Determinants of minimum wage dynamics: a comparative econometric analysis of Japan and South Korea

The goal of this study is to identify and compare the determinants of national minimum wage (NMW) dynamics in Japan and South Korea over a two-decade period (2004–2023). Several methodologies for constructing a macroeconomic panel dataset, encompassing diverse indicators, are utilized to estimate regression and correlation-based econometric models. The quantitative findings are corroborated by qualitative results from other studies, enhancing the assessment of the minimum wage’s elasticity concerning several aspects, including inflation and productivity. The results demonstrate that the primary determinants of adjustments to NMW in both economies are consumer price index (inflation) and gross domestic product per capita, whereas unemployment and income inequality factors are less statistically significant. Moreover, empirical analysis illustrates that the Japanese economy reacts with greater moderation to adjustments in determinants than the South Korean economy, which experiences a stronger inflation pass-through effect. This difference is potentially due to institutional constraints and regional variations that influence the elasticity of NMW adjustments in relation to macroeconomic variables. In conclusion, this study illustrates how the minimum wage policies in Japan and South Korea are strongly influenced not only by inflation and productivity trends but also by differences in institutional structures, which affect the magnitude and speed of adjustment to NMW. The authors succeeded in closing a major research gap of effective cross-country analysis and evaluation of the minimum wage dynamics, demonstrating that local economic zones should implement their own wage and cost adjusting system, adopt indexation of inflation, and support small enterprises.