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

Byoung Hoon Seok, Hye Mi You

Research output: Contribution to journalArticlepeer-review

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.

Original languageEnglish
Article number105880
JournalEconomic Modelling
Volume113
DOIs
StatePublished - Aug 2022

Keywords

  • Korea
  • Macroeconomic impacts
  • Minimum wage
  • Search and matching

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