Nikkei Asia reported this week that the minimum wage in South Korea will increase by 2.5 percent to USD 7.8 (9869 won) per hour in 2024. They consider the number of working hours per month to be 209. In this case, the monthly minimum wage would be USD 1630.
There is no information on how much tax is deducted from this wage. Other sources put the lowest tax rate at 16.4 percent. In this case, if the gross wage is USD 1630, the net minimum wage is USD 1363. I should also note that consumer inflation in Sotuh Korea was 2.7 percent in November.
Let me assume that our dollar exchange rate will close 2023 at TRY 29.4, which means that the net minimum wage in South Korea will be just over TRY 40,000 at the beginning of 2024. The Central Bank’s inflation forecast for the end of 2024 is 36 percent. In the US, inflation will be around 2.5 percent. Let the dollar exchange rate rise slightly below the difference between these two, say by 30 percent, and it would be TRY 38.2. Therefore, the Korean minimum wage will be about TRY 52,100 at the end of 2024. By averaging the exchange rate at the beginning of the year with that at the end of the year, a very rough calculation shows that the average minimum wage in South Korea in 2024 will be TRY 46,100.
One important point is that, at current exchange rates, this wage is higher than the minimum wage in Japan. It is not clear from the report whether Korean businesspeople are complaining that the high minimum wage is negatively affecting their competitiveness. Maybe they are complaining. However, there is information that the minimum wage increased by 43 percent during the five-year term of the previous president and that some service sector firms have been laying off workers and robotizing.
This concerns us in two ways. First, if we remember that South Korea, which had a lower per capita income than us 40 years ago, caught up and overtook us around 1990 (shown in the graph), we find clues as to why we have a production structure that cannot even tolerate a minimum wage at the hunger limit, while South Korea can compete with the world quite easily with 2.6 times our minimum wage (I assume it will be TRY 18,000 in 2024). The main problem is productivity – in terms of income per capita, i.e. value added.
Second, we should not assume that employment and wages will increase just because productivity increases. We need to think about how productivity increases that raise wages and employment can be realized. But one thing is clear: We have a very important productivity problem. This is why you can go on economic channels and make comparisons with Egypt, not South Korea, to prove that the minimum wage in Turkey is high. Obviously, there is no easy solution, such as increasing/decreasing interest rates or increasing/decreasing the exchange rate. When we think that it is that easy, we should not forget that we have not made a single step forward in terms of productivity by blowing up inflation with nonsense. But it is important to note that there are those who can demand higher exchange rates – 30 is not enough, 40, 40 is not enough, 50…’. What are you going to do, they can.
