Why Korea's wage gap between big firms and SMEs keeps growing

Wages at South Korea’s large corporations rank among the highest globally, but the income disparity between conglomerates and small and medium-sized enterprises remains one of the widest among major economies, a report from the Korea Enterprises Federation revealed Sunday.

According to the KEF, the average annual wage at large South Korean firms reached $87,130 in 2022, ranking fifth among 22 countries surveyed, including 20 European Union countries and Japan. The figure is 8.2 percent higher than the EU average of $80,536 and 52.9 percent higher than Japan’s $56,987.

When adjusted for economic output, wages at large South Korean firms were 156.9 percent of the country’s per capita gross domestic product, significantly exceeding the EU average of 134.7 percent and Japan at 120.8 percent, ranking third globally behind Greece and France.

Despite the high wages at large firms, the wage gap between large corporations and SMEs in South Korea has widened significantly over the past two decades.

The KEF report showed that in 2002, SME wages were 70.4 percent of those at large firms, but by 2022, the figure had dropped to 57.7 percent, marking a notable divergence compared to Japan at 73.7 percent and the EU average of 65.1 percent.

The growing wage disparity is attributed to rapid wage increases at large corporations, rather than stagnant SME wage growth, the report explained.

Over the past 20 years, wages at large firms in South Korea surged by 157.6 percent, significantly outpacing those in the EU with an 84.7 percent increase and even a 6.8 percent drop in Japan.

In contrast, SME wages in South Korea rose 111.4 percent, exceeding the increases in the EU at 56.8 percent and Japan at 7 percent. In 2022, South Korea’s SME average wage stood at $50,317, 19.7 percent higher than Japan's but 4 percent lower than the EU's average.

KEF’s chief economic researcher Ha Sang-woo highlighted that the seniority-based pay structure and strong labor unions at large South Korean firms have led to wage hikes that exceed productivity levels. He cautioned that continued wage increases without matching productivity gains could pose long-term sustainability risks.

The report also noted that South Korea’s overall labor productivity ranked 17th out of 21 OECD nations at $52.98 per hour, yet its wage level ranked 11th, suggesting that wages outpace productivity gains.

Ha stressed the urgency of transitioning to a performance-based pay system, stating that South Korea’s economic competitiveness could weaken further unless wage structures align more closely with productivity.