SMEs, small businesses call minimum wage hike 'tone-deaf' to financial reality

Small and medium-sized enterprise groups and small business associations expressed regret Wednesday over the decision to raise the minimum wage 3.7 percent to 10,700 won ($7) per hour next year, calling it a move that "ignores employers' ability to pay."

The Korea Federation of SMEs said in a statement that "small businesses and self-employed operators may be forced to cut jobs or shut down entirely due to excessive labor costs, and ultimately the damage will fall on the most vulnerable workers."

The Minimum Wage Commission voted Tuesday to set the 2027 minimum wage at 10,700 won per hour, a 3.7 percent increase from this year. The effective hourly rate including weekly holiday pay comes to 12,840 won, with a monthly equivalent of about 2.24 million won.

The federation warned the burden "is highly likely to lead to job losses among vulnerable workers." It added that "small and medium-sized enterprises and small business owners are the ones who actually sustain the minimum wage system," and called for the swift introduction of sector-based differentiation and reforms to incorporate employers' ability to pay into the wage-setting criteria.

The Korea Federation of Micro Enterprises also issued a statement Wednesday, saying it "cannot hide its deep regret and sense of helplessness" over a decision that "ignored the desperate pleas of 7.9 million small business owners who are barely surviving amid record-high debt and an economic downturn."

The federation said the increase exceeds the rate of inflation and will further strain small business operations. It said the hike would deepen labor cost burdens for small businesses already pushed to the brink by the triple pressures of high prices, high interest rates and a high exchange rate, as well as sluggish consumer spending. "In a business environment more severe than the Asian financial crisis, a minimum wage increase could become a shackle that breaks the backs of small business owners," it said.

The federation also expressed strong frustration that its longstanding demand for sector-based differentiation in the minimum wage — raised throughout the deliberation process — was again rejected. While the current Minimum Wage Act provides a legal basis for setting different rates by industry, a uniform single-rate system has been maintained every year due to opposition from labor groups, it said.

"Major countries around the world operate minimum wage systems differentiated by region, industry and skill level," the federation said. "Despite a legal basis and objective on-the-ground data, sector-based differentiation keeps being blocked."

The federation also said the wage-setting structure itself needs to be reformed. Citing what it called a "fundamental problem" in a system that does not adequately represent small business owners — the parties most directly affected by the minimum wage — it urged the government and the National Assembly to overhaul the system to include biennial minimum wage decisions, sector-based differentiation, reflection of small business owners' ability to pay, and stronger representation for small business owners.

The federation also called on the government to prepare measures to ease the burden of the wage increase. It said the employment stability fund should be reinstated and the small business management stabilization fund expanded without delay. "An employment crisis originating from small businesses could spread across the broader economy," it added, pledging to "continue working together to protect the livelihoods of small business owners and fix the contradictions in the minimum wage system."