Report analyzes adjustment factors for minimum wage to take effect in 2027

More than eight in 10 small business owners say the current minimum wage places a heavy burden on them. Among coffee shop operators, 92.9 percent said they feel the strain. [Getty Images Bank]
More than eight in 10 small business owners say the current minimum wage places a heavy burden on them. Among coffee shop operators, 92.9 percent said they feel the strain. [Getty Images Bank]

South Korea's minimum wage exceeds the average of the Group of Seven major economies, even as the country's labor productivity falls short of the G7 mean, according to a new analysis.

The Korea Employers Federation released a report Sunday titled "Analysis of Adjustment Factors for the 2027 Minimum Wage Based on Key Statistics," laying out the findings.

According to the federation, South Korea's annualized minimum wage, measured in purchasing power parity terms, was 6.4 percent above the G7 average.

On an after-tax basis, the gap widens further — South Korea's minimum wage was 17.9 percent higher than the G7 average, reflecting the relatively low tax rates applied to minimum-wage earners.

The federation said the OECD has noted that the effectiveness of minimum wage policy depends on workers' actual take-home pay after taxes, suggesting South Korea's effective minimum wage level is among the highest in the world.

South Korea's minimum wage also stood at 62.2 percent of the median wage, exceeding the 60 percent threshold generally regarded as the upper bound of an appropriate level.

Experts generally consider a minimum wage set at 40 to 50 percent of the median wage to be the range at which it can operate without significant side effects.

A comparison of annualized after-tax minimum wages between South Korea and G7 countries. [Provided by Korea Employers Federation]
A comparison of annualized after-tax minimum wages between South Korea and G7 countries. [Provided by Korea Employers Federation]

South Korea's minimum wage also stood at 52.7 percent of the average wage, far exceeding the 35 percent threshold above which the IMF considers negative employment shocks likely.

The pace of minimum wage increases has also outstripped both wage and price growth.

Over the past decade from 2015 to 2025, nominal wages rose 39.6 percent and the consumer price index climbed 22.9 percent, while the minimum wage surged 79.7 percent. For workers logging 15 or more hours a week, the statutory minimum wage increase reached 115.9 percent over the same period.

South Korean workers' hourly labor productivity stood at $55.2, just 68.8 percent of the G7 average of $80.2.

The share of workers earning below the statutory minimum wage — known as the subminimum rate — rose to 12.4 percent last year, roughly three times the 4.3 percent recorded in 2001. The number of such workers ballooned from 577,000 to about 2.769 million over the same period.

Ha Sang-woo, a director at the Korea Employers Federation and an employer representative on the Minimum Wage Commission, said the 2027 minimum wage should be set with struggling workplaces in mind. "Since the minimum wage is determined as a single standard, it must be set based on the conditions of businesses facing the most difficulty — such as those in the accommodation and food service sectors and workplaces with fewer than five employees," he said.

Meanwhile, the Korea Federation of Micro Enterprise announced Sunday that more than eight in 10 small business owners said the current minimum wage of 10,320 won (about $7) per hour places a heavy financial burden on them.

The federation released a survey report on the impact of minimum wage increases on small business owners, conducted last month among 700 small business operators nationwide.

According to the survey, 87 percent of respondents said they feel a heavy burden at the current minimum wage level.

By industry, the burden was felt most acutely among coffee shop operators (92.9 percent), hair and beauty salon owners (91.7 percent), and other retail and wholesale businesses (91.1 percent).

Among businesses with employees, 92.7 percent said their operating profit had declined due to rising minimum wages, as did 88.3 percent of sole proprietors without staff.

The most common response to rising labor costs was reducing headcount or freezing new hires, cited by 38.4 percent of respondents. That was followed by considering automation or unmanned systems (32.9 percent), cutting working hours (21.9 percent), raising prices (17.6 percent) and scaling back investment (14.0 percent).

When asked what minimum wage level would allow them to maintain their current workforce, 54.7 percent said between 8,500 and 9,000 won, while 22.5 percent said between 9,000 and 9,500 won and 18.8 percent said 8,500 won.

Some 74.9 percent said next year's minimum wage should be lowered, and 23.6 percent said it should be frozen. Only 1.6 percent said it should rise.


anju1015@heraldcorp.com