Korea hikes minimum wage by lowest margin since '97 Asian financial crisis

Ryu Ki-jung, second from left, executive director of the Korea Enterprises Federation and a representative for employers on the Minimum Wage Commission, shakes hands with Ryu Ki-seop, secretary-general of the Federation of Korean Trade Unions and a labor representative, after reaching a deal to set next year’s minimum hourly wage at 10,320 won at Government Complex Sejong, Thursday. Yonhap

The minimum wage is set to rise by just 2.9 percent next year — the smallest first-year increase under any Korean president, falling short even of the previous conservative administration’s pace.

The modest increase defied expectations and comes under the leadership of President Lee Jae Myung, marking a shift in the administration’s economic trajectory, defined by a shift toward expanded welfare programs and a focus on income-led growth.

At its 12th plenary session held Thursday at Government Complex Sejong, the Minimum Wage Commission voted to raise the hourly minimum wage to 10,320 won ($7.50) for 2026 — up only 290 won from the current level.

The rise of 2.9 percent marks the smallest first-year increase under any administration since the 2.7 percent rise enacted during President Kim Dae-jung’s tenure in the aftermath of the 1997 Asian financial crisis. In contrast, the Yoon Suk Yeol administration approved a 5 percent increase in its first year.

The decision reflects a notable shift.

Observers say the commission’s public-interest members prioritized the financial strains on small businesses and the self-employed, resulting in a final increase that leaned more toward calls for a wage freeze than the 14.7 percent initially demanded by organized labor — a significant shift given unions’ crucial role as a pillar of support for the current administration.

Many also warn that a sharp increase in the minimum wage could prompt a wave of business closures, further destabilizing an already fragile job market.

Korea’s deteriorating economic outlook also factored heavily into the historically low minimum wage increase, as government officials anticipate even tougher conditions ahead this year.

"Economic growth is projected at just 0.8 percent this year — an extremely low figure — while consumer price inflation stands at 1.8 percent and employment growth at 0.4 percent," said Lee In-jae, chairman of the Minimum Wage Commission. "Given these indicators, we believe next year’s economic situation will be even worse, and that was a major factor in our decision."

Some critics contend that the modest increase stems from the current makeup of the commission’s public-interest members, many of whom were appointed under the previous Yoon administration.

Although the Minimum Wage Commission is designed as an independent forum for social dialogue, concerns have persisted over potential political influence due to the government-appointed status of its public-interest members.

A sign displaying this year's minimum wage is seen at the Seobu Employment Welfare Plus Center in Mapo District, Seoul, Friday. Yonhap

While the decision reflects concerns over economic hardship and the financial struggles of small business owners, critics warn that the modest increase could severely impact low-wage workers who rely on the minimum wage for their livelihoods.

With consumer prices having surged in recent years, the limited hike may fall well short of covering basic living expenses. A recent Bank of Korea report revealed that Korea’s essential living costs — covering food, clothing and housing — remain significantly higher than the OECD average.

Some also argue that enhancing workers’ purchasing power is critical to revitalizing domestic demand.

"This decision is now final, but until the next round of negotiations, the government should consider supplementary measures — such as direct cash support — to strengthen the real purchasing power of low-wage workers," said Lee Joo-hee, a sociology professor at Ewha Womans University.

She emphasized that the interests of small business owners and low-wage workers need not be at odds with each other, calling for a more balanced and comprehensive approach to minimum wage policy.

"There are currently too many small self-employed businesses, and the resulting overcompetition is part of what’s making it difficult for them to survive," Lee said. "A reasonable minimum wage level could actually serve as a barrier to entry, easing the competitive pressure and ultimately benefiting existing businesses."

Meanwhile, the latest minimum wage agreement marks the first tripartite deal among labor, business and public-interest members since 2008. However, with members of the Korean Confederation of Trade Unions (KCTU) walking out in protest over the proposed range, the accord remains a partial consensus.

The KCTU issued a statement on Friday, expressing deep regret and anger over the government’s decision on next year’s minimum wage, declaring it "completely unacceptable."

In the statement, the KCTU argued that a 2.9 percent increase amid soaring inflation amounts to a de facto cut in real wages, and urged the government to introduce urgent measures to ensure meaningful livelihood support for low-wage workers.