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Employment effect of minimum wage increase

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Employment effect of minimum wage increase04



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Title Employment effect of minimum wage increase
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Material Type Videos
Author(English)

Korea Development Institute

Publisher

[Sejong] : Korea Development Institute

Date 2018-06
Subject Country South Korea(Asia and Pacific)
Language English
File Type Link
Subject Social Development < Employment
Government and Law < Laws and Legislation
Holding Korea Development Institute
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Abstract

The objective of a minimum wage system is to guarantee a stable income level for workers. The Korean government has made consistent efforts to raise the minimum wage. In 2018, it has increased the wage by a large margin with a goal to achieve the 10 thousand won mark by 2020. So what would be the consequences of such a sharp increase? A higher minimum wage pushes up not only wages at the bottom but also those near the bottom, narrowing the wage gap and improving income distribution. During the last five years, Korea has seen a gradual increase in the minimum wage and a narrowing of income disparity as wages at the bottom are pushed up with the minimum wage increase. On the other hand, higher wages mean higher costs for business owners. In response to minimum wage increases, businesses may raise product prices or reduce working hours or cut benefits. If wages continue to increase and the cost rise becomes unbearable, businesses will reduce their employees. Then, will an increase in the minimum wage actually lead to job losses in the future? KDI examined the anticipated job losses inferring from economic theories and experiences from overseas. In the U.S, a 10% rise in the minimum wage generally resulted in a modest 0.15% job decrease. But the minimum wage is higher in Korea than in the U.S. as a ratio to the median wage. Consequently, the negative effect is likely to be larger in Korea. Hungary has raised its minimum wage by a surprising 60% during the four years since 2000. The result was a large decrease of jobs, as much as 2% of total number of jobs.