Small businesses warn of mass closures after minimum wage set at 10,700 won

The fallout continues after next year's minimum wage was set at 10,700 won ($7) per hour, a 3.7 percent increase from this year's rate. Small business owners warn the hike will lead to reduced hiring and a wave of closures, while the opposition party has introduced a bill aimed at protecting them.

The Minimum Wage Commission decided to raise the hourly minimum wage from this year's 10,320 won to 10,700 won starting next year — a 3.7 percent increase. Employers will have to pay 79,420 won more per part-time worker each month, or 953,040 won more per year.

Converted to a monthly salary based on a 40-hour workweek, next year's minimum wage comes to 2.24 million won. That figure is about 150,000 won higher than the 2.09 million won average monthly operating profit recorded by small business owners in a survey of 1,000 proprietors conducted by the Korea Federation of Small Business Owners last year.

Ryu Pil-seon, a senior researcher at the Korea Federation of Small Business Owners, said hiring four workers would add more than 10 million won in annual costs once employers' social insurance contributions are factored in. "A situation is unfolding where reduced employment is inevitable," he said.

He added that of the 970,000 business closures recorded nationwide last year, 750,000 were in sectors dominated by small businesses — retail, food service and lodging. "Small business owners are hanging off a cliff's edge of closure," he said. "A blanket minimum wage increase that ignores the ability to pay will only accelerate the wave of closures."

Byeon, a 61-year-old who runs a restaurant near Hongik University in Mapo-gu, Seoul, with his daughter, said the business ultimately comes down to labor costs. "If the minimum wage goes up, I think I'll have to let go of the part-timers I'm using now and bring in family members instead," he said.

Concern is not limited to small business owners. The Korea Federation of SMEs issued a statement Wednesday saying excessive labor costs could force small enterprises to cut jobs or shut down entirely, and that "the damage will ultimately fall on vulnerable workers."

The federation said the burden was likely to result in fewer jobs for vulnerable workers. It called for differentiated minimum wage rates by industry and urged that reforms reflecting employers' ability to pay be introduced without delay, noting that "it is small and medium-sized enterprises and small business owners who are the real pillars sustaining the minimum wage system."

People Power Party lawmaker Kim So-hee introduced a bill Wednesday to amend the Minimum Wage Act to allow differentiated application of the minimum wage. The core of the proposal is to require that decisions on the minimum wage take comprehensive account of employers' ability to pay and the impact on employment stability, in addition to the income distribution ratio already specified in current law.

The bill also adds grounds for differentiating the minimum wage by business size and region, on top of the industry-based differentiation already permitted under existing law. It further requires that deliberations on whether such differentiation is warranted must take place before the Minimum Wage Commission begins its review of proposed rates.

The measure reflects calls from small business owners for the wage-setting process to account for the difference in paying capacity between large corporations and small businesses, as well as disparities in prices and economic conditions between the Greater Seoul area and other regions.

Kim said the current method of setting the minimum wage fails to reflect the realities facing small business owners, "only adding an unbearable burden year after year while ignoring their right to survive." She said differentiated minimum wage rates for small businesses "must be realized without fail."