Minimum Wage Hike for Foreigners Leads to Freeze in Higher Wages

      August 23, 2018 11:51

      The minimum wage hike to W7,530 an hour is boosting only the wages of foreign workers in many small and medium-sized businesses as they freeze increases for Korean workers who earn more than the minimum wage (US$1=W1,120).

      SMEs' profit often amount to only two to three percent of revenues, so they say they cannot afford to increase wages evenly.

      One manufacturer in Busan that makes nuts and bolts froze the wages of Korean staff this year. The company makes about W2 billion in revenues but just a few million in operating profit a year.

      "Ironically, the minimum wage hike ended up blocking pay raises for Korean staff," said one staffer.

      The annual salary of Korean staff who worked at the company for more than 20 years is W40-50 million and of course not subject to the minimum wage hike. But the six foreign workers only earn minimum wage, so the extra costs after the hike will be W30 million a year, forcing the owner to freeze the salaries of higher-paid Korean staff to pay for it. 

      Foreigners work at a casting factory in Gimpo, Gyeonggi Province on Tuesday.

      Under the rules of the International Labor Organization, Korea pays the same minimum wage to foreign workers.

      One small company in Seoul employing 45 people paid W3 million a month to Korean staff and W2.07 million to foreign staff last year, resulting in a W930,000 difference. But this year the difference has narrowed to W750,000 and next year it will shrink even further to W160,000.

      "The minimum wage hike usually applies to foreign workers in small and mid-sized businesses, so we're seeing a consistent narrowing of the salary difference between Korean and foreign staff," the owner said.

      Another owner of a small business in Busan said, "If I raise the wages of foreign workers to abide by the law, I have no choice but to increase the salaries for Korean staff as little as possible or freeze them. The reality is that I can't raise wages across the board."

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