Small businesses unnerved by possible minimum wage hike under Lee gov’t

Members of Korea's two largest umbrella labor groups — Federation of Korean Trade Unions and Korean Confederation of Trade Unions — demand the 2026 minimum wage increase during a rally in central Seoul, Wednesday. Yonhap

Small businesses and self-employed individuals are unnerved by a possible hike in next year’s minimum wage, after liberal President Lee Jae-myung took office last week, according to market experts, Thursday.

The increase in the minimum wage has been considered in recent years as a key source of burden for millions of small businesses and self-employed individuals nationwide, who are struggling to stay afloat, they said.

On Wednesday, labor unions proposed the 2026 minimum wage be set at 11,500 won ($8.46), up 14.7 percent from this year.

The management side is yet to come up with a counterproposal, but is widely anticipated to demand the rate remains unchanged from this year’s 10,030 won.

A 2024 survey taken by the Federation of Korean Industries (FKI), a business lobby group, on 500 self-employed individuals showed that 48 percent of respondents found the minimum wage to be burdensome to the sustainability of their businesses.

The most recent data from Statistics Korea showed that about 986,000 small businesses shut down in 2023 in the middle of prolonged economic slowdown. That figure represented the highest level since 2006.

Three-way talks regarding the 2026 minimum wage have been underway among labor, management and government, after their joint commission received official notice from the Ministry of Employment and Labor to deliberate the issue on March 31.

The decision is supposed to be made within 90 days of the notice, which will be June 29.

A representative from the Korean Confederation of Trade Unions holds up a file containing demands of employees in the platform industry, during three-way talks among labor, management and government on next year's minimum wage at Government Complex Sejong, Tuesday. Yonhap

President Lee has not commented on the increase for next year’s minimum wage. But industry experts have noted his pro-labor policies in the past, which could hint at the possibility of a considerable increase.

“The 2026 minimum wage will be symbolic as it will mark the first legally mandated pay on hourly rate under the Lee administration,” said Shin Se-don, professor emeritus of economics at Sookmyung Women’s University. “In that regard, the relevant decision will carry an underlying yet clear-cut message concerning the new government’s policy direction."

The FKI, Korea Small Business Association (KSBA) and other business lobbies declined to provide official comment on next year’s minimum wage, citing the sensitivity of the matter.

A KSBA member, who asked not to be named, said the new government “is likely to follow the path” of the the liberal Moon Jae-in government, which was in power from 2017 to 2022.

In their core effort to spur the economy, Lee and Moon share the perspective that the government should play a more active role for households to earn more and spend more.

Accordingly, the minimum wage was increased by 16.4 percent — from 6,740 won in 2017 to 7,530 won in 2018 — in the first year of Moon’s term.

A double-digit year-over-year increase on minimum wage was rarely seen before then. The 16.4 percent also marked the highest increase to date.

The Moon government introduced another double-digit minimum wage hike for 2019, when the rate increased by 10.9 percent to 8,350 won.

The size of the increases diminished in Moon’s last three years — 2.87 percent for 2020, 1.5 percent for 2021 and 5.05 percent for 2022 — as the policy met complaints from financially distressed small business owners.

“For the Lee administration, it can possibly raise minimum wage by double digits in its first year and see how the market reacts,” the KSBA member said.

A restaurant owner, surnamed Park, said he “suffered the most under Moon’s term after running a dining business for about 20 years.”

“The double-digit increase in the minimum wage in his first two years was unbearable, although the pace of increase subsided afterward,” Park said. “I reduced the number of employees and took all measures to survive, and I don’t want to face such hardship again.”

A convenience store owner, surnamed Kim, argued that the revival of an excessive hike in minimum wage will “only force small business people onto the streets and aggravate the economy.”

“I’m still paying off debt from the COVID-19 pandemic era, and I may possibly join those who had no option but to shut down my business if minimum wage goes up too steeply,” he said.