[Editorial] Flip side of minimum wage

69,000 jobs to be lost at 10,000 won hourly wage; self-employed default rate at 8-year high

The purpose of minimum wage is to protect vulnerable workers by preventing employers from exploiting employees.

But the current minimum wage, a result of excessive hikes under the government of President Moon Jae-in, has done serious harm to both employers and workers.

A lot of financially distressed small business owners were driven into firing employees or closing down their stores as they could not afford minimum wage any longer.

Minimum wage put vulnerable workers in danger of job loss rather than protecting them. In particular, unskilled young workers took a big hit.

According to a study on the effects of minimum wage on jobs, commissioned by the Federation of Korean Industries and released on Monday, if the hourly minimum wage is raised 3.95 percent to 10,000 won ($7.60) from the current 9,620 won, up to 69,000 jobs will vanish. This amounts to nearly 22 percent of the average number of jobs created each year over the past five years (314,000 jobs).

If the minimum wage is raised to 12,210 won as the labor circle now demands for next year, up to 470,000 jobs will be lost, according to the study.

A minimum wage of 12,210 won an hour is equal to monthly pay of 2,551,890 won, based on a standard 40-hour week. If both husband and wife work for the minimum wage, they will earn more than 5 million won a month altogether. The couple would be in the middle class. It is questionable if that level is appropriate for the minimum wage.

Self-employed business owners are in a critical situation. Their revenues fell amid the coronavirus pandemic and economic slump, while the wage level kept rising.

According to the Bank of Korea, the default rate of financial institution loans to the self-employed -- those that are more than a month overdue -- jumped to an 8-year high of 1 percent as of the end of the first quarter. The rate for those in low and middle-income brackets approached 2 percent.

Small businesses' debt balance amounted to about 1,034 trillion won.

Multiple debts owed by each of the self-employed in low-income brackets totaled 104 trillion won, and 10 percent of them were in arrears.

Their snowballing debt and rising default are raising concerns that economic chaos like massive credit card defaults of two decades ago may recur.

The number of self-service shops jumped 55 percent year-over-year to 3,310 last year. The number of own-account workers who did not engage any employee to work for them was 4.26 million late last year, which was the largest in 14 years after the global financial crisis in 2008.

These are warning signs that minimum wage, which surged 48 percent for five years -- from 6,470 won in 2017 to 9,620 won in 2023 -- exceeded the self-employed's ability to pay.

Considering the dire situation of struggling business owners, labor representatives' demand for a 26.9 percent hike is hard to accept.

A realistic minimum wage is possible when employers' ability to pay is fully considered. Value added per employee in the hospitality industry was 19 percent of that of manufacturing industry last year. It is not fair to force the same minimum wage on both small restaurants and large manufacturers.

The Minimum Wage Commission last week rejected an agenda item that called for differentiation of minimum wage for three financially distressed industries. Micro businesses such as hair salons and restaurants argued their minimum wage should be differentiated, but the commission turned a deaf ear to these claims.

With differentiation by industry sidelined, the commission should be more careful in setting the increase rate of minimum wage. It would be reasonable to use vulnerable industries as a reference point in determining the minimum wage.

The legal deadline for setting next year's minimum wage is Thursday, but the commission is likely to miss it as in other years, considering the wide gap between labor and management.

If the minimum wage rises excessively again, precariously existing marginal jobs will be gone. The labor circle needs to think about who the minimum wage is for.

By Korea Herald(khnews@heraldcorp.com)