The Effect of the Minimum Wage on Working Hours and Wages by Industry

Nowadays, the need to alleviate inequality and polarization is increasing. The current administration has promulgated income-led growth as its main economic policy paradigm. It is designed to stimulate aggregate demand by promoting income growth for household and the self-employed. It is based on wage-led growth. The minimum wage is a very important policy tool for the incumbent government’s economic policy. The minimum wage has sharply risen since the current government came to power; the minimum wage grew by 16.4 percent in 2018 and 10.9 percent in 2019. After the global financial crisis, the growth rate of the minimum wage in 2018 was the largest yet recorded, and the first instance of consecutive years of double-digit growth. In addition, the issue of the minimum wage level and its growth rate has typically attracted much public attention owing to the fact that it has direct implications for worker’s wages. In Korea, the minimum wage was historically decided by the Minimum Wage Commission (MWC) annually on August 5, after reviewing workers’ living costs, comparable workers’ wages, labor productivity, the income distribution ratio and other variables. The MWC comprises three representative groups: Worker Councilors, Employer Commissioners and Public Interest Commissioners, and each group consists of nine persons. Nowadays, most of the minimum wage is decided by a vote on the minimum wage level proposed by the Public Interest Commissioner. It is difficult to reach agreement with the Workers’ and Employers’ councils on the minimum wage level because they have diametrically opposed views of the minimum wage’s effects on the economy and labor markets. It is worth noting that extensive studies of the minimum wage’s effects on the economy and labor markets do not show the same results. Some papers show the minimum wage has positive effects on reducing wage inequality and employment, while the other papers find that the minimum wage has a negative effect on employment and non-significant effect on alleviating wage inequality. After a review of previous studies, we began to wonder whether the minimum wage has different effects in different industries given that wage levels, employment structure, productivity and labor and capital intensity differs by industry. It is a very important issue because the Employer Council insists that the minimum wage be classified by industry or firm size, based on Article 4 of the Minimum Wage Act. With these considerations in mind, in this paper I estimate the effects of the minimum wage on wages and working hours by industry and suggest some policy implications