Will there come a time when regions can independently set the minimum wage? Reform Party candidate Lee Jun-seok has pledged to allow local governments to autonomously adjust the minimum wage within ±30% of the standard set by the central government. For instance, large cities like Seoul would be able to set a higher hourly wage than the standard, while provinces could set a lower hourly wage based on their cost of living.
The core idea is not the 'wage differentiation' itself, but rather the plan for decentralization that aims to transfer the decision-making power of economic policies, which has been monopolized by the central government, to local governments, enabling competition between municipalities. If local governments are able to set not only the minimum wage but also corporate tax rates and regulatory conditions, the candidate believes that regions can be restructured as economically competitive units.
This year's statutory minimum wage is 10,030 won per hour. Applying this standard could result in some regions seeing their hourly wages fall to the 7,000 to 8,000 won range.
The business community argues that the current system fails to reflect the differences in region, industry, and company size, thereby worsening the employment capacity of small business owners and self-employed individuals. On the contrary, some experts are raising concerns that this pledge could actually exacerbate the gaps between regions and accelerate the outflow of the population from rural areas.
◇ "Minimum wage increase brings tears to small business owners" vs "Population concentration in the capital area"
According to the Reform Party on the 28th, the candidate presented a pledge to reform the system to allow local governments to autonomously set the minimum wage, reflecting the cost of living and labor costs across regions. This year's minimum wage has surpassed 10,000 won for the first time, set at 10,030 won per hour. From 2018, the minimum wage has risen by over 42% in five years.
As a result, small business owners and self-employed individuals, who find it hard to hire employees, are increasingly resorting to working long hours themselves or reducing their workforce altogether. In convenience stores, small restaurants, and the taxi industry, complaints are common about the effective hourly wage exceeding 12,000 won when including paid vacations.
In a survey conducted by the Korea Federation of Small and Medium Enterprises, over 60% of establishments with fewer than 300 employees called for a 'freeze on the minimum wage.' The business community argues that applying the same wage despite significant regional differences in living costs and labor costs has led to job reductions.
On the other hand, there are claims that lowering the regional minimum wage could accelerate regional extinction. Should the wage fall to the 7,000 won level, even working 209 hours a month would only yield an income of about 1.46 million won, which is not significantly different from the government's minimum cost of living standard for a single-person household, set at 1.43 million won.
If this pledge is implemented, the structure could be institutionalized where compensation for the same labor differs by region, potentially accelerating the migration of workers to areas with higher wages. This could worsen the 'population concentration' towards Seoul and the capital area, with rural areas facing faster depopulation.
Additionally, it cannot be overlooked that local governments might set excessively low wages under the justification of 'attracting corporations.' As a result, low-wage regions could trigger a 'stigma effect,' leading to a vicious cycle of labor shortages and reduced consumption.
◇ Foreign countries also operate differential systems… "Korea's institutional conditions are different"
In a recent interview with ChosunBiz, the candidate noted, "If corporate tax and wage conditions are the same everywhere, who would want to move to a local area?" He added, "In the U.S., the federal system leads to different taxes in each state, and the fact that Elon Musk moved critical companies like 'SpaceX' from California to Texas reflects that."
The candidate emphasizes that while giving autonomy to local leaders, they must also bear responsibility for policy failures. He argued, "If a foolish local leader raises the minimum wage by 30% to set it at 13,000 won, jobs will disappear and the region could fail. Hence, political parties must attract competent individuals, and voters need a structure where they vote based on the performance of local leaders."
However, there are skeptical views about whether attracting corporations will be feasible. When companies in the capital area consider relocating to rural areas, they evaluate various factors beyond just labor costs, including transportation and logistics infrastructure, labor supply, and market accessibility. One local government official stated, "There are not many companies willing to move their headquarters just because wages are 1,000 won cheaper; from a corporate standpoint, the overall business environment is more important than wages."
What are advanced countries doing? Among the 26 countries in the Organization for Economic Cooperation and Development (OECD), 17 apply differentiated minimum wages according to region, industry, and age. The United States sets minimum wages at both the federal and state government levels, while Japan applies differentiated hourly wages by prefecture. Countries such as Germany, Switzerland, and Mexico also calculate wages differently based on region or industry.
Experts point out that Korea's centralized, unitary national structure complicates the institutional design for differentiated minimum wages by region. In reality, since the metropolitan area and rural regions are integrated into the same daily living zones with little difference in living expenses, there is a view that the policy's effectiveness is low.
Professor Kim Sung-hee of Korea University Labor Studies Institute said, "Korea effectively binds the metropolitan area and rural regions into the same daily living zones, so applying different minimum wages regionally lacks design validity. Additionally, in a situation where local government autonomy is low, low wages could become a hindrance to attracting talent, and the stigma of being a 'low-wage region' should be considered as not beneficial for corporate operations."
However, the candidate's pledge leans more towards a proposal for a decentralized structure that grants new autonomy to local governments rather than evaluating the 'feasibility within the current system.' The candidate stressed, "By strengthening local autonomy and giving regions the authority to set corporate tax rates and minimum wages, natural competition can occur."
Former Seoul National University Graduate School of International Studies Professor Jeong Young-rok stated, "Applying the same wages nationwide presents a structural problem that fails to account for regional differences in living costs," adding, "If conditions improve for manufacturing investments and other regional circumstances, it can positively influence attracting corporations and creating local jobs."