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Shrinking middle class threatens economic growth

gettyimagesbank
gettyimagesbank
By Jhoo Dong-chan

A thirty-seven-year-old Seoulite surnamed Song said he couldn't believe the recent government announcement suggesting Korea saw its first-ever deflation in decades last month. "My purchasing power at the local supermarket has been massively weakened over the past several years. Prices are crazy," he said.

"I have no idea where the study comes from, but I am sure it doesn't display common people's economic situation at all. Or, perhaps I am not in Korea's middle class anymore."

The nation's middle class, the backbone of Korea's economy sustaining consumption and production, has been on a steady decline, raising concerns that it will diminish economic growth and increase income inequality.

The government has shifted the blame on a rise in single households but experts said that the key culprit behind the trend is poor economic policies, such as rapid minimum wage hikes.

According to a study released by the Ministry of Economy and Finance, the nation's middle-class accounted for 58.3 percent of the total population as of the second quarter of the year.

Middle-class people here are classified as those with an income between 50 percent and 150 percent of the national median.

The figure was the lowest ever, having slid for four years in a row from 67.9 percent in 2015 to 66.2 percent in 2016, 63.8 percent in 2017 and 60.2 percent in 2018.

"Recent developments are very concerning," said Rep. Choo Kyung-ho of the opposition Liberty Korea Party.

"It is lower than when the global financial crisis struck the world in 2007. This indicates the nation's middle-class people are enduring a great deal of economic pain."

The dwindling middle class indicates the polarization between the haves and have-nots is becoming more evident, domestic demand and consumption are weakening and firms are accordingly reducing their investment and hiring.

Despite the ongoing vicious cycle, the Moon Jae-in administration claims the government is promptly countering unfavorable external economic factors such as the U.S.-China trade feud, with the nation's middle-class successfully withstanding the global downturn.

"The rapid growth of single households, whose income is relatively less than other household formats, is the main reason behind the decline in the number of middle-class people," the government said in press release.

Experts said, however, it was more likely due to the sudden spike in the nation's minimum wage and the government's reduction of the maximum weekly work-hours.

"Firms are under great pressure due to the government's decision to greatly raise the minimum wage while forcibly reducing weekly work-hours. This discouraged investment and hiring," said Yonsei University economist Sung Tae-yoon.


gettyimagesbank
gettyimagesbank
By Jhoo Dong-chan

A thirty-seven-year-old Seoulite surnamed Song said he couldn't believe the recent government announcement suggesting Korea saw its first-ever deflation in decades last month. "My purchasing power at the local supermarket has been massively weakened over the past several years. Prices are crazy," he said.

"I have no idea where the study comes from, but I am sure it doesn't display common people's economic situation at all. Or, perhaps I am not in Korea's middle class anymore."

The nation's middle class, the backbone of Korea's economy sustaining consumption and production, has been on a steady decline, raising concerns that it will diminish economic growth and increase income inequality.

The government has shifted the blame on a rise in single households but experts said that the key culprit behind the trend is poor economic policies, such as rapid minimum wage hikes.

According to a study released by the Ministry of Economy and Finance, the nation's middle-class accounted for 58.3 percent of the total population as of the second quarter of the year.

Middle-class people here are classified as those with an income between 50 percent and 150 percent of the national median.

The figure was the lowest ever, having slid for four years in a row from 67.9 percent in 2015 to 66.2 percent in 2016, 63.8 percent in 2017 and 60.2 percent in 2018.

"Recent developments are very concerning," said Rep. Choo Kyung-ho of the opposition Liberty Korea Party.

"It is lower than when the global financial crisis struck the world in 2007. This indicates the nation's middle-class people are enduring a great deal of economic pain."

The dwindling middle class indicates the polarization between the haves and have-nots is becoming more evident, domestic demand and consumption are weakening and firms are accordingly reducing their investment and hiring.

Despite the ongoing vicious cycle, the Moon Jae-in administration claims the government is promptly countering unfavorable external economic factors such as the U.S.-China trade feud, with the nation's middle-class successfully withstanding the global downturn.

"The rapid growth of single households, whose income is relatively less than other household formats, is the main reason behind the decline in the number of middle-class people," the government said in press release.

Experts said, however, it was more likely due to the sudden spike in the nation's minimum wage and the government's reduction of the maximum weekly work-hours.

"Firms are under great pressure due to the government's decision to greatly raise the minimum wage while forcibly reducing weekly work-hours. This discouraged investment and hiring," said Yonsei University economist Sung Tae-yoon.


Jhoo Dong-chan jhoo@koreatimes.co.kr


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