As the government moves again to institutionalize a "proper wage system" to guarantee construction workers' real wages, the construction industry is expressing reluctance.
They cite the burden of higher construction costs at a time when the industry is already struggling with high interest rates and rising raw material prices, and say it deviates from market principles.
According to the construction industry on the 21st, the Ministry of Land, Infrastructure and Transport recently launched a research project to draw up a plan to institutionalize a proper wage system for construction workers.
The proper wage system requires employers to pay construction workers wages at or above a certain level, such as the prevailing wage rates set by the ordering agency. In effect, it is a "minimum wage by occupation" applied only to the construction sector.
The government is pushing to introduce the proper wage system to address the problem of wage cuts for workers amid low-price bidding competition and multi-tier subcontracting. It also believes the system can increase the inflow of young domestic workers into construction and expand the employment of skilled workers, thereby reducing accidents and improving quality. Using wage data from the Construction Workers Mutual Aid Association (CW), it plans to calculate proper wage standards by occupation and gradually expand the system after pilot projects on public institution-ordered works.
The system was piloted during the Moon Jae-in administration from 2017 to 2021. As a result of implementing the proper wage system as a pilot on 20 business sites for projects worth 30 billion won or more ordered by the state and local governments, wages rose 1–17% by occupation. There was also a 3–12% increase in hiring of domestic workers by ordering agency.
At the time, the government planned to implement the proper wage system starting in Jan. 2023, but the initiative fell through as pushback from the construction industry and a change of administration sapped momentum.
The construction industry again is voicing concern over introducing the proper wage system. With the construction market already weak due to rising raw material prices and deterioration in the real estate project financing (PF) market, the view is that the system would further increase the industry's burden if implemented.
A representative at midsize builder Company A said, "The government would grade construction workers by certain criteria and set wage ceilings and floors," but added, "When there are times or sites where labor is hard to find, wages go up under market principles and fall otherwise. If the proper wage system is introduced, wages would not move flexibly but rise across the board."
A representative at major builder Company B said, "They say they will introduce it first for public works, but it's unclear whether ordering agencies will raise construction costs by as much as the increased labor costs due to the proper wage system," adding, "These days, because the construction market is tough, builders are often skipping bids when project revenue is very small or nonexistent, leading to frequent failed tenders for public works," the person explained.
According to the construction industry, current daily wages (based on eight hours on weekdays) for skilled positions such as carpenter foremen, rebar foremen and tile setters are around 250,000–300,000 won. The daily wage for general day laborers in construction is about 180,000 won, more than double this year's minimum wage (about 80,000 won).
Professor Yu Seon-jong of Konkuk University's Department of Real Estate Studies said, "Wages move according to the principle of supply and demand, so I don't know by what standards they would determine that skill level or construction capability is proper," adding, "Introducing a proper wage system only for the construction industry is inequitable."
Yu added, "At present, construction sites face a heavy cost burden from higher raw material prices, serious-accident risks and rising labor costs, and this would only compound the difficulties."
On the other hand, some say it could have a positive effect in terms of securing the stability of construction workers' pay.
Lee Eun-hyeong, a research fellow at the Construction Economy Research Institute of Korea, said, "From the workers' point of view, the proper wage system would guarantee minimum pay, which would increase pay stability," while adding, "For builders, labor expenditure would rise by that much, pushing up input costs in construction, so they cannot help but be wary."