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Macroeconomic impacts of increasing the minimum wage: The case of Korea

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  • Seok, Byoung Hoon
  • You, Hye Mi

Abstract

In the late 2010s, the Korean government substantially increased the minimum wage to help low-income workers and stimulate the economy. This study quantifies the long-run effect of increasing the minimum wage on major macroeconomic variables in Korea by using a large-firm search and matching model. Results indicate that increasing the minimum wage reduces employment, primarily among workers with low productivity. However, the average labor productivity for employed workers increases, thereby facilitating firms to increase capital investment. The latter effect is not substantially large to dominate the former effect. The results imply that increasing the real minimum wage by 15%, as in 2018, eventually reduces the total employment and gross output by 3.5% and 1.0%, respectively.

Suggested Citation

  • Seok, Byoung Hoon & You, Hye Mi, 2022. "Macroeconomic impacts of increasing the minimum wage: The case of Korea," Economic Modelling, Elsevier, vol. 113(C).
    • Handle: RePEc:eee:ecmode:v:113:y:2022:i:c:s0264999322001262
    DOI: 10.1016/j.econmod.2022.105880
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    Cited by:

    1. Hyunbae Chun & Jungmin Lee & Donghan Shin, 2024. "Does the Minimum Wage Affect Non-wage Workers?," Korean Economic Review, Korean Economic Association, vol. 40, pages 5-47.
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    More about this item

    Keywords

    Minimum wage; Search and matching; Macroeconomic impacts; Korea;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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