By Min Tae Chung
South Korea is well known for its rapid economic growth with its post- Korean War development. Early in South Korea’s economic development, also known as “the miracle of the Han River,” the economy underwent constant and rapid growth that has elevated South Korea’s economy to the heights of one of the world’s most important exporting and trading nations today. With such economic achievements South Korea has naturally become one of the more expensive countries to live in. And Seoul, where almost one fifth of the Korean population is located with a population of around 10.01 million as of 2014, was ranked as the 8th most expensive city in the world in 2015.
As the Korean economy started growing, its relations with the labor sector also started changing, and so has one of its most basic factors, the wages of the workers. From the lowest marked minimum wage of 600 KRW in 1989 to the current wage of 6,030 KRW ($5.31) as of 2016, the minimum wage has been on a constant rise for as long as Korea has passed a constitutional law for minimum wage. However, there are voices and protests among labor unions that even the constantly rising minimum wage is not sufficient for meeting minimal living standards, not to mention supporting a family. For an instance, a laborer claimed that she only made about 600, 000 KRW ($523) per month although she had worked on several part time jobs with minimum wages, and that she had to spend all of it on basic necessities. For comparison, the minimum wage in New York, the city ranked just above Seoul in cost of living and with a very slight difference, is $9.00 per hour, and it is expected to increase up to $15 per hour by the year 2021. In light of this, it is understandable why the level of the minimum wage was an issue in National Assembly elections earlier this year.
To examine the argument for a low minimum wage, there was an experiment by two reporters from a Korean media outlet, Sisa In, in which each reporter tried making a living from just the minimum wage. In order to “survive” through one month, each reporter leased a room in “go-si won,” a cheap and very small room with no security deposit (the ones that both reporters leased were about 6 x 6 ft.) that students preparing for civil servant exams tend to stay in, for 350,000 KRW ($305.19). They worked at restaurants, gas stations, furniture factories, and hotels and earned minimum wage, and sometimes less because of “cutting,” the practice of a manager sending a worker home earlier than the contract calls for so the employer does not have to pay the full wage. On top of working for full- time jobs, they tried to have a social life, study for certificates, and have time for themselves to “make their lives better.” After a month, one reporter barely managed to spend less than what he had earned, but called living just on the minimum wage “impossible in the long run.” The other reporter eventually was fired because the work did not want to pay the workers, and she failed in living through the month on minimum wage. Neither reporter was able to keep the healthy and the balanced life styles that they used to have. In addition to the frugal and difficult lives, there were the lack of legal contracts, the reporters often experienced unjust treatment and working conditions from employers.
Thus, the Korean government has announced that it is going to raise the minimum wage to 6,470 KRW in 2017, although that is still less than the 10,000 KRW labor unions have demanded. And the trend of an increasing minimum wage is likely to continue. However, there is some debate on the effects of the increased minimum wage on the Korean economy and whether it is going to be effective in decreasing the level of poverty on low income families. Some argue that “the increased minimum wage goes over what small and medium- sized enterprises can afford, which could result in a reduction of new employment.” Suggesting that only 30% of the households living on minimum wage are below the poverty line, some argue that raising minimum wage is not properly targeting the people who are under the poverty line. The increased minimum wage may also cause inflation, which will decrease the real purchasing power of the consumers and put the burden of increased wages on them.
The price level of the minimum wage is not the lone problem concerning South Korea’s minimum wage. According to an OECD report, the percentage of South Korean laborers who earn less than the minimum wage was around 14.7% (in 2013), which was the highest among OECD countries. And the Bank of Korea has predicted that by 2017, the number of laborers who would earn less than the minimum wage will be around 3.13 million. The statistics also indicate that the number of reports filed on the employers who pay their employees less than the minimum wage has been increasing, whereas the number of the employers who are charged as a result of such reports has been decreasing. Even in the cases in which employers who had paid their workers less than the minimum wages were charged, often times the unlawful employers were not appropriately punished and were let off with just minor punishments and warnings.
The “right” level of minimum wage where there is a perfect balance between what laborers can live on and that does not place too much burden on SMEs and consumers is unclear. However, the current minimum wage in South Korea, according to the experience of many Korean laborers and the two undercover reporters, does seem insufficient to sustain a healthy and balanced life style. However, as important and pressing matter as finding the right level of minimum wage is making sure that every laborer is securely earning what they have lawfully worked for and their rights at workplaces are being protected.
Min Tae Chung is an intern at the Korea Economic Institute of America and a student at the University of California- San Diego with an international studies- economics major. The Views expressed here are the author’s alone.
Photo from Mathieu Thouvenin’s photostream on flickr Creative Commons.