OECD urges Korea to address inequality

Korea should implement measures against social inequality to steer sustainable growth in the post-crisis era, the Organization for Economic Cooperation and Development said Tuesday.

Though the country strongly rebounded from a global economic crisis, it still faces challenges such as unemployment, income and gender inequality, low birthrate and a lack of social protection, the organization wrote in a report.

“Korea is one of the most dynamic countries and an example for others in many aspects, but it further efforts to boost productivity and social cohesion,” OECD Secretary-General Angel Gurria said.

The report, requested by President Lee Myung-bak, was unveiled at the Global Green Growth Summit 2011 in Seoul. It aims to help Korea “identify and tackle social policy challenges” by suggesting action plans, the OECD said.

In the paper, the 34-member club picked labor market dualism as an important factor driving inequality here.

“Korea tends to reward highly educated workers, while leaving behind less skilled ones with low education,” Gurria told reporters.

Non-regular workers, accounting for one third of employment, face “precarious jobs at relatively low wages” and benefit less from social insurance programs and job training, he added.

In addition to the large slice of the non-regular workforce, a low fertility rate and gender wage gap erode Korea’s human capital and growth potential, the OECD said.

Despite a gradual rise in the female employment rate among those aged between 25 and 54, the figure hovers around 50 percent as of 2009, compared with the OECD average of 71 percent.

Only 61 percent of Korean women with college education are engaged in the workforce, far lower than 82 percent in the OECD area, the report showed.

Low female labor force participation comes with a low birthrate, reflecting the difficulty of matching work and family responsibilities. Korea stands at about 1.2 children per woman in 2007, down from nearly three in 1980.

To improve the local labor market, the OECD urged Korea to strengthen the social insurance system for non-regular workers, and the adoption of family-friendly policies at work such as paid parental leave.

Meanwhile, the report highlighted the need to step up social welfare spending and insurance programs as a measure to reduce inequality and poverty here.

As Korea became an industrialized society, social welfare steadily shifted from families and firms to the government. But its social spending takes up a mere 7.5 percent of gross domestic product, among the lowest in the OECD area with 20 percent on average.

The OECD attributed the low percentage to the country’s young population, the limited coverage of health and long-term care insurance and the immaturity of the pension system, adding its tax and transfer systems have the weakest impact on inequality of any country among OECD members.

“Korea needs higher, better targeted social spending,” Gurria said. “Korea is today the world’s fourth youngest country, but in 2050, it will be the second oldest.”

Given that increases in social spending have sharply pushed up tax burdens in other countries, the report put careful reforms on tax and social security as a priority to finance higher social spending.

The room could generate from Korea’s relatively low value-added tax rate of 10 percent, compared with the OECD’s average 18 percent, and other non-distortionary taxes including environmental taxes and property taxes, it said.

“The most efficient way to boost revenue to finance rising government spending is through consumption taxes, which impose fewer distortions than direct taxes,” the report said.

By Shin Hyon-hee (heeshin@heraldcorp.com)