South Korea makes aggressive moves to lift its minimum wage

A lot has changed since Jeon Tae-il killed himself. In 1970, when the 22-year-old South Korean set himself alight to protest poor working conditions, his country received millions of dollars of foreign aid. Now it is the world's 11th-biggest economy. The statue that commemorates him in the capital, Seoul, is dwarfed by skyscrapers.

Yet his memory is often invoked by activists and politicians who argue that ordinary workers do not get their fair share. "He was a great man," said a market trader. "Things have improved a lot but our wages are still poor."

Moon Jae-in, the left-leaning president who took office in May, was elected in part on the promise of changing that. The centerpiece of his economic policy is a bold experiment in raising the minimum wage.

The first step is a 16.4 percent increase set for next year, the biggest rise since 2000. The difference is that in 2000 the economy was growing three times as fast as it is now. Even more ambitious is the sequence of increases planned for coming years, intended to produce a total rise of 55 percent by 2020.

South Korea's is far from the only government ratcheting up the minimum wage, but the others that have opted for such big increases have typically been those of wealthy cities or regions in rich countries, such as Seattle and Alberta. It is rare for an entire country to move so aggressively, especially one that relies on exports. If South Korea follows through as intended, its minimum wage will be roughly 70 percent of its median wage by 2020, well above the level in all other big economies.

On the face of things, the South Korean economy is doing well. Growth has averaged 3 percent annually over the past six years, a decent outcome for a period when global trade was sluggish.

Income per person is about two-thirds of those in the U.S., up from a third 25 years ago. The unemployment rate is just 3.6 percent.

Nonetheless, poorer Koreans resent rising inequality. The chaebol — sprawling family-run conglomerates such as Samsung and Hyundai — dominate business, as they have for decades. A study by the International Monetary Fund last year found that the top 10 percent of South Koreans receive 45 percent of total income — a greater concentration than in other big economies in Asia. The proportion has risen sharply over the past two decades as the wages of the rich have grown faster than those of the poor.

Moon pledged to take on vested interests and rev up the economy. Nearly six months into his presidency, he has taken several symbolic steps in that direction. He has appointed Kim Sang-jo, known as the "chaebol sniper," to lead the Fair Trade Commission, raising expectations that he will try to reduce the big conglomerates' clout. His government is nudging up taxes on companies and high earners. But most striking of all in its immediate impact is the hefty increase in the minimum wage, the heart of what Moon calls his "income-led growth" strategy.

The bet is that the jump in wages will feed through to stronger consumption, particularly as low earners tend to spend more of their pay than the rich do. In addition to propping up growth, stronger consumption would make South Korea less reliant on exports and so less beholden to the whims of China and the U.S., Moon predicts. It should also help reduce inequality.

Politically, the push for higher wages is popular. Whether the increase will actually work is in doubt. Nearly 14 percent of companies ignore the current minimum, according to a government-run employment agency; it reckons the share could go up to 20 percent next year.

The vast majority of people on the minimum wage work at smaller businesses, not chaebol. Nearly all respondents to a survey by the Korean Federation of Micro Enterprise said they would consider laying off workers to cope with higher wage bills.