The Economic Effects of a Rapid Increase in the Minimum Wage: Evidence from South Korea Experiments

Taeyoung Doh, Kyoo il Kim (), Sungil Kim, Hwanoong Lee and Kyungho Song

No RWP 22-13, Research Working Paper from Federal Reserve Bank of Kansas City

Abstract: South Korea’s minimum wage rapidly rose from 53 percent of the median wage to 63 percent between 2017 and 2019. While the minimum wage has been increasing steadily over decades, the rapid pace in 2018-19 was largely unexpected and driven by a sudden shift in the political environment. We study the economic effects of this minimum wage hike on employment, wages, and labor productivity using South Korean manufacturing firm data, which comprehensively covers all manufacturing firms with 10 or more employees. We find a significant negative employment (3% decline in domestic employment) effect of the minimum wage hike for 2018-19 compared with its modest increase in 2015-17, as the fraction of firms exposed to the minimum wage shock substantially increased and these firms adjusted to the shock through both intensive margins (layoffs) and extensive margins (plant closings). Adjustments through extensive margins jumped up at firms whose exposure to the minimum wage hike is in the right tail. The negative employment effect is also confirmed in our supplementary analysis using population-level administrative data on firms in the service sector. At the same time, labor productivity and wages increased more for manufacturing firms with greater exposure to the minimum wage. Our empirical findings are consistent with a task-based production model with firm-level heterogeneity emphasizing the substitution between low skill labor and other production factors.

Keywords: wages; employment; labor; substitution (search for similar items in EconPapers)
JEL-codes: J23 J31 J42 (search for similar items in EconPapers)
Pages: 47
Date: 2022-11-07, Revised 2025-05-15
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.kansascityfed.org/research/research-wo ... h-korea-experiments/ Full text (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedkrw:94988

Ordering information: This working paper can be ordered from

DOI: 10.18651/RWP2022-13

Access Statistics for this paper

More papers in Research Working Paper from Federal Reserve Bank of Kansas City Contact information at EDIRC.
Bibliographic data for series maintained by Kira Lillard ().