Minimum wage debate heats up as studies show job losses in California, Spain

As labor and management dig in over next year's minimum wage, new research from the United States and Spain suggests that sharp minimum wage increases have led to job losses or higher unemployment risk in low-wage industries — findings that could shape the debate at home.

According to a working paper released Monday by the National Bureau of Economic Research, California introduced a separate minimum wage of $20 per hour for workers at large fast-food chains starting in April 2024 — 25 percent above the state's general minimum wage of $16 at the time.

Researchers compared employment trends in California's fast-food sector against other US regions using quarterly employment and wage survey data from the Bureau of Labor Statistics. They estimated that employment in California fell 2.7 to 3.2 percent more than in other regions after the policy took effect — equivalent to roughly 18,000 jobs lost.

The researchers concluded that in low-wage industries where labor costs weigh heavily, a large minimum wage increase can trigger employment adjustments.

Similar findings emerged from Spain. A paper published in the academic journal SERIEs analyzed the labor market impact after Spain raised its monthly minimum wage by 22 percent in 2019 — from 735.9 euros ($838) to 900 euros.

The study found that workers directly affected by the increase faced a 1.7 percentage point higher probability of unemployment one year later, and a 0.9 percentage point higher probability of reduced working hours. The researchers said a significant share of the negative employment effects came not from shorter hours but from the termination of employment relationships, including failures to renew contracts.

Comparable trends have been observed in South Korea. After the minimum wage rose 16.4 percent in 2018, the share of workers earning below the minimum — as measured by the supplementary economically active population survey — climbed from 13.3 percent in 2017 to 15.5 percent in 2018 and 16.5 percent in 2019. Business groups argue this reflects the reduced ability of small businesses to meet their wage obligations following a rapid increase.

Against this backdrop, South Korea's labor market is mired in its worst employment slowdown in years.

Ministry of Statistics data on May employment showed the number of employed people at about 29.12 million, down 40,000 from a year earlier. Manufacturing employment fell by 140,000, extending a decline to 23 consecutive months, while the number of employed youth aged 15 to 29 dropped by 255,000. The number of regular wage workers also fell by 7,000 — the first decline since the relevant statistics began to be compiled.

These domestic employment conditions are expected to weigh heavily on deliberations over next year's minimum wage. Labor is calling for an increase, citing rising prices and the cost of living, while management argues that a sharp hike amid an economic slowdown and weak employment would add to corporate burdens and further suppress hiring.

At the ninth plenary session of the Minimum Wage Commission, held Thursday, labor submitted its opening proposal of 12,000 won per hour — a 16.3 percent increase from the current 10,320 won. Management countered by calling for a freeze at 10,320 won.

Minimum Wage Commission Chairman Kwon Sun-won asked both sides to submit more substantive revised proposals. Labor and management are each set to present their first revised proposals at the commission's 10th plenary session on Tuesday, after which the commission plans to begin substantive negotiations over next year's minimum wage level.