[Editorial] Inequality gap

A recent study by a local professor suggested that income distribution in the country was far more unequal than had been measured by government statisticians. The findings of the study, which placed Korea fifth-highest in income inequality among the 34 member states of the Organization for Economic Cooperation and Development, should be taken seriously, calling policymakers’ attention to the need for a more accurate grasp of the matter.

The new administration has pledged to ease economic polarization by increasing welfare spending and helping distribute national income more equally. Needless to say, the work to draw up concrete policies to achieve this goal should be based on accurate statistics that reflect reality.

Government officials have said Korea is not so unequal in income distribution, compared with other OECD member countries. The main index cited by them to back up their argument is the Gini coefficient commonly used to measure income distribution. Based on a survey of 8,000 households by the national statistics office, Korea scored 0.308 in 2010 on the scale ranging from 0 corresponding with perfect equality, where everyone has the same income, to 1 expressing perfect inequality, where one person has all the income. The OECD average stood at 0.314.

Calculated from income data collected by tax authorities, however, the figure rose to 0.371, putting the country only behind Chile, Mexico, Turkey and the U.S. in the OECD inequality list, according to the study released last week. This calculation appears in more conformity with the public perception of the widening income gap. In the surveys by Statistics Korea, from which the government’s measurement of the coefficient is made, high-earning respondents tend to understate their income.

Since the foreign exchange crisis hit the nation in the late 1990s, economic polarization has continued to widen, with per capita income increasing at a pace slower than economic growth. The past years have seen the rich getting richer and big businesses becoming bigger while household debt is ballooning and the number of low-paid irregular workers is increasing.

In a sharp contrast with growing difficulties that have gripped working-class families, self-employed people and small companies, the amount of assets held by the country’s top 20 conglomerates more than tripled over the past decade to 1,202.8 trillion won ($1.1 trillion) last year, according to figures from a local research institute.

With more sense of urgency, comprehensive measures should be taken to tackle the growing income gap, which would otherwise exacerbate social conflict and confrontation. If left unaddressed, it would also drag on economic growth by depriving children from low-income families of opportunities to receive quality education and thus causing a shortage of competent workers.

In immediate terms, the social safety net should be strengthened for the less-privileged, especially the elderly. Korea has the highest elderly poverty rate among advanced nations. As of the end of 2011, 45.1 percent of Koreans aged 65 or older lived with less than half the median household income, compared with the OECD average of 13.5 percent.

Korea’s welfare spending, which accounted for 9.4 percent of its gross domestic product in 2009, has remained the second-lowest among OECD member states, whose average stood at 22.1 percent. In recent years, it has grown at the steepest pace but with limited effect on redistributing income. The proportion of cash support, which remains smaller than benefits in kind, needs to be further expanded.

An effective system should be set up to ensure that as many benefits as possible from a limited budget can be provided to the most needy and eradicate loopholes for misappropriation and illicit receipts. Questions should be raised about the wisdom of adhering to the principle of universal welfare.

It is also necessary to work out measures to enhance the low productivity of small businesses and the service sector. With most workers employed in service industries remaining low-skilled, employees paid less than two-thirds of the median wage account for more than 25 percent of the workforce, the highest ratio among OECD members.

Efforts should also be stepped up to reduce the number of irregular workers to settle labor market distortions and narrow the income gap.