The Minimum Wage in Republic of Korea: Issues with the Tripartite Negotiation Structur

Abstract

The recent crisis and increases in inequality have aroused new interest in the statutory minimum wage as a tool to ensure that wages at the bottom of the wage distribution are raised. Unlike these popular notions, however, minimum wages are controversial. Although supporting low-wage earners is widely seen as important, views differ about whether such support is best provided through minimum wages. For one, a large debate is ongoing over the costs and benefits of increasing the minimum wage. Supporters of minimum wage argue that it can change the earnings distribution in favor of low-wage workers, but opponents emphasize its disemployment effect and the fact that it might even reduce the share of low-paid workers.

Based on the evidence in both advanced and emerging economies, it is now loosely agreed that reasonable levels or increases in the minimum wage are unlikely to have drastic negative employment effects, although vulnerable groups will inevitably be adversely affected. However, what defines a “reasonable or moderate” level or increase will be country specific and depend on the other policies relating to minimum wage, as well as on the coverage of minimum wage and labor market conditions. For this reason, a pragmatic and evidence-based debate over the role of minimum wages as well as country-specific observations are needed. In fact, minimum wage levels and setting mechanisms vary markedly across countries, as do their coverage and the level of employer compliance. These differences mainly emerge from the difference in a country’s development stage.

In Korea, the minimum wage system was introduced in 1986 in the process of the democratization of industrial relations after the long-lasting military rule. Establishing the Minimum Wage Commission followed the groundbreaking disputes in industrial relations earlier in the same year. Naturally, not much attention was paid to the preconditions to operate the minimum wage system properly. A careful framing of the related issues and examining empirical evidence comparatively is now in great need.

The purpose of this paper is to discuss the basic principles of minimum wage policy whereby economic and institutional dimensions are taken into account for drawing policy implications for Korea. Mainly, the difference between advanced and developing countries in managing the minimum wage, limitations from the large share of the informal sector, the noncompliance rate due to the lack of administrative capacities, and diverse views on the aim of the system will be addressed.