Everyone Benefits When Workers Earn Living Wages

The South Korea government is taking an interesting approach to stagnating wages. The South Korean Ministry of Strategy and Finance is pushing a policy to offer tax credits to those firms that increase worker pay.

This legislation — which, if approved by the South Korean parliament, would go into effect in January — creates a policy incentive for firms to increase wages. As in America, wage growth in South Korea is “not keeping pace with corporate profits in South Korea, where household debt is rising while companies hoard cash,” according to this Bloomberg story.

Sound familiar?

We appreciate the attempt to ensure that wages keep up with living needs. When workers’ earnings keep up with productivity and costs, it’s good for the whole economy. However, we are wary of tax breaks in general — it is a slippery slope that leads to abuse of the system and opens loopholes for corporations to skirt their civic duties. It seems that South Korea’s tax breaks would also have an impact on public revenues and government’s ability to deliver programs and serve the people it represents.

But South Korean President Park Geun-hye has it right in her belief that the way to spur economic growth is to increase demand. This counterpoint to supply-side, or “trickle-down,” economics — which has only proven to dramatically increase income inequality — demand-side, or “trickle-up,” economics is a sure method to spur economic growth and promote the notion of shared prosperity. When a worker is earning better wages, he or she is more likely to spend that money, which benefits the restaurant, grocer or movie theater that the worker patronizes, which then spurs job growth.

More and more businesses in America are realizing that a natural incentive to maximize wage quality already exists. Businesses need customers, and, when wages provide for living needs, the economy gets stronger.

However, we are seeing that families in America are less able to make ends meet. On Aug. 26, we will be releasing the first installment this year of our new Job Gap Economic Prosperity Series, a living wage & family debt study entitled, “Families Out of Balance.”

In this report, we quantify just how much a full-time worker needs to earn to make basic ends meet, to climb the economic ladder and to build a firm financial future. However, while living costs are significantly higher than minimum wages and as debt loads are skyrocketing, earnings and assets for the non-wealthy are decreasing. This formula makes for some pretty stressful kitchen table conversations for this nation’s families.

While South Korea gives the private sector an incentive to do what should already come naturally, in America, inadequate wage floors continue to fall woefully short of living needs. The federal minimum wage of $7.25 an hour has not increased since 2009, meaning the minimum wage worker has experienced a pay cut, in real dollars, for five straight years.

It’s time that Congress and our state legislatures took action.

Ben Henry is Senior Policy Associate at the Alliance.