[On the Bar] Legal look into sustainability of new minimum wage

By Korea Herald

Published : Aug 8, 2018 - 16:26
Updated : Aug 8, 2018 - 16:30

On the Bar is a regular column written by attorneys at Yoon & Yang LLC on various laws and regulations that affect running a business in Korea. The content provided here is general legal information. -- Ed.

As of May 28, 2018, the amended Minimum Wage Act was passed, with the intended effect of promoting the increase of the minimum wage to 10,000 ($9) won per hour by 2020 and an immediate raise of the minimum wage for 2018 to 7,530 won (monthly 1,573,770 won).

This is 16.4 percent higher than 2017, and the expected minimum wage for 2019 is to be 8,350 won (monthly 1,745,150 won).

The amendment includes changes in how the minimum wage is calculated and the composition of the minimum wage itself, of which the scope of inclusion of discretionary payments has been widened.

With this development, each sector of the economy -- ranging from employees to employers in different industries and across all age groups -- shows conflicting opinions.

And there are a few major positive effects and concerns that are being posed with the amendment that are worth noting. 

Park Chan-Keun (left) and Jenny JH Kim

As expected, one clear positive effect of the amendment is that with this raise, the basic rights of employees that are most in need are protected and they are able to have minimum security in the provision of their labor against employers who are in a stronger bargaining position.

In theory, this prevents abuse of labor and creates a better economic environment in the long-run, by stimulating the economy through facilitating consumption by raising wages of workers.

Data provided by the National Statistical Office on July 18 already show the effects of the raise, with over 50 percent of the portion of newly employed youths receiving starting salaries of 1.5 million won or more per month.

However, this is just the tip of the iceberg of the implications of the amended act.

In order for the positive effects to persist, the infrastructure of the economy needs to be supportive, and currently this seems far from ideal.

Although the act exists to protect those most in need in society, it becomes a burden for employers, who in turn find ways to reduce costs.

Employees earning the minimum wage normally do not possess special skills, and are vulnerable to replacement by automated machines. As such, there are already signs of a number of guards at apartment complexes being fired, gas stations transforming into self-operated ones, and cashiers at convenience stores being replaced with machines.

The irony is that due to this concern, many of the intended beneficiaries of the amended act are the ones that are against its adoption. These individuals are fearful that they could lose their jobs next year when their wages are raised.

With this concern in mind, some experts argue that the problem with the amendment is the across-the-board application. They say the act should be applied differently in each industry field or depending on the age and experience level of an employee.

In practice, many countries are adopting minimum wage related laws in the same way, customized to their own needs.

Interestingly, Asian countries tend to take into consideration the basic cost of living in their calculation, while European countries normally do not. Countries such as Greece even consider whether the individual is married or single, and the time that an individual has worked at the workplace. This shows how so many factors come into play when these policy decisions are made, and how Korea may benefit from customizing the act to meet its needs.

One clear fact is that with any policy, there is no right or wrong trajectory, and regardless of how it is devised, it is nearly impossible for everyone to be happy with the impact of the amendment.

In light of the circumstances, it seems imperative that a thorough balancing of interests be conducted by the government to reach the most sustainable equilibrium, with continuous efforts to achieve the intended results to the targeted beneficiaries.

(123rf)

By Park Chan-Keun and Jenny JH Kim 

Park Chan-Keun is an attorney and partner of law firm Yoon & Yang LLC, mainly practicing in areas of administration and labor law.

Jenny JH Kim is a foreign attorney of law firm Yoon & Yang LLC for international and corporate issues.

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The Korea Herald by Herald Corporation