hankyoreh

Lee Kang-kook

By Lee Kang-kook, economics professor at Ritsumeikan University

"Why has Japan gotten poorer than Korea?" This was the headline of a recent Japanese media article. Korea has long sought to catch up with Japan, which is both close to and far from Korea. Japan has long considered its neighbor as being a step-down, but this is no longer the case.

According to the International Monetary Fund, Japan's nominal per capita income based on market exchange rates last year was US$40,146, higher than Korea's US$31,497. Japan's lower inflation means a bigger difference in such income. But while Japan's figure was 3.9 times that of Korea's in 1990, Korea has drastically and rapidly narrowed the gap amid the prolonged economic slump in Japan.

Because of this figure's sensitivity to foreign exchange swings and low service wages in developing countries, purchasing power parity (PPP), which represents the real purchasing power of a currency, is commonly used in international comparisons. Though not a perfect indicator, this index shows how Korea has already overtaken Japan in per capita income.

Based on PPP, Korea in 2018 had per capita income of US$41,409, topping Japan's US$41,001. In 1990, Japan's figure was 2.6 times that of Korea, but Korea has since pulled ahead. By 2026, Korea is forecast to widen the gap to US$49,000 to Japan's US$44,000. On a realistic level, prices, wages and standard of living in Korea do not seem lower than those in Japan.

Media coverage of this topic has recently grown in Japan. Because Japan's average salary is lower than Korea's based on PPP, news reports have exploded over Japanese leaving their country in search of work in other Asian countries. This reflects not only Japan's prolonged slump but also the trend of wage hikes overtaking productivity gains.

Another article said Japan's gap with the US in per capita income is gradually widening, adding that Korea and Taiwan are advancing via "catch-down" innovation. This probably makes Japanese feel uncomfortable. What is needed to overcome this is not originality but benchmarking successful examples in other countries and changing outdated systems and practices.

Despite the COVID-19 pandemic, Korea has seen further advancement. Korea and Japan have fared better than the West against the coronavirus, making both countries global success stories. In a ranking of recovery from the pandemic, Bloomberg placed Korea sixth and Japan seventh. Japan, however, failed to implement mass testing early on and public financial aid came late due to income assessment. Thus Japan's number of daily infections as a percentage of the population is four times higher than Korea's. Korea has also vaccinated 7% of its population as opposed to just 2% in Japan.

Of course, other gaps not shown by per capita income exist. Korea fares worse than Japan in elderly poverty and youth unemployment, but the latter lags when it comes to rapidly aging population and national finances. Life in Korea seems more unstable but civic vitality feels more energized. Above all, both nations must not forget that they are neighbors who can learn lessons by looking at each other's society. For example, Korea can look to Japan to prepare for an era of low growth and demographic changes and learn from the smaller gap between Japan's big corporations and small businesses and labor market reform. And Japan should learn from Korea the dynamics of new sectors like information and communications and raising worker wages.

More important than income are quality of life and happiness. The Organisation for Economic Cooperation and Development has indexes for 11 sectors, including housing, jobs, community, health and environment. Korea was rated the highest among advanced nations in community, measured by if an individual had someone to ask for help if needed, and the same was true for environment. Japan, however, had an extremely low level of political participation by the people, while the opposite was true in Korea. Yet both nations had far lower levels of satisfaction with life and work-life balance than other countries.

Meanwhile, the World Values Survey spanning 2017 to last year found that while Korea and Japan had similar averages in life satisfaction, Japan had more people expressing "very high satisfaction." And this year's World Happiness Report said that in a survey conducted from 2018 to last year, both nations had similar rankings in happiness, with Japan 56th and Korea 62nd. Rather than comparing income, the two neighbors should pay more attention to sharing the fruits of growth with everyone and ensuring happier lives for their people.

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