The COVID-19 pandemic has worsened income inequality in the nation, as the social distancing rules cost jobs and increased poverty, the central bank said Monday.
The potential total wage loss rate -- which took into account the nation’s labor capability in lockdowns, the duration of lockdowns and the number of regular workers -- amounted to 7.4 percent last year, the Bank of Korea said in its regular report on the nation’s economy.
The rate was also calculated on the premise that in the March-December period last year, Level 1 social distancing rules were implemented for roughly six months, Level 2 for some four months and Level 2.5 for one month. The government’s social distancing guidelines follow a five-tier system.
As key signs of a widened income gap, last year’s Gini coefficient -- a yardstick for wealth inequality within a nation -- and its poverty index rose 0.009 points and 6.4 percentage points on-year, respectively. The Gini coefficient and the poverty index would each gain 0.003 points and 3.1 percent under monthly lockdowns, according to the BOK.
The gains in poverty indexes also mean that the pandemic and the social distancing measures dealt harsher blows to low-income groups compared with high-income groups, the BOK said.
Those industries and sectors that involve offline contact -- including services, accommodation, food and beverages, performance, sports and more -- displayed the highest wage loss rates.
But the BOK added that the actual wage loss rate would be less than 7 percent due to various forms of financial assistance offered by the government.
If South Korea had mirrored the strict lockdowns carried out by economies including Italy and Spain during March and April last year, its labor supply and total wages would have shed 4.9 percent and 2.6 percent in one month, respectively, the BOK said.
“With quarantine measures and the economy in a trade-off relationship, it is crucial to recognize the economic cost of such measures in order to find the perfect balance of economic activities and protection from a resurgence of the virus,” Oh Sam-il, an official at the BOK’s research division, said in a briefing.
Despite the economic figures showing the local economy is faring relatively well amid the pandemic, experts express concern that the different pace of recovery between sectors and businesses -- called a “K-shaped recovery” -- will continue to deepen social polarization, posing challenges to the country’s economic rebound.
“Manufacturing industries, including semiconductors, have gotten back on a growth track largely thanks to a surge in demand for chips used in contactless services boosted by the prolonged social distancing measures. On the other hand, the services sector -- reliant on face-to-face interactions with consumers -- has contracted faster,” said Kang Sung-jin, an economics professor at Korea University.
While the country’s industrial output grew 0.5 percent on-year in December last year as the production of chips and machinery increased, production in the service segment declined 2 percent from the previous year, according to Statistics Korea.
“Also, the current ample liquidity driven by the government’s aggressive monetary policy, which has flowed into assets such as stocks and real estate, has been worsening income disparities among social groups,” Kang added.
This uneven recovery across different industries and groups of people could trap the economy in a vicious cycle of sluggish job creation and decreased private consumption, a job market expert said.
“Small and medium-sized enterprises create the most jobs in the country, especially in the service sector. If the current virus-driven economic inequality continues, those companies will reduce hiring as economic uncertainties linger, which results in a decline in local households’ income and private spending, further dragging down the companies’ job creation,” said Lee Jong-kwan, an associate fellow at the KDI.
The country’s private consumption dropped to minus 5.0 percent in December last year, the lowest figure since 1998, when it posted a contraction of 11.9 percent, the BOK data showed.
The central bank said in its economic growth outlook for 2021 that the figure is likely to rebound to the 3 percent level by end of this year, but the recovery will be slow, mainly due to a high risk of further resurgence as well as stalling household income growth.
Earlier last week, major foreign investment banks forecast that Asia’s fourth-largest economy will expand between 2.7 percent and 5 percent on-year, according to the report by the Korea Center for International Finance.
Meanwhile, should the COVID-19 crisis prolong, the number of employed people in the country is expected to see a slight increase of 0.7 percent on-year to reach some 27.1 million this year, according to data from the Korea Labor Institute.
“Foreign banks and economic institutions have revised up the country’s growth rate mostly on the bank of vaccine developments. However, the ongoing employment instability is posing a setback to such optimistic growth forecasts,” Kang of Korea University said.
“The government should promote selective policies to create jobs in industries most affected by the pandemic, while strengthening economic stimulus programs targeting small merchants and low-income families reeling from the prolonged economic fallout.”
By Jung Min-kyung and Choi Jae-hee (
mkjung@heraldcorp.com) (
cjh@heraldcorp.com)
