South Korea Decided on the 2025 Minimum Wage Standard

Starting from next year, the minimum wage in South Korea will be 10,030 won, the first time it has reached five figures. That equates to about $7.20. For comparison, a regular coffee from a run-of-the-mill cafe costs around $3.20 in South Korea.

Each year, South Korea’s minimum wage is set by the Minimum Wage Commission (MWC) consisting of representatives from the labor, employer, and the government sectors. At first, the labor sector insisted on 12,600 won, or $9, a 27 percent increase from the current minimum wage of 9,860 won. It maintained that wages should catch up with how much South Korean wallets are bleeding. Consumer prices went up by 3.6 percent in 2023. The first half of this year saw around a 2.8 percent increase overall, compared with last year.

On the surface, this inflation rate may not sound that bad, but prices of fresh produce, such as vegetables and meat, soared by almost 20 percent. Fruit prices skyrocketed by 38 percent. On top of these staples, housing and rent registered the steepest increase in eight years. The living standards of low-wage laborers are cratering.

On the other hand, the employer sector insisted on freezing next year’s minimum wage at the current rate. Over the past 12 years, the minimum wage has more than doubled, forcing small business owners to use fewer employees. Additionally, domestic consumption has also considerably contracted due to high inflation and high interest rates. Reduced revenue led to increased firing of employees. Store rent has also jumped.

Everyone’s certainly suffering in their own way. In the end, the government sided with the employer sector, agreeing on a mere 1.7 percent increase in the minimum wage. Representatives from the labor, employer, and government sectors all cast the same number of votes in determining the minimum wage, and the government representatives cast their lot with the employer sector.

The government had two reasons for doing so. First, there are around 5 million self-employed people – mostly store owners – and they have a strong tendency to support the government based on policies favorable to them, regardless of any other political factors. Five million is one-tenth of the South Korean population. Count in their dependents, and votes from the self-employment sector balloon to over 10 million. They are the backbone of South Korea’s middle class.

Fully aware of their electoral cohesion, South Korean governments, whether liberal or conservative, have always splurged on cash relief and debt cancelation in order to support them. And the self-employed bloc is quite a grateful, reciprocating bunch, swaying elections and government support ratings. They also have a higher voter turnout than younger people, who haven’t really formed a collective social identity.

Second, the government believes stifling the minimum wage helps with inflation. Usually, creating new jobs tends to spur domestic consumption and drive upticks in inflation. But a slight increase in the minimum wage seems not to affect inflation that much, especially given that the current inflation vortex in the South Korean context is largely whipped up by high production costs in agribusiness and construction sectors due to a supply crunch in raw materials and shortage of skilled laborers. Still, economists are ambivalent on the extent to which changes in the minimum wage influence inflation.

Yet, the government is officially of the opinion that raising the minimum wage will exacerbate inflation by making it more expensive for business owners to provide services, which will surely be reflected in the final price tag. The only sure-fire phenomenon is that an increase in the minimum wage inversely affects the availability of low-skilled labor, making it hard for people to find part-time jobs, a fact most mentioned by the government and the employer sector in trying to convince the labor sector that they are just trying to help everyone.

Apart from these back-and-forths between the opposing sectors, the MWC left a lot else to be desired. Absent from its discussion and deliberation was whether it should calculate the minimum wage with considerations of earners’ dependents. The representatives simply carried on with the assumption that the minimum wage is meant to support just one person.

Also excluded from the negotiation and executive decisions was the predicament of those who are not even being paid the minimum wage – one in four workers in their early 20s. This is illegal, but some employers get away with it. And freelancers are not even covered by the minimum wage mandate.

Meanwhile, the government is still looking for ways to undermine pay security for low-wage earners. One legislator from the ruling People Power Party has proposed a bill to stratify the minimum wage to lower degrees according to the needs of different industries.

The administration has also conceived a project to fly in foreign domestic workers to help out with household chores and child-rearing in order to boost the fertility rate among South Korean couples. But the government decided to exclude these foreign domestic workers from the minimum wage protection, thinking that average South Korean couples wouldn’t be able to afford their services if calculated on the minimum-wage scale.

It’s indeed a tough patch for laborers and self-employed people. Sound economic policies and proper social safety nets are the only way to improve their lot.