South Korea’s income distribution unequal: WEF report

South Korea’s economic rents are highly concentrated in a few large family-run conglomerates while its national income distribution appears to be significantly unequal, according to the latest report of the World Economic Forum.

The report used the Gini index, which measures income inequality within a range of zero to 100, where a value of 100 represents perfect inequality. Korea’s post-transfer Gini index -- the income inequality rate after social security transfers have been made -- marked 30.8 percent, ranking 18th among the 30 advanced economies.

Notably, Korea’s pre-transfer Gini index marked second lowest among the advanced nations. The post-transfer index is only 2.8 percentage points lower than its pre-transfer index, meaning the nation’s distribution of income is likely to be unequal. 

“Corruption (in Korea) is another area of concern, allowing those with power in various domains to extract rents,” the report said, adding that home and financial ownership in Korea are notably low while social protection, including health care, remains “quite limited.”

“By underexploiting this lever, Korea goes from having one of the most equal income distributions before transfer to a much less equal one after transfers and taxes compared with other advanced economies.”

Public transfer payments, such as unemployment benefits and social retirement benefits, are made to disproportionately benefit and support those with the lowest incomes.

Also, under most tax systems worldwide, those with high incomes pay proportionately higher income taxes than the low-income earners. The system, if it works correctly, narrows the gap between the rich and the poor and reduces income inequality. The rates shown in the WEF report, however, show that Korea’s tax and transfer systems are failing to reduce inequality substantially.

For example, the country currently does not run a state-run unemployment assistance program, which makes the unemployed vulnerable to poverty and social isolation.

Meanwhile, Norway and Sweden had some of the lowest post-transfer Gini index among the 30 countries. Norway’s post-transfer index was 24.4 percent, significantly lower than its pre-transfer index which stood at 44.8 percent. Sweden’s post-transfer index, at 23.6 percent, was also notably lower than its pre-transfer index at 48 percent, meaning its distribution of income through tax and public transfers is relatively more equal than other countries.

“It is imperative to provide opportunities for the poor and vulnerable to access education, health, and other basic services which can improve their human capital,” the report said.

Korea also belonged to the most corrupt 20 percent of the 30 advanced countries, with a poverty rate -- the proportion of those who belong to the less than half of the respective median national income -- of 14.6 percent. Its poverty rate was also one of the highest among the 30 nations.

By Claire Lee (dyc@heraldcorp.com)