IDEAS home Printed from https://ideas.repec.org/p/zbw/kdifoc/90.html
   My bibliography  Save this paper

Employment Effect of Minimum Wage Increase

Author

Listed:
  • Choi, Kyungsoo

Abstract

The objective of a minimum wage increase is to improve the quality of low-wage jobs and to narrow wage gaps. The sharp minimum wage increase in 2018 has so far produced no significant declines in employment. However, if drastic increases continue in the next two years, the level of the minimum wage as a ratio to the median wage will exceed those in other advanced economies and employment growth will likely exhibit a large drop distorting the wage structure. Thus, an adjustment in the pace of minimum wage increases is required. - The purpose of theminimum wage increase isto guarantee the wagelevel of the low-paid, thenumber of which isgrowing as personalservice jobs increase. - The share of below-minimum wage workers was 7.6% in the MOEL's 2016 Wage Survey and 13.4% in Statistics Korea's 2017 Economically Active Population Survey. - Other than cutting employment, there are several options available to employers to respond to the minimum wage increase such as raising prices, shortening working hours, reducing employee benefits/allowances and strengthening labor intensity. - Unlike individual companies facing their wage increase, a rise in the legislated minimum wage applies to the overall economy, meaning that companies can adjust prices to spread out the impact. - The majority of job loss resulting from an increase in the minimum wage is observed in the manufacturing industry while the impact has been weak in services sectors. - The higher the minimum-to-median wage ratio, the smaller the impact from the minimum wage increase. In 2016, the ratio marked 35% for the US and 50% for Korea. - Hungary raised the minimum wage by 60% in 2000-2004 in real terms, commensurate with Korea's planned increase. The employment of wage workers retreated by approx. 2%. - If Hungary's estimate is applied, Korea is estimated to see a decrease of 84,000 in employment after the minimum wage increase in 2018. If the US' is applied, the decrease is estimated to be 36,000. As such, Korea's decline in employment is expected at between 36,000 and 84,000. - Growth in employment in April 2018 was smaller by 180,000 than January, but the decrease was more influenced by January's high growth, slowing population growth and manufacturing restructuring than by the minimum wage increase. - If the sharp increase in the minimum wage is repeated in the next two years, the share of minimum wage workers will rise and impact on employment will grow. - The employment effect of the minimum wage increase is estimated to be a decrease of 96,000 in 2019 and 144,000 in 2020, when the effects of the job stabilization fund is not considered. - France experienced other side effects with a very high minimum wage such as disruption of the wage order, etc. Accordingly, France ceased additional minimum wage hikes after reaching 60% of the median. - Germany adjusts its minimum wage level every two years, as evaluation of the impact of the hike takes two years. - Measures must be sought to minimize the unexpected negative impact while efforts are made to maximize the positive.

