The People’s Voice Is Heaven’s Will! The Minimum Wage Defies Public Sentiment

If I had to choose the phrase that people in this country—especially those who claim to be in politics—most love to repeat with their lips while utterly failing to practice it in reality, it would probably have to be: “The will of the people is the will of heaven, and those who go against it will perish.” They are not merely failing to act on it through inaction; they are actually moving in the opposite direction, directly defying the principle that the people’s will is heaven’s will. If that does not lead to ruin, that would be the strange thing. This kind of conduct, which runs counter to heaven’s will, seems particularly severe when it comes to the market economy. The adverse effects of the minimum wage system, which has again become a subject of growing controversy, is just one of many such examples.

As of 2023, 3.01 million workers—13.7% of all workers—were reportedly earning less than the minimum wage. Every employer hiring these workers is, by law, a criminal offender. In other words, a system that goes against the public will is turning countless citizens into lawbreakers. As anyone might expect, the rate of sub-minimum-wage employment is higher in small-scale sectors and among smaller businesses. The analysis is that this is due to the side effects of the minimum wage: while consumer prices rose 61.9% from 2001 through last year, the minimum wage surged by 418%. It has also been shown that Korea’s minimum wage is now higher than Japan’s. This year, Korea’s minimum wage is 9,860 won per hour, more than 1,000 won higher than Japan’s average of about 8,829 won, where different minimum wages are applied by region and industry.

But the sharp increase in the number of workers earning less than the minimum wage is not the whole problem. How many workers have lost their jobs because of the steep increase in the minimum wage? For example, in the wholesale and retail sector—including convenience stores and clothing sales—the share of one-person owner-operators rose from 67.0% in 2018 to 72.6% last year. The number of unmanned stores operated by Korea’s four major convenience store chains increased 16-fold, from 208 in 2019 to 3,310 in 2022. In 2022, the number of kiosks installed in Korea reached 117,000, up 4.5 times from 20,600 the year before. All of this can only be seen as evidence of jobs lost because of the minimum wage.

In the general and political realm, what exactly public sentiment is, and where it lies, is so abstract that it can vary greatly depending on who is speaking. As a result, it is almost always interpreted in a self-serving way. The ruling party and the opposition both speak of the will of the people, yet what they mean by it almost always points to different things and different places.

In the economy and the market, however, public sentiment is concrete and clear, leaving no room for random interpretation. That is because prices in the market—prices expressed in numerical form—show that sentiment exactly as it is. In markets, an unimaginably vast amount of information is reflected and exchanged. In this process, each piece of information is automatically and thoroughly incorporated into the demand and supply of the relevant good or service, and accordingly into price formation. The result born of all this information being reflected is price itself. In this sense, price reflects and reveals how countless people think about and evaluate a given good or service. Is that not precisely public sentiment? The labor market is no exception. Wages determined “freely” in the labor market are likewise the result of public sentiment being reflected.

The minimum wage system is a system that defies the public sentiment expressed by “free” prices. As seen above, the minimum wage system damages the economy and takes away jobs. It especially threatens the jobs and livelihoods of low-skilled workers. The proper way to respect public sentiment is to abolish the minimum wage system itself and leave matters to “free” price determination.

The idea now being discussed—introducing different standards by occupation and region, or creating exceptions—would, of course, be a far better remedy than the current uniform approach. That is because it could alleviate some of the side effects produced by the minimum wage system. Japan’s case, where the minimum wage differs by industry and region, gives some sense of the possible effect. According to the OECD’s measure of the “share of workers earning less than the minimum wage,” Korea stood at 19.8% in 2021, while Japan was only 2.0%.

The best course would be to completely abolish the minimum wage system, which runs counter to public sentiment, and leave matters to the free decisions of market participants. But if that is difficult for now, then at the very least an improved policy should be introduced to ease the side effects by differentiating minimum wages by industry and region.

Hyukchul Kwon, Director of the Free Market Institute

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Original title: 민심은 천심! 최저임금은 민심을 거스르는 제도

Author: Hyeok-cheol Kwon

Date: 2024-05-22

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=column&pn=2&idx=26686