'If it goes any higher, we'll stop hiring': Small businesses weigh automation, cuts as minimum wage talks intensify

Negotiations over next year's minimum wage have shifted into high gear. After labor unions put forward an opening demand of 12,000 won ($8) per hour, small business owners and industry groups fired back, saying the current rate is already more than they can bear and calling for a freeze. With the two sides far apart, this year's deliberations are expected to drag to the wire.

According to the Minimum Wage Commission, labor representatives submitted their opening proposal of 12,000 won per hour for the 2027 minimum wage at the eighth plenary session held Tuesday at the Government Complex Sejong. That figure is 1,680 won above the current rate of 10,320 won — a 16.3% increase. Based on a standard 209-hour work month, the monthly equivalent would be 2,508,000 won.

The Federation of Korean Trade Unions and the Korean Confederation of Trade Unions said the minimum wage is "a lifeline for low-wage workers and a measure of equality and justice in our society," adding that "unequal growth in which the fruits of economic recovery are concentrated in the hands of a few must end." The unions also argued that the minimum wage serves as a social safety net sustaining the livelihoods of low-wage workers, and that higher incomes for those workers would boost consumer spending and help revive domestic demand.

Business groups and small business owners, by contrast, are holding firm on a freeze. They argue that any further increase — on top of sluggish domestic demand and persistent high interest rates — would exceed what small businesses and small and medium-sized enterprises can afford. Sectors with high labor costs, particularly accommodation and food service, retail and wholesale, and personal services, could see hiring freezes and reduced working hours become a reality, they say.

A survey of 700 small business owners nationwide conducted last month by the Korea Federation of Small and Medium Business found that 87 percent of respondents said the current minimum wage level was "a heavy burden." By sector, the burden rate was highest among coffee shops at 92.9 percent, hair and beauty salons at 91.7 percent, and other retail and wholesale businesses at 91.1 percent.

When asked how they would respond to a minimum wage increase, 38.4 percent of respondents cited reducing employment or halting new hires — the most common answer. Considering the introduction of automation or unmanned systems came in second at 32.9 percent. Cutting working hours was cited by 21.9 percent, raising prices by 17.6 percent, and scaling back investment by 14.0 percent.

Within the small business community, concerns are growing that a minimum wage hike could force changes not just to labor costs but to the very way businesses operate. Sectors where kiosks, self-checkout counters, and automated ordering systems are feasible may respond by reducing headcount. In sectors where face-to-face service is essential, owners are expected to pass labor costs on to customers through higher prices or to shorten operating hours.

A separate flashpoint in this year's deliberations — whether to apply different minimum wages by industry — has already been settled. At the seventh plenary session on June 18, the Minimum Wage Commission voted on whether to set differentiated rates by sector for next year. The measure failed, with 11 in favor, 14 against and one invalid ballot. As a result, a single minimum wage will again apply across all industries next year.

Debate is also intensifying over the employment impact of a minimum wage increase. The Pi Touch Research Institute projected that a 16.3 percent hike in line with labor's demand would eliminate 443,000 jobs annually and reduce real gross domestic product by 8.1 trillion won. Total innovation investment could also fall by 400 billion won, the institute estimated. A higher minimum wage would reduce labor demand and output at small firms, the institute said, while the added cost burden would leave businesses with less capacity to invest in new product development.

The legal deadline for finalizing next year's minimum wage is June 29. Industry observers say there is a real possibility the deadline will be missed again this year, given that the two sides only submitted their opening proposals on Tuesday and remain far apart.