(C) Working Times

SEOUL – Small business owners in South Korea are increasingly vocal about the financial strain caused by rising labor costs. Mr. A, who runs a franchise restaurant in Eunpyeong-gu, recently replaced two part-time employees with his wife to save approximately 40 million KRW annually. "Cutting just one worker saves a fortune when you factor in social insurance, weekly holiday pay, and severance pay," he lamented.

This personal struggle is now backed by a global warning. A recent report titled "Minimum Wages and Employment" by the International Monetary Fund (IMF) suggests that South Korea’s minimum wage has stayed in a "danger zone" for six consecutive years, potentially stifling the job market.

The 35% Threshold and the "Kaitz Index"
The report focuses on the Kaitz Index, which measures the ratio of the minimum wage to the average wage. According to the IMF, when this index exceeds 35%, further hikes in the minimum wage lead to a decline in employment rates starting one year later, with the most significant negative impact occurring in the third and fourth years.

South Korea’s Kaitz Index has remained above 60% since 2019, nearly double the IMF's recommended threshold. As of 2023, the OECD reported Korea’s index at 60.5%, surpassing the OECD average (55.9%) and the European Commission’s recommendation for its members (50%).

Vanishing Jobs and the Rise of "Ultra-Short-Term" Work
The impact is quantifiable. The IMF estimates that in a city of 1 million people, a 10% increase in the minimum wage results in the loss of 10,000 jobs by the fourth year.

To cope with rising costs, employers are not just firing workers but also slashing hours. The Korea Development Institute (KDI) revealed that the proportion of "ultra-short-term" workers—those working fewer than 15 hours per week—has more than doubled over the last 12 years, rising from 3.7% in 2012 to 8.5% in 2023. This trend allows employers to avoid mandatory benefits like weekly holiday pay, further destabilizing the quality of employment.

Demographic Shifts and Call for Differential Rates
The employment shock varies by demographic. While young men may see a temporary increase in employment due to a willingness to take part-time roles, the labor participation of women and the elderly tends to shrink. Furthermore, high minimum wages drive the youth toward metropolitan areas where average wages are higher, exacerbating regional imbalances.

In light of these findings, the IMF suggested that South Korea consider a differential minimum wage system based on industry, region, and demographic groups to mitigate the adverse effects on the labor market.

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