Many Koreans that have fallen into poverty say they find it increasingly difficult to get out. They are worried that they may slip into the poverty trap, in which a self-reinforcing mechanism causes poverty to persist.
Economists say the poverty trap starts to reinforce itself unless drastic measures are taken to break the vicious circle, which otherwise continues from generation to generation. But recovery from poverty is easier said than done, as is confirmed by a recent report from the Korea Institute for Health and Social Affairs.
According to the report on welfare analyses in Korea, released earlier in the week, it is increasingly difficult for a family which has fallen behind half the median disposable income to rise above the level anytime soon.
The report said 49 of every 100 families that had remained below half the median income in 1999 rose above that level the next year. But this proportion fell to 31.9 in 2005, before picking up in 2006 to register at 35.4. Then it continued to fall again. It stood at 31.3 in 2009.
Another significant finding by the research institute is that 73 percent of the families that had been in the bottom 20 percent in income distribution in 2005 were still in the lowest income group in 2009. On the other hand, 79.9 percent of those in the top 20 percent stayed there.
This finding bolsters the belief, held by 98 percent of Koreans, that people have a growing difficulty moving from one class to a higher one. Social upward mobility is undoubtedly hardest in the bottom 10 percent in income distribution, whose income the Korean Development Institute says has made no significant gain during the past 15 years.
True, the gap between rich and poor in Korea is not as wide as in China and other developing countries, as indicated by the Gini coefficient, a widely used measure of income distribution. The Gini coefficient was 0.311 for Korea in 2011 and 0.474 for China in 2012 on a 0-to-1 scale in which zero means perfect equality.
But social integration, pursued by President-elect Park Geun-hye as one of her governance goals, will be out of the question if a large segment of the population is stuck in poverty and almost all Koreans believe social upward mobility is extremely difficult, if not impossible. This spells trouble for Park, who has an ambitious plan to expand the middle class to 70 percent of all households by the end of her five-year term in office, with the middle class defined as a group of households whose income ranges from 50 percent to 150 percent of the median income.
Those trapped in the self-reinforcing cycle of poverty need to be provided with all forms of capital that are required if they are to make a fresh start in pursuit of a better life.
Economists say that if it is to help them escape poverty, the public sector should focus mainly on investment in human capital. In other words, the government has to spend more on education and welfare, ranging from health to nutrition.
It is necessary for the government to subsidize the education of children from low-income families ― one of the most effective ways to help promote social upward mobility. It also needs to put welfare spending to productive use. Here, it needs to link as much as possible to the provision of employment opportunities for the underprivileged. There are few better ways to promote welfare than to provide jobs.
Heeding the advice of economic experts, the new administration will have to work on the proposed investments in education and welfare as long-term projects that will have to continue beyond the five years of Park’s governance. But they will not be enough. The incoming administration will also have to launch urgent, short-term programs, such as the expansion of job training, when it is inaugurated next week.
Park is reportedly planning to present “opening a new era of happiness for the nation” as her priority agenda item when she delivers an inaugural speech next Monday. If she is to make good on her promise, one of the first tasks she will have to perform will be to help families escape poverty and move up to higher-income brackets.
