SEOUL, July 17 (Reuters) - South Korea plans to raise its minimum wage 16 percent next year -- the biggest jump in nearly two decades -- as President Moon Jae-in looks to spur domestic spending and generate more balanced growth in Asia's fourth-largest economy.
The increase to 7,530 won ($6.67) per hour will affect nearly one in four South Korean workers, the Minimum Wage Commision announced over the weekend after an agreement between labor, business representatives and the government.
The pay hike, the largest since 2001, is part of a multi-pronged strategy by President Moon to encourage more private consumption and help narrow income inequality.
Moon has pledged to raise the minimum wage to 10,000 won by 2020, which would require pay hikes of about 15 percent every year in the next few years, compared with average annual gains of about 7.3 percent since 2010, government data shows.
Stronger and more sustainable domestic demand would help balance the economy's traditional heavy reliance on exports, while translating into higher consumer inflation.
Although private consumption accounts for about half of gross domestic product, it rose just 0.4 percent in the first quarter from three months earlier, while the overall economy grew 1.1 percent, the fastest jump in six quarters
The 2018 increase will leave minimum wages in South Korea at about 90 percent of those in the United States and Japan, according to Kwon Young-sun, an economist at Nomura Securities.
The government said it will spend about 3 trillion won from next year's budget to help compensate small businesses for the higher labor costs.
"The government will directly fund small businesses so that they can keep their workers even as minimum wage is rising," the ministry said in a statement, and added that details of the fiscal support will be released after further policy discussions.
($1 = 1,128.2000 won) (Reporting by Cynthia Kim; Editing by Kim Coghill)