A recent survey by a job website showed seven out of 10 employed Koreans regard themselves as working poor.
Repayment of student loans and the cost of mortgages were cited as the major reasons for being short of money, according to the survey of about 500 employees in their 20s-40s.
The poll reflects the financial pinch that has gripped Korean consumers. Structural problems in the economy have held down household income for years.
From 1998 to 2011, the country’s gross national income increased by an annual average of 3.2 percent, below the growth rate of its gross domestic product, which averaged 4.2 percent, according to the Bank of Korea.
Trickle-down effects have all but disappeared. Strong performances by major exporters no longer lead to more employment or increased profits for their subcontractors.
Most households have seen the value of their property assets declining because of sluggish growth.
Ballooning debt has also squeezed the domestic economy. Household debt nearly doubled from 464 trillion won in 2002 to 912 trillion won in 2011, with the average debt per household amounting to 36.7 million won last year, which exceeded the average disposable income at 32.8 million won.
Households paid more than 5.5 trillion won in interest payments in 2011, incurring a loss of about 3.4 trillion won in real consumption.
Reduced income has held back household consumption. From 2007 to 2011, household spending rose at an annual average rate of 2.5 percent, below the average GDP growth rate at 3.4 percent. Private spending gained 1 percent in the first quarter of the year after falling 0.4 percent in the preceding quarter.
The prevailing view shared by analysts, however, is that household debt, high gasoline prices and other structural problems will continue to suppress private consumption in the near future.
A prolonged slump in private spending, another key growth engine for the export-driven economy, would hamper the economic recovery. Reflecting the underlying weak momentum, GDP rose by only 2.8 percent from a year earlier in the first quarter, the lowest rate of growth in two-and-a-half years.
Exports shrank year-on-year for two consecutive months in March and April, dimming prospects for the economy growing by 3.5 percent as planned, which was revised down from a 3.7 percent forecast made in December.
Under these circumstances, the sustainable growth of the Korean economy cannot be expected without continuing to expand domestic demand by boosting private spending.
The share of GDP taken up by private consumption shrank from 60.3 percent in 1996 to 51.2 percent last year, according to figures from the central bank.
Aside from keeping the economy sluggish, contracted consumption might further reduce growth potential and widen gap between income classes and business sectors.
What economic policymakers should be particularly alerted against is the vicious circle in which reduced private consumption cuts corporate output and jobs, resulting in a decrease in household income, which in turn further contracts spending.
They should also work on ways to cope with the possibility that the rapid aging of Korean society will catalyze contraction in consumption as consumers close their purses in preparation for a long retirement and an uncertain future.
It might be against this background that economic policymakers have recently raised the need to bolster domestic consumption.
Measures are urgently needed to prevent the slump in consumption from setting in to further hinder economic recovery. A more creative and positive approach should be taken to boost long-stalled private expenditure.
While more incentives should be given to encourage companies to increase investment and create more jobs, effective methods should be drawn up to nurture domestic service industries, including medical care and tourism, for which demand is increasing.
It would also be useful to attract more foreign consumers to domestic markets. For that, the local distribution industry should be developed further to make Korea a “hub of consumption” in Asia.
