[Special report] Four top economists on South Korea’s severe inequality

Posted on : 2015-07-14 16:49 KST Modified on : 2019-10-19 20:29 KST
With huge, multifaceted gap between high and low earners, researchers say there’s still a lack of attention to growing inequality
“Inequality is not something that came on us suddenly from the West. It has always been one of our key themes in South Korea.”
These sentences come from the introduction to “Unequal Korea: Dreams of a Welfare State,” a recently published collection of research findings by 30 of the country’s top researchers on the topic of inequality, including recently retired Kyungpook National University professor Lee Jung-woo. The papers were the result of their studies on inequality in a number of different areas, including income, labor, wages, gender, health, housing, fiscal spending, region, and education. The scholars’ explorations of inequality in South Korea began long before the French economist Thomas Piketty first drew global attention with his studies on income inequality. Studies by four of the country’s top inequality researchers provide a grim glimpse of the pall inequality casts throughout South Korean society.
 World Top Incomes Database (unit: %)
World Top Incomes Database (unit: %)

 

Class: 73% of men in their fifties out of middle class by their sixties
 published by the Korean Society for Equity in Health
published by the Korean Society for Equity in Health

Chung-Ang University sociology professor Shin Kwang-yeong has explored inequality in class and income that arises from South Korea’s job, earning, and employment patterns. Recently, he released findings from an empirical analysis examining a key theme in South Korean income inequality discourse - social polarization - in terms of the crisis it is creating for the middle class.

One of Shin’s major efforts has been to use a long-term ten-year analysis to calculate exactly how many people have been pushed out of the middle class. In one case, labor income data from 2001 to 2011 were used to analyze the rate at which people were able to hold on to their middle class status. In 2001, men in their fifties represented 10.5% of a “key middle class” segment with management, professional, or technical positions giving them a high income and stable employment.

But just 26.8% were still in the middle class in 2011, when they were in their sixties. Indeed, the data showed 70.7% of people in their sixties to have unstable income and employment. Of the key middle class members who were in their forties in 2001, 67.2% stayed in the middle class over the ten-year period, while 32.8% had fallen out by their fifties.

One factor virtually wiping out the chances of class mobility is what has been described as the middle class’s “double crisis”: the economic crisis for the generation of parents in their fifties and sixties, coupled with an unemployment crisis for younger people in their twenties and thirties. For the 70.7% of sixty-somethings faced with uncertain economic prospects, only around half of their thirty-something children (56.4%) had full-time middle-class employment; the remainder fell below the middle class, leaving them largely incapable of supporting their parents. Another 9.29% of children had regular middle-class positions, but low earnings that left them in the poverty class (60% of the median household income or less).

In only 12.7% of cases did parents in their sixties count as economically stable with thirty-something children in the key middle class. It‘s a sign that intra-generational inequality is largely being passed down from parents to their children. Indeed, another study by Shin titled “On Social Inequality in South Korea” found that 96.5% of income inequality in 2007 stemmed from intra-generational inequality. Statistically calculating the effects of inter-generational and intra-generational inequality on income inequality in South Korea, the study found that the influence of inter-generational equality in terms of total social inequality dropped sharply from 12% in 1998 to 3.5% in 2007.

“The US has distinguished Nobel laureates studying inequality, but South Korea is still lagging behind,” said Shin, who helped organized the Inequality Research Society in 2007. “We have to get the diagnosis right before we can prescribe the right treatment. There needs to be more empirical research on how unequal South Korean society is, and how it is unequal.”

Instability among parents and their children. Data: “Crisis of the Middle Class” by Shin Kwang-yeong
Instability among parents and their children. Data: “Crisis of the Middle Class” by Shin Kwang-yeong

 

Income: Top-earning 0.01% makes 167 times average income

Dongguk University economics professor Kim Nak-nyun first began applying Thomas Piketty’s research methodology to South Korean income inequality - using data from income tax calculation rather than household surveys - before the publication of the French economist‘s “Capital in the Twenty-First Century.” A 2012 paper by Kim titled “Trends in South Korean Income Concentration and an International Comparison, 1976-2010” found that the average income for the country’s top-earning 0.01% in 2010 - 2.73 billion won (US$2.4 million) for 3,895 people - was 167 times the 16.39 million won (US$14,400) average for all adults over 20.

Kim’s findings were quite different from those using the conventional measure of the Gini coefficient, an income inequality indicator where values closer to one indicate greater inequality. Indeed, the social impact of Kim’s calculations led Statistics Korea to issue a “New Gini coefficient,” revising a previous computation method in which the income of the top earners was minimized. International statistics using the current Gini coefficient show South Korea rating below average in income inequality among the 34 OECD countries for the ’00s.

A different picture emerged when Kim used figures from Piketty and other researchers’ World Top Incomes Database (WTID, topincomes.parisschoolofeconomics.eu) to conduct an analysis based on income percentage for the top-earning 0.1%. The income percentage for South Korea’s 0.1% highest earners remained similar to levels in Japan and France from the ’70s to the mid-’90s before beginning a sharp rise in 1997, the year the foreign exchange crisis erupted. Despite some fluctuation, the trend has been a gradual rise ever since.

If the period of analysis is expanded to include Japan’s colonial rule, the percentage of income received by the top 0.1% Koreans in 1933 was higher than the US, the UK, Japan, or France. The long-term trend over the last century forms a U curve, with the income share of the top 0.1% estimated to have declined sharply after liberation, remained low from the 1960s to the early and mid 1990s, and soared again since the late 1990s. This is the same pattern seen in the US and the UK, where the income share of the top 0.1% has increased rapidly since the 1980s.

