South Korean chipmakers are being paid such massive bonuses it’s becoming an inflation problem for the central bank

There’s some debate in the economics world about whether a “wage price spiral” exists in reality, and how much of a danger it poses. And yet the Bank of Korea is so alarmed by the massive bonuses being paid to workers building semiconductors that it has flagged this as an inflationary concern. A wage-price spiral is the concept of higher wages increasing consumer demand and pushing up prices as a result. This, in turn, pushes other employees to ask for higher salaries, and the spiral continues upward.South Korea’s central bank seems worried about a version of this scenario. In a June 17 report, the Bank of Korea noted that inflationary pressures derived largely from energy prices, which have increased as a result of conflict in the Middle East. However, the bank also noted that upward pressure on wages have prevailed in certain industries because of productivity improvements, labor market conditions, and the expansion of performance-based compensation. Addressing the semiconductor industry in particular, the bank wrote that “performance-based bonuses have increased significantly in line with improvements in corporate performance. These income increases may expand household consumption capacity.” Recent examples are plain to see: In late May, a deal mediated by the South Korean government between Samsung Electronics and unionized workers resulted in a profit-sharing agreement averaging a bonus of around $410,000, according to reports. Specifically in its semiconductor arm, Samsung will set aside around 10.5% of operating profits to make the performance-based payments. Likewise, Reuters calculated earlier this year that chip workers at [hotlink]SK Hynix[/hotlink] can expect bonuses of more than 700 million won ($454,851) if the firm achieves an annual profit of 250 trillion won. Despite the potentially inflationary impact, South Korea’s labor minister has suggested profit sharing from the massive AI boom could go even further. K