'Minimum wage can reduce poverty rate considerably'

By Choi Sung-jin

If Korea strictly implements the minimum wage, it can reduce the nation’s poverty to a considerable extent, a study shows. In reality, however, one in three people living below the poverty line are not being paid the minimum wage.

According to the report released Friday by the Korea Institute for Health and Social Affairs, if workers who are now earning less than minimum wage are paid minimum wage, the poverty rate can go down by 0.5-0.8 percent.

The number of workers paid less than minimum wage account for no less than 5 percent of the total households living below the poverty line as of 2013, it said.

Workers who receive less than the minimum wage were mostly found among the poor who earn less than 50 percent of what the medium income is. In 2009-2013, 32 percent of the poor were being paid less than minimum wage.

By strictly applying the minimum wage, the poverty rate in every hypothetical scenario is lower than the real poverty rate, the study shows, noting that the minimum wage has the effect of alleviating poverty.

Assuming that all people who are paid less than minimum wage, work 40 hours a week and earn 50 percent of the median income, would get paid the minimum wage, their poverty rate would drop 0.4 of a percentage point lower than the actual rate over the past five years on the average, the study shows. In the case of those who earn 60 percent of the median income, the hypothetical poverty rate was 0.6 of a percentage point lower than actual rate.

The gaps between hypothetical and actual poverty rates grew wider to 0.7 of a percentage point and 1 percentage point, respectively, when these workers are paid the minimum wage for their current working hours. As the poor work relatively more hours than others, getting paid the minimum wage can lead to a corresponding increase in their monthly pay, the report noted.

“The hypothetical application of the minimum wage to those workers receiving less than minimum wage has the effect of reducing the poverty rate,” said Kim Hyun-kyong, author of the report. “Such poverty-reducing effects will grow even larger if the number of unofficial workers who do not receive the minimum wage is reduced.”

The fact that the wealth gap will still remain wide, though, even after the application of the minimum wage, indicates the limitations of the minimum wage in reducing poverty, Kim said. “And this stresses the need to continue discussions on the optimal levels of the minimum wage.”