Moon administration’s policies on income inequality shown to have little effect

Posted on : 2018-12-28 12:11 KST Modified on : 2019-10-19 20:29 KST
Statistics Korea’s analysis of income distribution levels indicates minimal changes
Trends in income distribution
Trends in income distribution

South Korea’s income inequality levels, among the worst in the OECD, have not improved despite a supplementary budget for job boosting and other expansionary financial policy measures adopted by the Moon Jae-in administration in its first year in office, a study shows.

The data indicates that the effects of redistribution policies have been minimal amid an accelerating concentration of income in upper income segments.

Findings from a 2018 survey of household financial welfare published by Statistics Korea on Dec. 20 showed an average household income of 57,050,000 won (US$50,720) for 2017, up 4.1% from 54,780,000 won (US$48,710) in 2016. The rate of increase was the highest in five years, following a 5.8% rise in 2012. The Ministry of Economy and Finance (MOEF) described this as the “result of growing improvements in earned income thanks to rising employment and wages, among other factors.”

Incomes were up substantially at both the higher and lower ends by income segment. Annual income for the first quintile of households (the lowest-earning 20%) averaged 10,570,000 won (US$9,400), up 5.6% from the year before. The next highest rise was seen in the average income for the fifth quintile (the top-earning 20%), which rose by 4.6% to 135,210,000 won (US$120,220). Households in the second to fourth quintiles saw rates of increase in the 3–4% range. The median household – representing the centermost value when all households are ranked according to income – was found to have earned 44,570,000 won (US$39,630).

Economic status of Korean households in 2018
Economic status of Korean households in 2018

Income distribution remained at a similar level between 2016 and 2017. The Gini coefficient, which is based on disposable income, remained in place at 0.355. A measure that converts income distribution into a numerical value, the Gini coefficient indicates higher levels of inequality as it approaches a value of 1. The income quintile share ratio, which reflects income distribution for the highest- and lowest-earning 20%, rose 0.02 percentage points from 6.98 in 2016 to 7.00 in 2017. In contrast, the relative poverty rate, reflecting the percentage of the population earning less than 50% of the median income, improved by 0.2 percentage points to 17.4% from 17.6% the year before.

“The overall level of income distribution remained at a similar level to the year before, with the income quintile share ratio declining somewhat but the relative poverty rate improving,” a MOEF official said.

The problem is that South Korea’s level of income inequality is so severe that a continuation of last year’s levels is unlikely to be viewed as satisfactory. As of 2016, the OECD’s 35 member countries had an average Gini coefficient of 0.317. South Korea’s Gini coefficient of 0.355 places it 31st out of the 35.

Accelerated concentration of income and assets

The study’s figures also confirmed an accelerating concentration of income and assets. The Gini coefficient for market income – before taxation and other income redistribution measures – stood at 0.406 last year. Calculated at 0.418 in 2011, the market income Gini coefficient subsequently dropped as low as 0.396 in 2015 before rebounding to 0.402 in 2016 and continuing to increase in 2017. The income quintile share ratio for market income stood at 11.27 last year, its highest level since the household financial welfare survey was first introduced in 2011. The situation is such that maintaining the current level of redistribution policies would result in income inequality remaining in place.

Meanwhile, average household assets for South Korean families totaled 415,730,000 won (US$369,600) as of March, with net assets averaging 340,420,000 won (US$302,700) after liabilities were subtracted. Clustering according to income segment was also observed in asset ownership: the percentage of total assets owned by households in the fifth quintile rose 0.5 percentage points to 43.3% from 42.8% last year. The share owned by the first quintile (lowest-earning 20%) remained in place at 6.9%.

By Noh Hyun-woong and Bang Jun-ho, staff reporters

Please direct comments or questions to [english@hani.co.kr]

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