The government will advance its plan to raise contract prices for smaller companies to reflect the suppliers' increased costs from the latest minimum wage hike, officials said Thursday.

The government and the ruling Democratic Party reached the agreement during a policy meeting to help small and medium-sized enterprises suffering from the effect of the increased labor costs.

"We have decided to address the time gap between labor cost increases and their calculation in contract prices in the public procurement markets," Kim Tae-nyeon, the party's policy chief, told reporters after the meeting.

To that end, the Korea Federation of SMEs will conduct its survey of labor costs twice a year, according to officials. It is currently carried out once a year.

The hourly minimum wage rose by 16.4 percent to 7,530 won ($7.02) on Jan. 1 this year, the biggest jump in nearly two decades. President Moon Jae-in has promised to increase it to 10,000 won by 2020.

They also agreed to establish a rule that allows long-term fixed-price contracts to be readjusted when production costs rise more than 3 percent because of increases in wages or raw material prices. The rule will also apply to less than a 3 percent rise in production costs if it is caused by the increase of the minimum wage.

"We have devised measures to promote joint efforts between big companies and SMEs, hoping that the public sector will take the initiative to address the labor cost issue and help the initiative spill over into the private sector," Minister of SMEs and Startups Hong Jong-haak said.(Yonhap)