OPINION

[Editorial] Widening gap

By Korea Herald

Moon government’s ill-conceived policies have exacerbated income inequality

  • Published : Nov 25, 2020 - 05:30
  • Updated : Nov 25, 2020 - 05:30

Official data released last week showed that income inequality in the country is worsening, suggesting that less privileged households have suffered more from the Moon Jae-in administration’s ill-conceived policies as well as from the prolonged coronavirus pandemic.

The average monthly income of households in the bottom 20 percent income bracket decreased 1.1 percent on-year to 1.63 million won ($1,466) in the third quarter of this year, while the corresponding figure for the top 20 percent was up 2.9 percent to 10.39 million won, according to the data from Statistics Korea.

As a result, the ratio of average income for those in the highest quintile to those in the lowest -- the income quintile share ratio, a key barometer of income distribution -- reached 4.88 in the July-September period, up from 4.66 a year earlier. The higher the ratio, the wider the income gap.

The trend toward worsening inequality should embarrass President Moon’s government, which has pushed an income-led growth policy designed to bolster the livelihoods of low-income families.

Government officials attribute the wider income gap mainly to worse employment conditions, particularly for people in the lower income brackets, amid the protracted COVID-19 pandemic.

Wages and business income earned by households in the bottom quintile declined 10.7 percent and 8.1 percent, respectively, from a year earlier in the third quarter. Yet for households in the top 20 percent, wages decreased only 0.6 percent and business income rose 5.4 percent.

But the wider income gap cannot be seen entirely as the result of the coronavirus outbreak.

It is more accurate to say the pandemic is accelerating the trend set off by the income-led growth drive, which has brought steep increases in the minimum wage and the rigid implementation of a shortened workweek.

Such measures have resulted in a massive loss of jobs in both the manufacturing and service sectors, with companies and small-business owners having cut their payrolls to cope with rising personnel expenditures.

South Korea’s income quintile share ratio, which had gradually declined to 4.88 in 2015, soared to 5.95 in 2018, a year after Moon took office. Alarmed by the spike, the Moon government revised its statistical methods in what critics saw as an attempt to artificially draw down the indicator.

Experts say the figures announced by the state statistics agency since then would have been far higher if not for the change.

The Moon administration has raised the maximum income tax rate by 2 percentage points to 42 percent and increased cash transfers as part of efforts to improve income inequality.

Cash handouts have increased at a steeper pace this year, with the government providing emergency relief to all households to help cushion the economic shock of the pandemic. Despite the decrease in wages and business income in the third quarter, the average monthly household income increased 1.6 percent on-year to 5.3 million won during the period -- largely due to a 17.1 percent hike in cash transfers.

The latest income data shows that heavier levies on the wealthy and greater government largesse for the less privileged have limits in reducing income disparity.

It is notable that the increased cash transfers have widened the income gap. In the third quarter, income from public transfers for households in the top quintile grew 40.3 percent on-year while the increase rate stood at 15.8 percent for those near the bottom.

This paradoxical phenomenon shows that high-income families, which tend to have more children, have benefited more from the government’s populist cash handout programs, including child care allowances.

The fundamental way to reduce income inequality is to encourage companies to increase investment and hire more workers. To that end, the policy focus should be on forging a corporate-friendly environment through regulatory and labor reforms.

But the Moon administration and the ruling Democratic Party of Korea have backpedaled on the key tasks, working on a horde of measures designed to impose more restrictions on corporate activity.

It is irresponsible for government policymakers and ruling party legislators to attribute worsening levels of unemployment and income inequality to economic difficulties caused by the pandemic crisis, dismissing the negative effects of misguided policies implemented in recent years.

The economy was already slumping, with jobs disappearing in large numbers, even before the coronavirus outbreak early this year.

It is certain that income inequality will continue to widen unless the Moon administration discards its ill-conceived policies, which have brought more suffering to those who can least afford it.