The rising minimum wage is putting mounting pressure on small business owners who find it increasingly difficult to hire workers. Some of them say that the burden of labor cost pushed them to file for bankruptcy.
Determined by the three-way committee of labor, employers and government, Friday, the 2025 minimum wage was set at 10,030 won ($7.28) per hour. It surpassed the 10,000 won level for the first time after the system was adopted in 1988.
The pace of increase, or 1.7 percent increase from 9,860 won in 2024, marks the smallest since the 1.5 percent rise in 2021.
The tiny year-on-year increase rate, however, is considered unbearable for small business owners as it builds on drastic hikes of 16.4 커뮤니티 percent in 2018 and 10.9 percent in 2019, all carried out during the previous Moon Jae-in administration.
The rate slowed thereafter — 2.87 percent in 2020, 1.5 percent in 2021, 5.05 percent in 2022 and 5 percent in 2023. Nevertheless, it fell short of easing the labor cost burden on small business owners.
“People may think of it as negligible, but for us, every penny counts when it comes to labor cost as it accounts for 70 or 80 percent of the entire operation cost,” a convenience store owner in Seoul, surnamed Yang, said.
He referred to the 1.7 percent increase rate for the 2025 minimum wage as being equivalent to a mere 170 won increase.
“The difference between the minimum wage in the 9,000 won range and the 10,000 won is huge,” Yang added.
The accumulated increase in pay rate is correspondingly forcing small business owners, especially those in the restaurant and accommodation sectors, to work alone to save costs.
A Statistics Korea report on economically active population showed 334,000 businesspeople from the two aforementioned sectors hired no employees and worked alone in 2023.
The number was the second-highest since the relevant data began to be compiled in 2013, after 356,000 in 2021 in the middle of toughened social distancing rules due to the COVID-19 pandemic.
“The 2023 figure, therefore, is the highest for any time of normalcy,” Statistics Korea explained.
A separate finding from the Korea Enterprises Federation (KEF) showed a total of 810 of bankruptcies were reported as of May this year from the businesses with five or fewer employees in the restaurant and accommodation sectors.
The number steeply climbed by 36.8 percent from a year earlier.
The burdensome labor costs are additionally pushing business owners to fail to pay their employees the legally required minimum wage even if they manage to hire workers.
According to the Statistics Korea report, the ratio of salaried workers earning less than minimum wage nationwide more than tripled to 13.7 percent between 2001 and 2023.
The KEF also said the smaller the businesses are, the higher they were likely to fail in paying the minimum wage.
It said 32.7 percent of businesses with five or fewer employees did not pay minimum wage in 2023, compared to 2.2 percent of businesses with more than 300 employees.
Under the circumstances, the labor side said the 2025 minimum wage should have been hiked at a steeper pace, considering inflation and other demanding economic conditions for households.
It argued the pace of wage hike for next year lags behind inflation rate, which eased below 3 percent in recent months.
It then estimated that only about two out of 10 wageworkers can directly benefit from next year’s minimum wage.
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