[Free Speech] Higher minimum wages are not always better

It is easy to think that a high minimum wage makes a country a better place to live, but reality is not so simple. In Australia, one of the most popular working holiday destinations for college students, the hourly minimum wage ranks first in the world. Does that mean Australian residents can live comfortably on wages that are higher than those in Korea? Contrary to such rosy assumptions, an investigative report by Australia’s public broadcaster ABC found that “modern-day slavery” is widespread in the country. In particular, many working holiday laborers were found to be exploited through unpaid labor under the pretext of being granted visas. Even in Australia, a country with a high minimum wage, such traps exist.

Raising the minimum wage can be seen as a representative policy that conflicts with job creation. Creating jobs is one of the state’s most important roles. The global decline in manufacturing jobs has continued for years. In addition, due to COVID-19, non-face-to-face services have expanded and kiosks have become more widespread, leading to a gradual decline in jobs in the service sector as well. A decline in jobs leads to a decline in national income. Looking at the wages of middle-class workers in major OECD member countries, many have effectively stagnated or even fallen since the early 1980s. This shows that job creation is becoming increasingly important. Yet the reality is that policies that do not help create jobs are being implemented.

The level of minimum wage increases should be determined by comprehensively considering a country’s overall conditions, including its economy and workers’ wage levels. Korea’s trend in minimum wage increases appears excessively steep. While minimum wages in advanced countries rose by 11%, Korea’s minimum wage rose by about 45%. Over the past five years, Korea’s minimum wage has increased at a pace about four times steeper than that of major advanced countries. Did the rise in the minimum wage enable workers to secure stable incomes? Unfortunately, the share of workers who do not receive even the minimum wage also increased. As of 2020, Korea’s sub-minimum-wage rate stood at 15.6%, far higher than in other countries. As the results show, a higher minimum wage is not unconditionally beneficial to the public. Rather than deciding to raise the minimum wage indiscriminately, it is necessary to determine an increase rate suited to the national economy, and it is important to set the level of increase with full consideration of the consequences workers may face as a result.

Excessive increases in the minimum wage produce side effects such as reduced working hours and fewer jobs. Recently, California experienced negative consequences from a minimum wage increase. Because the minimum wage at fast-food restaurants was raised to 30,000 won, McDonald’s stated that it might withdraw its business from California. The negative consequences of excessive minimum wage hikes are also gradually appearing in Korea. According to Statistics Korea, the number of self-employed business owners with employees is continuing to decline, while the number of self-employed without employees is increasing. The proportion of unmanned kiosks being installed is also rising due to higher labor costs. This phenomenon goes beyond reduced working hours and leads to job losses. If the minimum wage was raised to improve people’s quality of life, such severe negative side effects make that claim difficult to sustain.

Korea’s minimum wage policy should move in the direction of, first, adjusting the pace of minimum wage increases and, second, actively preparing improvement measures such as differentiated application by industry and region or including firms’ ability to pay among the factors in setting the minimum wage. Excessive minimum wage hikes help no one.

Yeonhee Lee, Intern Researcher, Center for Free Enterprise (CFE)

Original title: [자유발언대] 최저임금 오른다고 무조건 좋은 것이 아니다

Author: Yeon-hee Lee

Date: 2023-01-06

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=free_opinion&pn=7&idx=25271