Real household income on the decline

Recent data showing a continuous decrease in Korea’s real household income has strengthened calls for balancing the Moon Jae-in administration’s income-led growth policy with regulatory and labor reforms to help create more jobs.

The average monthly income earned by households with two and more members across the country stood at 4.53 million won ($4,165) in the July-September period this year, up 2.1 percent from a year earlier on nominal terms.

Adjusted for inflation, however, the figure was down 0.2 percent on-year to 4.39 million won, marking eight straight quarters of decline, according to a report by Statistics Korea.

The income gap between rich and poor households also widened.

The average monthly income of the bottom 20 percent bracket edged down 0.04 percent from a year earlier to 1.41 million won in the third quarter of the year, while the top 20 percent saw their monthly income increase 4.7 percent to an average 8.94 million won over the cited period.

Household non-consumption expenditure, which includes payments of interests, taxes and insurance premiums, fell 0.9 percent among the richest 20 percent but rose in all other quintiles.

In particular, interest payments by the highest quintile dropped 11.9 percent, with the first and second quintiles having paid 16 percent and 18.2 percent more in interests on their debts, respectively.

As a result, the quintile ratio -- the ratio of the average income of the richest 20 percent to that of the poorest 20 percent -- reached 5.18 in the third quarter of the year, up from 4.81 in the same period last year. This means households in the top 20 percent bracket earned more than five times the income of those in the bottom 20 percent over the cited period.

The ratio had dropped on-year for seven consecutive quarters since the first three months of last year.

While acknowledging the need to push for income-led growth policy in this circumstance, experts say it has yet to be seen whether measures pursued by the Moon administration will bring intended results.

“It may be too early to discuss the effect (of income-led growth policy),” said Kim Jung-sik, an economics professor at Yonsei Univeristy.

“But it is certain that the effect would be greater when the policy is combined with efforts to boost corporate investment and employment,” he said.

An official at the statistics office said increased nominal income was meaningful in itself, adding that it has yet to be seen whether the significant increase in the third quarter will lead to an upward trend.

Monthly earned income of households grew 1.6 percent on-year to an average 3.06 million won in the cited period, with transferred income, including state welfare support, rising 1 percent to 450,000 won.

Households gained 18,820 won in profits from assets and 910,000 won in earnings from individual businesses.

Since it was launched in May, the Moon government has been pushing for measures to increase wages and welfare benefits to drive income-led growth.

But its labor-friendly policy, which is set to increase corporate costs, has kept companies from increasing investment and hiring more workers.

Official data showed the unemployment rate for young people aged 15-29 stood at 8.6 percent in October, up 0.1 percentage point from a year ago, marking the highest level for the month in nearly two decades.

The number of employees in the age group was down for the fifth straight month to 3.93 million last month, particularly as large profitable companies refrained from offering more jobs preferred by young job seekers. The figure accounted for 14.6 percent of the country’s workforce, an all-time low percentage.

“It is needed to carry out deregulation, labor reforms and other measures to encourage corporate investment and bolster economic growth rate,” said Hong Ki-seok, an economics professor at Ewha Womans University.

The Moon administration, which has recently vowed to push for innovation-driven growth in tandem with income-led growth, still remains short of slashing bureaucratic red tape across the board and making the labor market more flexible.

It has done little to win the parliamentary passage of bills introduced by the previous government to promote service industries and set up regulation-free zones across the country.

In their recent paper published by the International Monetary Fund, some Korean economic experts stressed the need to implement structural reforms and strengthen the social safety net simultaneously to ensure a sustainable and inclusive growth.

They noted restructuring work should be preceded by the overhaul of labor and financial sectors to reduce income inequality and enhance the efficiency of resources allocation.

The report, viewed here as cautioning against the incumbent administration’s imbalanced policy steps, has drawn all the more attention because its authors included Byun Yang-gyun, a former presidential aide for policy planning, who had helped draw up Moon’s campaign pledges.

Boosting real household income is also needed to ease the country’s aggravating household debt problem without weakening the momentum toward economic recovery.

Korea’s outstanding household debt jumped 9.5 percent from a year earlier to 1,419.1 trillion won at the end of the third quarter, showed preliminary data released by the Bank of Korea last week.

Economists worry tightening lending rules and other measures to curb the ever-growing household debt could dampen consumer spending and hold back growth down the road.

By Kim Kyung-ho
(khkim@heraldcorp.com)