Specter of Piketty is haunting Korea

Posted on : 2014-06-18 17:37 KST Modified on : 2014-06-18 17:37 KST
Piketty's examination of income distribution in South Korea obstructed by weak national tax data
 May 22. The general strike started on May 19
May 22. The general strike started on May 19

By Ryu Yi-geun, staff reporter

Although French economist Thomas Piketty’s book, “Capital in the Twenty-First Century” has not been translated into Korean yet, several have heard a translation is underway and is anticipated for released by Book Pot Publishers Sep. 2014. There are also quite a few people who have read the English version by purchasing it from Amazon, the U.S. online retailer, and then there are those who might have read pirated versions of the book available online. No wonder it‘s being called the “Piketty sensation.” You could even say that the specter of Piketty is haunting Korea, to borrow the first line of the Marx and Engles’ “Communist Manifesto,” itself quoted in Piketty‘s book.

Within Korea, even conservative media outlets that do not support Piketty’s proposal to raise taxes on the wealthy have been quick to relay the facts that the author sets out. After all, Piketty‘s thesis that wealth and income are concentrated in the top 1 percent is just as true in South Korea as anywhere else, which primarily explains Piketty’s popularity.

In fact, even if not in book form, it is easy to access Piketty‘s research, which examines the concentration of wealth and income in various countries over the past 100 years. He uploaded a summary of research carried out with Emmanuel Saez, an economics professor at the University of California, Berkeley, and Anthony B. Atkinson, an economic professor at Nuffield College and London School of Economics, to the website of the World Top Incomes Database (topincomes.g-mond.parisschoolofeconomics.eu). In addition to this, academic articles written on income distribution by Piketty and his colleagues can be easily found through online search engines.

Interestingly, South Korea is neither on the list of countries that Piketty has studied, which includes the U.S., Japan, China, and the U.K., nor is South Korea one of the 28 countries whose income distribution statistics are found in the World Top Income Database. Regarding the former, the word “Korea” appears just two times within the 700 pages of Piketty’s book. South Korea is mentioned as a country that successfully converted domestic savings into investment, along with Japan, China, and Taiwan. For the latter, it appears no research worthy of adding to the database has been done in South Korea.

So when will Korea be getting its own Piketty? Not for some time, and there are two main reasons for this: environmental limitations and research, including the lack of essential data making it difficult to apply Piketty‘s method for studying income distribution.

At the crux of Piketty’s research methodology are taxation figures provided by each country‘s tax authorities. Currently, the tax data released in the Statistical Yearbook of National Tax by Korea’s National Tax Service (NTS) is not very helpful. The yearbook does not present the data in income percentiles (the top 1 percent and top ten percent, for example), but rather in arbitrary divisions based on the amount of income. For example, in the most recent available yearbook, it reports the total number of taxpayers (10,610,000) and their gross wages for 15 divisions of amount of income earned by those subject to earned-income tax. These sections range from less than 10 million won to more than 1 billion won. It is impossible to accurately calculate income by percentile from these figures.

Korean income distribution by percentile was made public for the first time by the Hankyoreh, which acquired data about earned-income tax and other kinds of income tax divided into percentiles from the NTS with the help of the National Assembly.

Subsequently, Hong Jong-hak, lawmaker with the New Politics Alliance for Democracy (NPAD), released tax statistics received from the NTS on so-called integrated income, which eliminates the duplication between data on earned-income tax, levied on workers‘ compensation, and comprehensive income tax, levied on business income, interest, dividends, and rental income. The availability of this data made it possible to gain a more accurate understanding of income distribution.

However, even these figures are not available on the NTS website. When the Hankyoreh printed a report on June 10 about median income derived from the data for integrated income by percentile, Statistics Korea asked the reporter for the data the limitations of cooperation between government agencies. Moreover, since 2013, the NTS has provided a sample of taxpayer data for Statistics Korea, but even this is not done in a timely fashion.

“The reason for the lack of satisfactory research on income distribution in South Korea is that the NTS does not release enough taxation data. All they need to do is select a sample of taxpayers and release this with the names concealed, but they are not doing this,” said a researcher at a state-run economic institute on the condition of anonymity. The U.S. already makes available the data for such a sample, and the UK published detailed figures about taxes paid by 12,000 of the super-rich, corresponding to around 0.05 percent of the total population in 1911.

 two days after one member committed suicide on May 17. The suicide was in protest of suppression of the labor union by Samsung
two days after one member committed suicide on May 17. The suicide was in protest of suppression of the labor union by Samsung

In South Korea, research on the question of income distribution and inequality began to take off after the 1997 Asian financial crisis. In fact, it was around this time income equality began to get much worse due to a variety of factors including: an increase in irregular jobs, a spike in real estate prices, and a concentration of economic growth in large exporting corporations.

The concept and theory of inequality together with the research methodology and results on the subject, are nicely summed up in “The Economics of Inequality,” a book published in 2010 by Kyungpook National University Professor of Economics Lee Jeong-u, who served as policy chief at the Blue House during the late-president Roh Moo-hyun administration.

As can be seen from Lee’s book, past research on income distribution generally relied not on taxation data but on surveys by Statistics Korea and the Ministry of Labor. One clear example is Statistics Korea‘s Household Survey Data based on data collected since the end of the colonial period, which currently uses a sample of around 9,000 households. This survey relies upon survey response, and there have been various issues with Korea’s super-rich who fail to respond to the survey or are perhaps trying to hide their income. Piketty puts little stock in Gini coefficients that are derived through such survey methods.

The apathy of mainstream economics to the issue of income distribution is another reason why a Korean version of Piketty‘s research has taken so long to arrive. Kim Nak-nyeon, professor at Dongguk University, says, “In the field of mainstream economics, the issue of inequality does not receive much attention.” Despite Kim’s conservative bent, he released the first Korean study analyzing long-term trends in Korean income inequality two years ago.

Although progressive sociologists tend to be the preliminary researchers into questions of inequality, they have generally relied on Household Survey Data and similar figures, which have major limitations. Moreover, unsurprisingly, it is more difficult for sociologists to study the current state of income distribution using basic economic data, including tax records and the national accounts, than economists.

Kim says, “Whether progressive or conservative, no scholar has done a decent job of researching income equality. Now that Piketty has become famous, everyone is talking about it, but simply being interested in the subject is not enough.” He contends, “We will not get research results until a year after a capable researcher throws himself or herself into the subject matter.”

Kim‘s research on income distribution in South Korea will soon be added to the World Top Income Database.

 calling for workers to be paid a living wage. (by Lee Jeong-yong
calling for workers to be paid a living wage. (by Lee Jeong-yong

 

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