000 jobs could be lost annually and corporations' innovation investment could also shrink.
Ra Jeong-ju, head of the Fighterch Institute, on the 23rd released the findings of a study titled "The impact of minimum wage increases on corporations' innovation investment and employment."
The study used a general equilibrium model that reflects the minimum wage and corporations' innovation investment. The model was approved after peer review by the international journal indexed in the Social Sciences Citation Index (SSCI), Asian-Pacific Economic Literature.
The analysis showed that if next year's minimum wage rises 16.3% from this year, real gross domestic product (GDP) would decrease by 810 billion won (0.3%) annually, jobs by 443,000 (1.9%), and total innovation investment by 400 billion won (0.3%).
The study analyzed that a minimum wage hike would raise labor costs for small businesses sensitive to the minimum, reducing employment and production, and in the process, innovation investment such as new product development would also be curtailed. It also assessed that the production decline at small businesses would lead to higher product prices, which would in turn reduce the output of general corporations that source from them, potentially affecting the broader economy.
Currently, labor groups have presented 12,000 won per hour—up 16.3% from this year's 10,320 won—as their initial demand for next year's minimum wage. Converted to a monthly salary, that amounts to 2,508,000 won based on 209 hours per month. In contrast, management circles say a sharp increase could add to the burden on small merchants and small and midsize enterprises and are calling for a cautious approach.
Ra also argued that Korea's minimum wage level is already high compared with major advanced economies. Ra said, "Korea's minimum wage is at a fairly high level relative to the median wage of full-time workers as of 2024," adding, "Excessive hike demands could have negative effects across the economy, including weaker employment and investment."
According to statistics from the Organization for Economic Cooperation and Development (OECD), as of 2024 the ratio of the minimum wage to the median wage of full-time workers is 60.5% in Korea, 50.6% in Germany, 46.8% in Japan, and 25.0% in the United States.