Minimum wage negotiations heat up as small businesses, employers push back against labor's 16% demand

Substantive negotiations over next year's minimum wage are set to begin Tuesday.

Labor groups have opened with a demand of 12,000 won per hour — a 16.3 percent increase from this year's rate — while business groups argue South Korea's minimum wage already exceeds those of major advanced economies. With more than eight in 10 small business owners saying the current rate is already a strain, a fierce battle between labor and management is expected.

The Minimum Wage Commission said Monday it will hold its eighth plenary session Tuesday at the Government Sejong Complex to begin formal deliberations on the minimum wage to take effect in 2027. At its seventh session on Thursday, the commission voted on whether to apply differentiated rates by industry, but the measure failed — 11 in favor, 14 against and one invalid ballot. Next year's minimum wage will therefore apply uniformly across all industries, and both sides will now enter full-scale negotiations over the size of any increase.

Labor's opening demand stands at 12,000 won per hour, 16.3 percent above this year's rate of 10,320 won. On a monthly basis, that translates to 2.508 million won ($1,820), calculated on a 40-hour workweek and 209 hours per month.

The Federation of Korean Trade Unions and the Korean Confederation of Trade Unions argue that minimum wage increases have fallen short of inflation for years, eroding the real wages of low-income workers, and that the monthly equivalent still falls below what workers need to cover basic living costs. Labor said that factoring in household living expenses and price increases as calculated by the commission, the appropriate rate would be 13,737 won per hour, but settled on 12,000 won as a realistic opening position.

Employers, by contrast, say further increases are untenable given the limited ability of small businesses and micro-enterprises to pay.

The Korea Employers Federation said in a report released Sunday, titled "Analysis of Adjustment Factors for the 2027 Minimum Wage," that South Korea's minimum wage has already reached an internationally high level.

According to the federation, South Korea's annualized after-tax minimum wage in purchasing power parity terms is 17.9 percent above the G7 average, and the minimum wage as a share of median wages stands at 60.5 percent. Hourly labor productivity, meanwhile, is $55.20 — just 68.8 percent of the G7 average of $80.20. The federation urged restraint on further increases, saying the minimum wage is "very high by international standards while labor productivity has not kept pace."

The burden on small business owners is also mounting. A survey of 700 small business owners nationwide by the Korea Federation of Micro Enterprise found that 87.0 percent said the current minimum wage level was a financial strain. Among businesses with employees, 92.7 percent said minimum wage increases had reduced their operating profit.

Asked how they were responding to rising labor costs, 38.4 percent cited reducing headcount or halting new hiring — the most common response. That was followed by considering automation or unmanned systems (32.9 percent), cutting working hours (21.9 percent) and raising prices (17.6 percent).

On the direction of next year's minimum wage, 74.9 percent of respondents said it should be cut, while 23.6 percent favored keeping it unchanged. Only 1.6 percent said an increase was needed.

The commission plans to finalize next year's minimum wage by the end of this month, following further rounds of revised proposals from both sides and a deliberation-facilitation range set by public interest members. With labor pushing for a double-digit increase and management calling for a freeze or minimal rise, the path to a final decision is expected to be contentious.