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

Byoung Hoon Seok and Hye Mi You

Economic Modelling, 2022, vol. 113, issue C

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.

Keywords: Minimum wage; Search and matching; Macroeconomic impacts; Korea (search for similar items in EconPapers)
JEL-codes: E24 E64 J68 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:113:y:2022:i:c:s0264999322001262

DOI: 10.1016/j.econmod.2022.105880

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