[Editorial] Dwindling middle class

It is an irony that South Korea’s middle class has dwindled at a steep pace since President Moon Jae-in’s administration assumed office two years ago with a pledge to boost growth by increasing household income, particularly of working families.

A widely accepted definition of the middle class is households that earn 50 percent to 150 percent of the median income. Based on this definition, the proportion of the country’s households who are middle class has dropped from 63.8 percent in the second quarter of 2017 to a record low of 58.3 percent in the same period this year, according to data from the Ministry of Economy and Finance. The figure is expected to fall below 60 percent for the first time this year.

Recent polls show that less than 50 percent of Koreans feel they are middle class. This downbeat feeling is in contrast to the result of a 1989 survey, in which about 75 percent of respondents said they regarded themselves middle class.

The dwindling middle class comes amid widening income inequality.

According to figures from the state statistics office, the average nominal income of the bottom 20 percent of households remained at 1.32 million won ($1,102) in the second quarter of this year, down 7.6 percent from the same quarter of 2017. On the contrary, the corresponding figure for the top 20 percent climbed 13.8 percent to 9.42 million won.

A dwindling middle class accompanied by widening income inequality betrays the Moon administration’s promise to improve income distribution by pushing ahead with its income-led growth policy.

The sharp increase in the minimum wage and other labor-friendly measures to implement the misguided policy have resulted in driving many workers out of their jobs as companies, already troubled with deteriorating business conditions, have scrambled to cut wages.

Over the past two years, the number of full-time employees working more than 36 hours per week fell by 1.18 million, according to the recent analysis of government data by a lawmaker.

The decrease was especially steep among workers in their 30s and 40s, the major bread earners of most households. The number of full-time employees in the age groups declined by 364,000 and 561,000, respectively, over the cited period.

The Moon administration’s employment programs have mostly created short-term, temporary jobs. Over the past two years, the number of such jobs increased by 520,000, most of which were taken by people in their 20s and 60s. Tax increases needed to finance expanded support for lower-income households have instead led to a drop in middle class incomes.

The government has tried to gloss over the increase in economic polarization by suggesting indicators that it put together expediently, including an improvement in incomes of households between the top 20 percent and the bottom 20 percent. It also says that some factors like a rise in the number of low-earning single-member households have weighed on the proportion of households who are middle class.

This attitude makes it difficult to expect change in the ill-conceived policies that have failed to bring their intended results. Last month, Moon made it clear that his government would continue its income-led growth policy, saying the economy was “going in the right direction.” His perception is far from reality of the economy, which is being drawn deeper into a low-growth rut. Many institutions now forecast that Korea’s economy will grow less than 2 percent this year.

Under these conditions, the proportion of households earning less than 50 percent of the median income, which reached 17 percent in the second quarter of the year, will continue to rise.

The dwindling middle class could cause a further contraction in consumption, which would in turn decrease corporate revenue and investments, and reduce employment. A shrinking middle class would also deepen social conflict and instability.

The Moon administration should readjust its policy to boost the middle class. It should focus on reinvigorating corporate activity to help create more full-time jobs in the manufacturing and service sectors. It is also necessary to take measures to ease the costs of housing and private tutoring that are weighing on middle-class households.

The wrath of the struggling middle class could be a key factor that would sway the outcome of parliamentary and presidential elections in the coming years.