S. Korea has third-highest economic polarization in OECD

Posted on : 2007-06-21 13:56 KST Modified on : 2019-10-19 20:29 KST
According to report, Korea last in spending on social safety net

The level of economic polarization in South Korea has significantly climbed among member countries of the Organization for Economic Cooperation and Development (OECD).

According to the OECD's Employment Outlook 2007, released on June 19 (Swiss time), the income gap between the upper and lower 10 percent of wage-earners in South Korea was ranked third largest among 20 of the 30 OECD's member countries for which such data was available.

The OECD measured income gap by calculating a ratio of average wages between the upper 10 percent of high-income earners and the lower 10 percent of low-income earners. The results are then placed on a scale between 1 and 10, with scores approaching 10 meaning the income gap is quite wide.

In the survey, South Korea's score stood at 4.51, followed by Hungary (5.63) and the United States (4.86)

In addition, South Korea's income gap has been widening significantly for a decade since 1995. During the period, the ratio of South Korea increased by 0.87 points from 3.64 in 1995. In term of the degree of widening income gap for the past decade, South Korea was also ranked third, followed by Hungary ( 1.67 points) and Poland (0.91 points). Of the 20 countries, only Ireland (3.57) and Spain (3.53) narrowed their income gaps over the past 10 years. (see gragh)

Norway (2.21), Sweden (2.33), and Finland (2.42) showed the least income gap among the nations examined.

The OECD report pointed out that South Korea's social safety net, along with those of Mexico and Turkey, is not robust. In particular, South Korea spent less than 5 percent of ordinary tax revenues on its social safety net to ensure that low-income earners are not left without protections and services. This figure is markedly smaller than the OECD average of 43 percent, and put South Korea last in the rankings. In addition, only South Korea and Mexico spent less than 10 percent of their gross domestic product (GDP) on social services.

The OECD also expressed concern over the low level of spending on social welfare in another report on the South Korean economy on June 20, despite a sharp increase in the percentage of those living in relative poverty in these countries. In the mid-1990s, South Korea's relative poverty rate - the rate of population whose disposable income is below 50 percent of the income of the median income bracket - was hovering around 9 percent, but this figure began to rise sharply starting in 2000 and surpassed the average OECD ratio of the lower reaches of the tenth percentile, the report said. The OECD advised South Korea to expand public spending for the underprivileged to help them earn the minimum cost of living.

The OECD's Employment Outlook 2007 also said income gap and economic polarization were worsening worldwide because labor has not benefited appropriately from globalization. While a more open trade and investment policy has increased living standards worldwide, the report said, some workers have lost a great deal due to globalization. Over the past two years, the productivity of OECD nations rose by an average 1.5 percent yearly, but average real wages rose only by 0.6 percent in 2005 and 1.2 percent in 2006, according to the report.

The OECD said the global economic landscape is changing due to cheaper labor available in China, Russia, India, and Brazil, as well as the development of technology alongside transportation and telecommunications systems. The report advised OECD member nations to raise social awareness about proper employment practices and wages. While it is important for members to reinvigorate free trade, the report said, they must put a focus on changing their job markets by improving working conditions and building more of a social safety net.

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