The unintended effects of a large minimum wage increase on health: Evidence from South Korea

The 2018 minimum wage increase in South Korea was a major policy change that impacted employment and labour productivity. However, their effects on health have not yet been explored. The minimum wage was increased by 16% on 1st January 2018, marking the largest increase over two decades and a substantial increase in international standards. While this policy change was a promise of the then-new government, the magnitude of its increase was unexpected. We focus on individuals whose earnings are likely to be affected by a minimum wage increase and compare them with similar individuals who earn slightly more than the minimum wage. Vulnerable individuals, such as older adults earning a minimum wage, were more likely to be affected in terms of health due to this change. Using a difference-in-differences design applied to data collected in 2016 and 2018 from the Korean Longitudinal Study on Aging, this study investigates the effects of this large minimum wage increase on the cognitive functioning and physical health of affected individuals. Unexpectedly, our results indicate that the minimum wage hike significantly decreased cognitive function in the targeted group by 1.09-point in the year of the hike. However, we did not observe any significant changes in physical health. Importantly, our findings are supported by the null effects from 2014 to 2016, which saw modest minimum wage increases, suggesting that negative effects on cognition emerged only with the minimum wage increase in 2018. These unexpected findings may be explained by a statistically significant reduction in the working hours of the targeted group, which may have affected job satisfaction and, consequently, cognitive health.