Kim specializes in the economic history of the Japanese colonization of Korea, but he has also done a substantial amount of research on recent income inequality and taxation.

Currently, he is in charge of a joint research project at the Naksungdae Institute of Economic Research that is collating economic and social statistics for the past century in Korea. Exploring how income and wealth inequality have changed over the past 100 years is also part of their project to complete these historical statistics.

“Previous studies in equality typically relied on family financial surveys, but these aren’t enough to get a proper understanding of the income of the top tier of earners or asset holders. It’s important to allow researchers access to data on income tax, inheritance tax, and wealth tax that they haven’t been able to use before,” Kim said.

Since Kim uploaded his research findings on the WTID in September of last year, comparative research between South Korea and other countries became possible. With Piketty announcing that he is planning to expand his database to include wealth inequality along with income inequality, Kim is also doing research on wealth inequality and on the inter-generational transfer of wealth through gifts and inheritance.

Percentage of people who remain in poverty. Data: Dynamic Analysis of Poverty by Ku In-hoe
Percentage of people who remain in poverty. Data: Dynamic Analysis of Poverty by Ku In-hoe

 

Poverty: 63% of people making less than the minimum cost of living have been poor for 5 years or more 

From the early 2000s, Ku In-hoe, professor of social welfare at Seoul National University, has attracted interest for his research on experiential poverty that relies on long-term statistics.

One good-example is a Dynamic Analysis of Poverty, published in 2003, in which Ku analyzes six years’ worth of data from South Korea’s labor panel study.

This study of recurrent poverty - the phenomenon by which formerly poor people fall back into poverty - analyzed the period that people remain poor and the percentage who remain poor for five years or more. It found that 63.2% of poor people who earned less than the minimum cost of living at a certain period of time belonged to the long-term poor (who remained in poverty for five years or more), while 31.7% remained in poverty for 10 years or more.

The study also found that the percentage of elderly people (65 years and older) who escape from poverty (24.1%) was only half of the average among all the poor (44.0%), and the percentage who fall back into poverty (18.3%) was more than double that of all the poor (7.3%). This was an early wake-up call about the need to address the problem of poverty among the elderly, which has only grown in severity more recently.

In 2006, Ku published “Income Inequality and Poverty in South Korea,” a book that tracks long-term trends in income inequality from the 1960s. At the time, there was no research into long-term trends in income distribution.

“Long-term research was needed to evaluate the assumption that income distribution in Korea was expanding from a problem among the poor to a problem of income inequality across all classes,” Ku said.

Ku has also used research into poverty among the young to show that the idea of ‘rags to riches’ - that is, education as a means of upward mobility - no longer works in South Korean society.

In a paper called “A Longitudinal Analysis of the Relationship between Poverty and Childhood Development,” Ku tracked changes in academic achievement over three years between children who are poor and children who are not, relying on statistics from the Seoul children panel study from 2004 through 2006. The paper found that the academic performance of the poor students continued to drop over the three years, while that of the non-poor students steadily improve, increasing the gap between the two.

Mortality rate gap for middle school versus university graduates. Data: Report on health inequalities in South Korea
Mortality rate gap for middle school versus university graduates. Data: Report on health inequalities in South Korea

 

Health: the mortality rate of males who only complete middle school or less is 8.4 times that of university graduates 

The issue of health inequalities became an issue of global debate after the ruling Labor Party in the UK published the Black Report in 1980, which analyzed national health statistics to conclude that the mortality rate of unskilled manual laborers was twice that of professional workers.

In a report on health inequalities in South Korea published by the Korean Society for Equity in Health in 2011, the mortality rate of middle-aged men (between 30 and 44 years of age) who only completed middle school or less was 8.4 times that of those who graduated from university or above. In 2005, the gap in the mortality rate between these two groups was a factor of 9.6.

In the case of women, the gap in the mortality rate between the two groups, which had been a factor of 3.2 in 1995, more than doubled to 8 in 2010.

According to “Socio-Economic Inequality in the Mortality Rate in South Korea,” the gap in the mortality rate between manual laborers and non-manual laborers in 2003 was a factor of 4.4.

These indicators show the severity of inequality in health resulting from academic achievement and employment status in South Korean society.

Health inequalities are passed down to the next generation. According to a paper called “How Parents’ Social Class Influence the Infant and Child Mortality Rates,” which analyzes birth data between 1995 and 2004, infants and children of mothers who only completed elementary school have a 3.4 times greater risk of dying than those whose mothers graduated from university or above, while the risk factor for infants and children of women who completed middle school was 2.5 times higher. The mortality rate was 50% higher when the father was a manual laborer than when he was not.

Kim Chang-yeop, a professor at the graduate school of public health at Seoul National University and the first chair of the Korean Society for Equity in Health, established the People‘s Health institute in 2006 and is running it today.

“Health inequalities occur when normally invisible social inequalities in the areas of income, education, and employment become visible in the body. Since establishing the society in 2003, there has been considerable progress in academic research into health inequalities. But when it comes to changing society’s understanding of those inequalities - as well as the public policy approach - we are still at a standstill,” Kim said.

 

By Jin Myung-seon, senior researcher at the Hankyoreh Economic Research Institute

 

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