Suggested Citation

  • Choi, Kyungsoo, 2018. "Employment Effect of Minimum Wage Increase," KDI Focus 90, Korea Development Institute (KDI).
    • Handle: RePEc:zbw:kdifoc:90
    DOI: 10.22740/kdi.focus.e.2018.90
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/200891/1/kdi-focus-90.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22740/kdi.focus.e.2018.90?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Jérôme Gautié, 2010. "Towards the end of the active minimum wage policy?," Post-Print halshs-00394907, HAL.
    2. Stijn Broecke & Alessia Forti & Marieke Vandeweyer, 2017. "The effect of minimum wages on employment in emerging economies: a survey and meta-analysis," Oxford Development Studies, Taylor & Francis Journals, vol. 45(3), pages 366-391, July.
    3. Jérôme Gautié, 2010. "Towards the end of the active minimum wage policy?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00394907, HAL.
    4. David H. Autor & Alan Manning & Christopher L. Smith, 2016. "The Contribution of the Minimum Wage to US Wage Inequality over Three Decades: A Reassessment," American Economic Journal: Applied Economics, American Economic Association, vol. 8(1), pages 58-99, January.
    5. Hristos Doucouliagos & T. D. Stanley, 2009. "Publication Selection Bias in Minimum‐Wage Research? A Meta‐Regression Analysis," British Journal of Industrial Relations, London School of Economics, vol. 47(2), pages 406-428, June.
    6. Choi, Kyungsoo, 2017. "Why Korea's Youth Unemployment Rate Rises," KDI Focus 88, Korea Development Institute (KDI).
    7. John Schmitt, 2013. "Why Does the Minimum Wage Have No Discernible Effect on Employment?," CEPR Reports and Issue Briefs 2013-04, Center for Economic and Policy Research (CEPR).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Stéphane Carcillo & Alexander Hijzen & Stefan Thewissen, 2024. "The limitations of overtime limits to reduce long working hours: Evidence from the 2018 to 2021 working time reform in Korea," British Journal of Industrial Relations, London School of Economics, vol. 62(1), pages 98-126, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. David R. Howell & Bert M. Azizoglu & Anna Okatenko, 2012. "Confronting Low Pay: Minimum Wage Policy and Employment in the U.S. and France," SCEPA working paper series. 2012-5, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
    2. Pestel, Nico & Bonin, Holger & Isphording, Ingo E. & Gregory, Terry & Caliendo, Marco, 2020. "Auswirkungen des gesetzlichen Mindestlohns auf Beschäftigung und Arbeitslosigkeit," IZA Research Reports 95, Institute of Labor Economics (IZA).
    3. Alessandra Brito & Miguel Foguel & Celia Kerstenetzky, 2017. "The contribution of minimum wage valorization policy to the decline in household income inequality in Brazil: A decomposition approach," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 40(4), pages 540-575, October.
    4. Patrick Belser & Uma Rani, 2015. "Minimum wages and inequality," Chapters, in: Janine Berg (ed.), Labour Markets, Institutions and Inequality, chapter 5, pages 123-146, Edward Elgar Publishing.
    5. International Monetary Fund, 2016. "Cross-Country Report on Minimum Wages: Selected Issues," IMF Staff Country Reports 2016/151, International Monetary Fund.
    6. Alexandros Karakitsios & Manos Matsaganis, 2018. "Minimum Wage Effects on Poverty and Inequality," DEOS Working Papers 1801, Athens University of Economics and Business.
    7. Peter Harasztosi & Attila Lindner, 2019. "Who Pays for the Minimum Wage?," American Economic Review, American Economic Association, vol. 109(8), pages 2693-2727, August.
    8. Mayneris, Florian & Poncet, Sandra & Zhang, Tao, 2018. "Improving or disappearing: Firm-level adjustments to minimum wages in China," Journal of Development Economics, Elsevier, vol. 135(C), pages 20-42.
    9. Malte Luebker, 2019. "Can the Structure of Inequality Explain Fiscal Redistribution? Revisiting the Social Affinity Hypothesis," LIS Working papers 762, LIS Cross-National Data Center in Luxembourg.
    10. Alan Manning, 2021. "The Elusive Employment Effect of the Minimum Wage," Journal of Economic Perspectives, American Economic Association, vol. 35(1), pages 3-26, Winter.
    11. Arne Heise & Toralf Pusch, 2020. "Introducing minimum wages in Germany employment effects in a post Keynesian perspective," Journal of Evolutionary Economics, Springer, vol. 30(5), pages 1515-1532, November.
    12. Dale Belman & Paul Wolfson & Kritkorn Nawakitphaitoon, 2015. "Who Is Affected by the Minimum Wage?," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 54(4), pages 582-621, October.
    13. Tomas Kucera, 2020. "Are Employment Effects of Minimum Wage the Same Across the EU? A Meta-Regression Analysis," Working Papers IES 2020/2, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jan 2020.
    14. Arango, Luis E. & Rivera, Sergio A., 2022. "Moderate wage increases and flexible labour contracts to protect employment in Colombian manufacturing," Journal of Policy Modeling, Elsevier, vol. 44(3), pages 578-598.
    15. David Neumark, 2018. "Employment effects of minimum wages," IZA World of Labor, Institute of Labor Economics (IZA), pages 1-6, December.
    16. Carlo Lombardo & Lucía Ramírez Leira & Leonardo Gasparini, 2024. "Does the Minimum Wage Affect Wage Inequality? A Study for the Six Largest Latin American Economies," Journal of Development Studies, Taylor & Francis Journals, vol. 60(4), pages 494-510, April.
    17. Joseph Marchand, 2017. "Thinking about Minimum Wage Increases in Alberta: Theoretically, Empirically, and Regionally," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 491, pages 1-20, September.
    18. Pablo Blanchard & Paula Carrasco & Rodrigo Ceni & Cecilia Parada & Sofía Santín, 2021. "Distributive and displacement effects of a coordinated wage bargaining scheme," Documentos de Trabajo (working papers) 21-26, Instituto de Economía - IECON.
    19. Luis E. Arango & Luz A. Flórez & Laura D. Guerrero, 2020. "Minimum wage effects on informality across demographic groups in Colombia," Borradores de Economia 1104, Banco de la Republica de Colombia.
    20. Heise, Arne, 2018. "Reconciling Facts with Fiction, or: A Theoretical Speculation of why the Minimum Wage has no Discernible Effect on Employment," MPRA Paper 92483, University Library of Munich, Germany.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:kdifoc:90. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/kdiiikr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.