The Bank of Korea issued a June 17 report warning that massive performance bonuses paid to workers at major IT companies could spread into broader wage increases and fuel inflation. South Korean chip workers at SK Hynix and Samsung Electronics are receiving bonuses worth hundreds of millions of won following profit-sharing agreements reached in recent months. The central bank's alert comes as South Korea already faces above-target inflation, with full-year inflation projected at 2.7% versus the 2% target.
Bank of Korea Warns Bonuses May Drive Broader Wage Growth
In its June 17 report, the Bank of Korea stated that inflation this year has been largely powered by energy price increases. The central bank added that even if external conflicts subside, inflationary pressures may gradually increase as income conditions improve and wage growth becomes more widespread.
The BOK specifically noted that the payment of large performance bonuses recently seen at some major companies in the IT sector could spread into broader wage increases, translating to upward pressure on inflation. The central bank said that while bonuses normally would not contribute much to demand pressure as they are not permanent income increases, when "special bonuses expand unusually and substantially," wage growth could spread to other sectors, significantly increasing both supply- and demand-side inflationary pressures.
"In particular, because recent IT-sector performance bonuses have been paid on a highly exceptional scale, the possibility that their actual impact could be larger than expected cannot be ruled out," the BOK stated in the report.
SK Hynix and Samsung Agree to Profit-Sharing Bonus Structures
SK Hynix agreed last September to a wage deal that will set aside 10% of operating profits as bonuses for its workers. According to Reuters calculations, SK Hynix employees are expected to receive bonuses of more than 700 million won ($454,851) if the firm achieves an annual profit of 250 trillion won this year.
Samsung workers reportedly agreed that 10.5% of its semiconductor operating profit will go towards special bonuses for chip workers, after threatening an 18-day strike in May. According to an unidentified union source cited by Reuters, a memory chip worker with a base salary of 80 million won ($52,400) is expected to receive a total bonus of around 626 million won ($410,000) this year.
Gyeonggi Province Luxury Sales Surge Amid Tech Worker Spending
BOK Deputy Governor Lee Jiho said in a press briefing on June 17 that "sales have increased significantly in places such as Suwon and luxury goods sections of department stores, and this could gradually spread further."
The BOK reported that in Gyeonggi Province—home to major Samsung Electronics and SK Hynix semiconductor facilities—card spending growth this year was relatively higher in areas near chip production sites and adjacent residential areas than in other regions.
Chosun Ilbo reported that luxury sales in a Shinsegae department store branch in Gyeonggi province rose by 53.6% year-on-year in May, with luxury jewelry surging by 146.3% and luxury watches growing by 85.3% over the same period. Overall store sales at that location grew by 19%, according to the newspaper.
Department Store Stocks Rally on High-End Consumption Expectations
Shares of South Korea's major department-store operators have rallied alongside growing expectations that high-end consumption will strengthen.
Lotte Shopping has surged more than 148% year to date, with a 67% jump in its share price in the past three months alone. Hyundai Department Store shares are up 120% year to date, with a 113% gain in the last three months. Shinsegae has led with a 190% gain in share price from the start of the year, with most gains coming recently—its shares jumped 107% in the last three months.
FAQ
What did the Bank of Korea warn about on June 17?
The Bank of Korea issued a report on June 17 warning that large performance bonuses paid to workers at major IT companies could spread into broader wage increases and create upward pressure on inflation. The central bank noted that while bonuses normally do not contribute much to demand pressure, the exceptional scale of recent IT-sector bonuses means their actual impact could be larger than expected.
How much are South Korean chip workers receiving in bonuses?
According to a union source cited by Reuters, a Samsung memory chip worker with a base salary of 80 million won is expected to receive a total bonus of around 626 million won ($410,000) this year. SK Hynix employees are expected to receive bonuses of more than 700 million won ($454,851) if the firm achieves an annual profit of 250 trillion won this year, based on the company's agreement to set aside 10% of operating profits as bonuses.
