'Minimum wage war is a fight between the weak and the weak,' says Sogang economist

June and July are the hottest months for minimum wage debates in South Korea, as the wage floor for about 22 million salaried workers nationwide is set during this period. Years of repeated negotiations have hardened into a ritual: employers open with a freeze proposal, anticipating that any figure will be pushed up, while labor representatives inflate their demands, expecting them to be cut back. Missing the statutory deadline of June 29 has itself become routine.

What often goes unnoticed is that there is another party deeply affected by minimum wage increases yet rarely heard from — small self-employed business owners. Ahn Tae-hyun, a professor at Sogang University's Department of Economics, said in an interview that "the debate over minimum wage hikes is often portrayed as a fight between big-business employers and workers, but in practice it is closer to a fight between the weak and the weak." Ahn has recently drawn attention in academic circles for his empirical research on the impact of minimum wage increases on small-business closures.

Ahn chose the relatively unexplored subject of self-employment closures because of the structural peculiarities of South Korea's labor market. "Most minimum wage research has focused on the employment effects on wage workers, and comparatively little has been done on the self-employed and small business owners," he said. South Korea's self-employment rate stands at around 26 percent, an unusually high level even among advanced OECD economies. "South Korea is a developed country that went through rapid economic growth, yet its self-employment share is comparable to Southern European countries like Italy and Portugal," Ahn said. "Policy attention to this group has been relatively lacking."

The period Ahn examined was 2018 and 2019, when the minimum wage rose sharply. He said the backdrop to those steep increases was not so much the policy of any particular party as a political consensus that emerged during the 2017 presidential election.

"In the 2017 presidential election, it was not just Moon Jae-in of the Democratic Party of Korea — Hong Joon-pyo of the Liberty Korea Party, Ahn Cheol-soo of the People's Party, Yoo Seong-min of the Bareunparty and Sim Sang-jeong of the Justice Party all pledged to achieve a 10,000-won minimum wage, though with differing timelines," Ahn said. "It is not fair to frame this issue in the colors of any one political faction." The minimum wage under the Moon administration rose 16.4 percent in 2018 and 10.9 percent in 2019, recording double-digit increases for two consecutive years — a markedly faster pace than under the Lee Myung-bak administration (an annual average of 5.2 percent) or the Park Geun-hye administration (an annual average of 7.4 percent).

Ahn's research found that a 10 percent increase in the minimum wage raised the probability of a self-employed business owner with employees closing their business by 2.6 percentage points. For self-employed owners who had been in business for less than three years, that figure jumped to 8.4 percentage points. "What matters more than the numbers themselves is the direction," Ahn said. "We confirmed that the risk of closure is concentrated among self-employed owners with shorter operating histories and lower income levels." He added that when he divided the sample into those whose business income fell below the average wage-worker income and those above it, closures were markedly more common in the lower-income group.

These findings connect to a long-running debate in American academia. Since the 1990s, David Card of UC Berkeley and David Neumark of UC Irvine have clashed over conflicting empirical results on the employment effects of minimum wage increases. Card received the Nobel Prize in Economics in 2021 for research showing that minimum wage hikes do not necessarily lead to job losses.

"Card himself has said that his findings do not mean minimum wage increases are a cure-all for income redistribution," Ahn said. He also pointed to research by Harvard Business School professors Dara Lee Luca and Michael Luca, who used Yelp review data to track more than 35,000 restaurants in the San Francisco Bay Area over eight years. That study found that lower-rated restaurants were more likely to close following minimum wage increases, while higher-rated ones were less affected.

Ahn cautioned, however, against applying that "selective exit" interpretation directly to the South Korean context. "It is hard to conclude that businesses that closed simply deserved to fail," he said. "Many of these small self-employed owners entered self-employment after early retirement or job insecurity — they are not the powerful players the market sometimes makes them out to be." He added that "rather than framing it as a fight between the self-employed and wage workers, we need to recognize it as closer to a fight between the weak and the weak."

Looking back on that period as a researcher, Ahn said he had mixed feelings. "The sharp rise in the minimum wage over a short period was a rare opportunity to analyze causality," he said, "but there is something regrettable about the fact that behind it were self-employed owners who absorbed the shock without being prepared." He added: "If the same increase had been spread over five years, the impact felt by self-employed owners would have been far smaller."

Toward the end of the interview, Ahn was careful to distance his research from any reading that it opposes minimum wage increases as such. "The minimum wage is just one of several policy tools for income redistribution — it should not be expected to solve the problem of the working poor on its own," he said. "It needs to go hand in hand with other income-supplementing measures, such as the Earned Income Tax Credit and the Seoul Metropolitan Government's stepping-stone income program." He also noted that self-employed owners who close their businesses tend to move into unemployment rather than re-employment, and called for "policies that support career transitions and well-prepared business startups to accompany minimum wage increases."

Meanwhile, the Minimum Wage Commission is deliberating on the minimum wage for next year. The 2026 minimum wage was set at 10,320 won ($7.50) per hour, a 2.9 percent increase from the previous year's 10,030 won — the first time in 17 years, since 2008, that the rate was agreed upon by both labor and management. Ahn said that given the wide variation in how different industries are affected by the minimum wage, "it is worth considering a system that sets a low baseline and allows upward adjustments based on the conditions of each sector," while adding that "whether this is actually feasible under South Korea's circumstances needs to be examined carefully."