Labor Market Effects of a Large Minimum Wage Increase: Evidence from South Korea's 2018 Reform

This study estimates the labor market effects of South Korea’s 2018 minimum wage increase, which raised the statutory hourly floor by 16.4 percent. Using individual panel data, I compare workers whose 2017 hourly wages fell below the 2018 minimum wage with low-wage comparison workers whose wages were slightly above the new threshold, applying both a binary affected-worker indicator and a continuous wage-gap measure in a difference-in-differences design. Conditional on employment, hourly wages of affected workers rose by 6.8–7.8 percent.

In the pooled sample, I find no significant effect on employment. When the analysis is disaggregated by sector, affected manufacturing workers experienced an approximately 10 percentage point decline in employment probability after the increase, whereas non-manufacturing workers experienced no comparable loss. In non-manufacturing, the increase was accompanied by a significant decline in working hours.

These results suggest that adjustment occurred along different margins across sectors, with employment changes more pronounced in manufacturing and working-hours adjustments more evident in non-manufacturing.