[Editorial] Widening gap

A recent study found that manufacturing wages in Korea far exceed those in Japan and Taiwan. About a decade ago, the differences were marginal, but the gap has widened markedly.

When comparing the annual wages of regular full-time workers, Korea outpaced Japan and Taiwan. The gap is especially stark in manufacturing — a point that merits close attention.

Japan and Taiwan are Korea's strong rivals in the manufacturing sector. Low productivity has long been cited as a chronic problem among Korean companies. If wages continue to rise sharply without corresponding gains in productivity, Korea's manufacturing industry will be pushed closer to the brink.

The Korea Enterprises Federation on Tuesday released the results of a study comparing wage levels in Korea with those in Japan and Taiwan.

Last year, the annual wages of regular workers in Korea’s manufacturing sector — measured in terms of purchasing power parity-adjusted current US dollars — were 27.8 percent higher than in Japan and 25.9 percent higher than in Taiwan.

Across all industries, annual wages in Korea exceeded those in Japan by 23.7 percent and those in Taiwan by 16.2 percent.

The gap widened because wage growth in Korea significantly outpaced that in the two economies. From 2011 to 2024, wages for regular workers rose 34.2 percent in Japan, whereas Korea far exceeded that increase with a 64.4 percent gain. A comparison with Taiwan points to a similar pattern. While wages in Taiwan rose by 54.4 percent over the period, those in Korea climbed by 70.8 percent. In the manufacturing sector, wage growth in Korea far surpassed that in Japan, rising 82.9 percent compared with 35 percent.

The wage gap between Korea and Japan was particularly pronounced among large companies, at 58.9 percent, compared with 21.9 percent for small and midsized firms.

Sharing corporate growth and profits with workers is right, but the dual structure of Korea's labor market remains a serious and worsening problem. Regular workers at large companies, who make up just 12 percent of the workforce, enjoy high wages bolstered by strong unions and pro-labor policies. By contrast, employees at small and medium-sized suppliers and irregular workers are left with relatively low wages and stagnant wage growth.

Excessively high wages ultimately erode competitiveness. Put simply, Korean products would need to be priced about 26 to 28 percent higher than Japanese or Taiwanese competitors if profit margins and nonwage costs were equal. According to a September report by the Korea Chamber of Commerce and Industry, wages rose by an annual average of 4 percent from 2018 to 2023, while productivity grew by only 1.7 percent a year. To make matters worse, Korean companies competing in global markets face another barrier of stringent regulations.

This double burden — regulations and high wages — may help explain why Korea now lags behind China in four of its five key manufacturing industries of semiconductors, automobiles, machinery, steel and chemicals.

An analysis by the Korea International Trade Association, released Tuesday, tracking changes in export competitiveness among Korea, Japan and China from 2019 to 2024, shows that Korea led only in semiconductors last year.

At a time when Korean high-tech firms, including chipmakers, need to make thorough preparations to fend off challenges from China, Japan and Taiwan, the rigid 52-hour workweek is being enforced without exception — forcing even R&D staff to stop work and leave the office at closing time. Korea’s top position in the semiconductor industry is increasingly shaky. The “Yellow Envelope” Act, set to take effect in March, is likely to trigger a wave of wage-hike demands from subcontractor unions.

Korean companies have long been burdened by a high-cost business structure. Furthermore, Korea's corporate regulations are tougher than those of its competitors. Growth cannot be sustained under such conditions. Restraining wage growth and pressing ahead with pro-business institutional reforms are urgent tasks.