As Minister of Employment and Labor Lee Jung-sik on Friday officially requested the Minimum Wage Commission review the wage for 2025, heated debate is expected to play out over the next three months -- the timeline set by law to finalize the country’s minimum wage.
In previous years, the focus had largely been placed on whether the tripartite Minimum Wage Commission, which is composed of nine members each from the labor, business and public sectors, would reach the threshold of 10,000 won ($7.40) per hour. This year is set to highlight another issue: the differentiated application of minimum wages based on a range of industries.
Last year, South Korea raised the minimum hourly wage for 2024 by 2.5 percent to 9,860 won. The minimum wage for 2023 was 9,620 won, up 5 percent from the previous year.
Although the minimum wage has been raised at a steady pace in recent years, it remains unclear whether it will break through the 10,000 won threshold next year, since much is at stake for both the labor and business sectors.
It was the former Moon Jae-in administration that pledged to hike the minimum hourly wage to 10,000 won by 2020, up from 6,470 won in 2017 when Moon took office as president. Although the labor side demanded a bigger increase each year in the minimum wage in step with rising inflation, the business sector pointed out side effects including financial troubles for small business operators such as convenience store owners, who suddenly found it too costly to pay the increased minimum wage to part-time workers.
For the 2025 minimum wage, meanwhile, the differentiated application of the minimum wage -- a potentially explosive topic -- is expected to shape the discussions of the Minimum Wage Commission.
The impetus for the new topic came from the Bank of Korea last month. In a report on caregiving services, the BOK proposed hiring foreign workers to help alleviate the rising costs of caregiving services for households and seeking to apply separately a lower minimum wage for caregivers through private contracts.
The central bank said that hiring a caregiver at a long-term care hospital or other facilities costs about 3.7 million won, or over 60 percent of the median income of households of people in their 40s and 50s. The cost of hiring nannies is also over half of the median income of households.
As the cost of caregiving in the rapidly aging Korean society keeps rising as a result of the mismatch between supply and demand, the BOK suggested individual households directly hire foreign workers through private contracts in a way that bypasses the Labor Standard Act and the Minimum Wage Act, thereby lowering the cost.
The BOK also proposed setting a lower minimum wage for caregivers by adding caregiving services to the employment permit system, involving hiring foreign workers. This measure, however, comes with the thorny issue of lowering the minimum wage for both Korean and foreign caregivers. As a member of the International Labor Organization, South Korea cannot apply different wage systems based on nationality.
There is an alternative way. Under current labor laws, it is -- in theory -- possible to apply different minimum wages based on the type of business. But this is equally tricky, since representatives from the labor and business sectors at the Minimum Wage Commission hold contrasting views about the differentiated application method.
Given the outlook for surging caregiving costs, the Minimum Wage Commission members should find a viable option regarding foreign caregivers while seeking ways to protect Korean caregivers, who are feared to be driven out of the market if the entire caregiving service industry’s wage level goes down as a result of the differentiated minimum wage application.
