By Troy Stangarone
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Under this policy, the minimum wage increased by 16.4 percent in 2018, an additional 10.9 percent last year, and is set to rise 2.9 percent this year.
When the policy was first introduced, it faced immediate pushback. Even before the minimum wage increases took place, Korea's minimum wage was on par with the United Kingdom's and higher than Japan's as a percentage of median income.
Given these levels, critics of the administration embraced traditional economic concerns that raising the minimum wage would raise the cost of doing business and reduce the number of jobs available to those in society who are most in need of employment.
These concerns were backed by a 2019 study by the U.S. Congressional Budget Office (CBO) that found a Democratic proposal to raise the U.S. minimum wage to $15 an hour would cost 1.3 million jobs. But that may not be the case.
However, there is growing evidence that minimum wage increases may not be as harmful to job creation as many economists originally believed. A 1995 study by Alan Krueger and David Card on a minimum wage increase in New Jersey indicated that increases need not have negative effects on employment.
A more extensive study by Doruk Cengiz and his colleagues that examined state and local minimum wage increases in the United States between 1979 and 2016 found that the number of overall low wage jobs remained essentially the same, but the increase also provided modest wage gains to others on the low end of income distributions.
Looking beyond the United States, the British government last year commissioned an independent report on the impact of actual minimum wage increases internationally over the last quarter century. It found that increases in minimum wages had very little impact on employment, but did significantly improve the pay of low wage workers.
However, it notes that the evidence for a high minimum wage is still limited and that there may need to be pauses to the wage hikes if the new rates appear to be affecting employment.
The United Kingdom is a particularly interesting case as both the Conservative and Labour parties have supported minimum wage increases since they were introduced by Tony Blair in 1999.
However, rather than the sharp raises that Korea has seen, British workers have seen a steady number of small wage increases and the United Kingdom is on target to raise its minimum wage to 60 percent of median income this year and has its lowest unemployment levels since the 1970s.
While there are examples such as Seattle's recent minimum wage increase where the results have been more complex, as the British and other studies note there is increasingly strong evidence that minimum wage increases have only minimal effects on employment.
Even if skepticism remains about the impact of minimum wage increases on employment, the increases provide other benefits. The CBO study confirmed Cengiz's conclusion that increases improve the wages of other workers and estimated that the U.S. proposal would boost the pay of 10 million workers who already made more than the minimum wage and lift 1.3 million workers out of poverty.
Other studies have found that higher minimum wages make workers more productive, reduce social challenges such as suicide, and reduce employment turnover.
There is another factor to consider, however. Over the last two years, wages in the United States have been growing more for low wage workers than any other income segment at just under 4 percent a year.
In the absence of an increase in the Federal minimum wage, the push to increase the minimum wage by states and cities has helped push up the pay of low income workers in the United States.
However, a recent analysis by the New York Times suggests that minimum wage increases account for only a small percentage of the increase and that wages would have increased by 3.5 percent even without minimum wage growth.
Playing a more significant role in the wage increases has been the continued economic expansion in the United States. With the economy continuing to grow there have been greater pressures on the lower ends of the wage scale for workers as firms compete for employees.
Reasonable increases in the minimum wage will not destroy jobs as critics' claim, while economic growth plays an important role in reducing poverty. After significant minimum wage increases in recent years, it may be time to be more cautious on further increases, but going forward both policies should be part of Korea's toolkit to address inequality.
Troy Stangarone (ts@keia.org) is the senior director of congressional affairs and trade at the Korea Economic Institute.
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