Minimum wage hike ineffective in poverty reduction

By Kim Kyung-ho

Skepticism has been raised over the effect of a minimum wage increase on reducing income inequality in the country.
Contrary to its purported purpose of supporting low-income laborers, critics note, the minimum wage raise has mainly helped increase the income of middle-class workers, who account for 44 percent of employees entitled to a minimum wage. They also argue a minimum wage hike may result in fewer job opportunities for low-income, low-skilled workers.
A report released last week by the Korea Development Institute, a state-run think tank, suggested concrete data backing the skeptical view of the minimum wage as a means of reducing poverty. As of 2013, only 30.5 percent of about 1.52 million workers paid less than the minimum wage belonged to poor households that earned less than half the median household income in the country, according to the report.
Yoon Hee-sook, a KDI researcher, indicated in the report that this low correlation means the minimum wage system is a “policy means too ineffective to ease poverty.”
Behind the discrepancy between poor households and low-income workers is a change in the country’s socioeconomic structure.
In the past, most households depended on a single breadwinner, typically a male head of household working full-time. With female employment and flexible working hours systems expanding, there have been more household members engaged in economic activity.
This change has increased the possibility that a low-income earner belongs to a middle-income or even a high-income class, Yoon said.
“The most vulnerable are households with no wage earner,” said the KDI researcher.
According to 2015 data from the national statistics office, more than 77 percent of households in the lowest 10 percent income bracket had no household member with a job. The figure went to as low as 3.4 percent in the top 10 percent in income of households.
The proportion of households with two or more wage earners reached 62 percent in the top 10 percent group, but stood at a mere 1.2 percent in the bottom 10 percent.
The KDI report noted it would be more effective for easing poverty to select recipients of livelihood support based on accumulated household income and match the amount of aid with economic activities by household members.
The country saw the proportion of labor income to gross national income gradually increase from the lowest level of 59.4 percent in 2010 to 62.9 percent last year, according to government figures.
“It is also necessary to implement measures tailored to improve the ability of unemployed people in the low-income class to land a job,” Yoon said.
Some experts argue that the minimum wage scheme may not be a panacea for resolving the poverty problem, but it still has some effect in reducing the number of poor households.
Lee Byung-hee, a researcher at the Korea Labor Institute, indicated nearly 50 percent of employed householders in the country receive minimum wage.
“The effectiveness of the minimum wage system as a means to curb poverty should not be made little of,” said Lee.
The country’s hourly minimum wage rose from 4,580 won ($4.12) in 2012 to 5,210 won in 2014 and 6,030 won in 2016. Under an agreement made by labor and management representatives in July, it is set to increase to 6,470 won next year.
Labor groups argue that the country’s minimum wage remains below that of other advanced nations, noting that Korea ranks 17th among 25 members of the Organization for Economic Cooperation and Development that have introduced a minimum wage system.
But employers say the OECD ranking can hardly be a base for objective comparison, as the minimum wage in Korea comprises basic pay and fixed allowance, while that in many European countries includes bonuses and various allowances.
In terms of the minimum wage level relative to per capita gross national income, Korea ranks seventh among OECD members, according to figures from the Minimum Wage Commission.
Experts note that reducing the number of employees paid less than minimum wage may be more important than raising the figure.
A recent analysis by the Bank of Korea showed that 2.5 million workers, or 13.3 percent of the total workforce, were underpaid last year. The number of underpaid employees is projected to rise to 2.8 million this year and exceed 3 million next year, with their proportion of the labor force also increasing to 14.6 percent and 16.3 percent in the cited years, respectively.
Experts also indicate an upsurge in the number of single-member households should be taken into account in dealing with the poverty problem.
According to a survey released by Statistics Korea last week, the number of single-member households in the country jumped from about 1.02 million in 1990 to 5.2 million last year, with their proportion of the total households more than tripling to 27.2 percent over the cited period.
As single-member households tend to be poorer, their increased proportion is likely to amplify the poverty problem as measured by household income. At the same time, this trend makes it more necessary to expand support tailored for low-income single-member households.
(khkim@heraldcorp.com)