Steep increase in income inequality since 1990s

Posted on : 2012-10-24 16:24 KST Modified on : 2019-10-19 20:29 KST
New academic study showed that real income for low earners has dropped, while high earners are making more

By Ryu Yi-geun, staff reporter

Recent research has shown that since the mid-1990s, real wages for workers in the bottom 20 percent of the economy has declined by 24 percent, while earnings for those in the top 20 percent have increased by 41 percent. The growing income disparity between the two groups is mainly due to income growth for those in the highest economic strata. Additionally, the income of low- to mid- level earners has decreased or remained at the same level, creating a bigger gap between them and high earners.

The findings are from a paper titled, “Income Inequality in South Korea between 1963 and 2010, Based on Wage Income” written by Dongguk University Professor of Economics Kim Nak-nyeon. In the paper, which was presented to the Hankyoreh on Oct. 23, Kim argues that the crucial factor in income inequality is steep increases for the highest earners. The annual average wage-based income per person among the top 20 percent of wage earners (the top fifth of the population) hit 68.56 million won (US$62,000) in 2010, up 41.3 percent from 1996.

Narrowing the scope to higher income brackets, the scale of increase has been even more immense. Over the last 14 years, the increase of wage income has grown cumulatively as the wage income of the top 10 percent of earners increased by 53.8 percent, that of the top 1 percent surged by 77 percent, and that of the top 0.1 percent of earners shot up by a staggering 155 percent. It is estimated that the annual average wage income per person of the top 0.1 percent of wage earners, some 16,971 people, recorded 544.35 million won in 2010.

Prof. Kim said, “The top 0.1 percent includes many CEOs of major corporations and other high-level executives. With the introduction of British or American management systems after the currency crisis, exceptionally good compensation and stock options were offered to this group, which has spurred the sharp increase of top earners’ income.”

At first glance, one might assume that the income of low- to mid-level earners would have increased over the same period. This is because the average annual real income per capita of all workers increased 15 percent to 25.23 million won in 2010 from 21.94 million won in 1996 according to Kim’s findings based on data for national accounts (wage and salary of employees) from the Bank of Korea and the statistical yearbook of national tax from National Tax Service. However, this is a kind of statistical trap. During the same period, the salary income of the lowest 20 percent (the bottom fifth of the economy) contracted by more than 24 percent. Those in the second and third fifths of earners also saw their real income decrease.

For this reason, the disparity in wages of the two groups at the extremes of the spectrum (the highest and lowest 20% of the economy), has exploded to a 14-times difference from the 7.5-times difference it stood at 14 years ago. The rise in the average value of overall wage income is a mirage resulting from the dramatic increase in wage income of the top earners. Concerning the decrease in real income of the low earners, Kim explained, “The inflow of cheap products made in China and domestic firms having moved there has eliminated jobs in the manufacturing sector. The quality of employment has also dropped with the expanded use of temporary workers.”

He also cited another reason for the drop: the lower the income group is, the higher the likelihood that earners are not the heads of families (whose income is relatively high), but spouses or other family members. Also, the proportion of earners who are temporary or day laborers is also much greater. Government statistics indicate that the proportion of temporary workers rose to 33.1 percent in 2010 from 26.8 percent in 2001, when such records first started being kept.

Growing income inequality is the culprit in the widening wage disparity as wage income accounts for around 65 percent of all household income.

Kim said, “The concentration of wage income, which was previously relatively stable, has grown dramatically since the mid-1990s, particularly after the currency crisis,” adding, “Increasing inequality is rooted in the growing concentration level toward the high income earners as well as the growing proportion of poor households.” The paper by Prof. Kim is scheduled to be released in the division of economy history at the 55th National History Studies Convention, which is held annually. The paper can also be downloaded from the website of the Naksungdae Institute of Economic Research. [www.naksung.re.co.kr]

Kim‘s paper focuses on changes in income disparity. It is a follow-up to a paper he published in May, which detailed the concentration of overall income. This paper makes up the holes in data samples set forth by the National Tax Service, which leaves out the income information of those who are exempted from taxation, a group that accounts for 40 percent of wage earners, and the shortcomings of National Statistical Office’s household budget survey (formerly, study on household consumption) in which the top earners tend to attempt to report their income as less than it actually is. However, as results of this paper were based on individuals, unlike traditional surveys, which find income disparities by households, it is hard to draw a direct line between the highest and lowest-earning fifths of the economy (top 20 percent and lowest 20 percent) in this report with the same sectors cited in other household budget surveys.

 

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