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President's pledge to ease economic polarization rings hollow
The average monthly income of families in the bottom-20 percent earning bracket stood at 1.63 million won ($1,469) in the third quarter, down 1.1 percent from a year ago, according to Statistics Korea's household survey. In comparison, that of the top-20 percent range climbed 2.9 percent to 10.39 million won. As a result, Korea's distribution ratio for disposable income, a yardstick for earnings equality, reached 4.88 in the third quarter, up from 4.86 a year earlier. A higher ratio means widening inequality in income distribution.
These quite disappointing figures are resulting from the Moon Jae-in administration's "income-led growth" policy ― to attain economic recovery by bolstering the income of the working poor ― over the past three and a half years. Economic officials attributed it to drops in wage and business income amid the prolonging COVID-19 pandemic, which shed jobs in the manufacturing and service sectors. However, it is a lame excuse, given the redistribution ratio has been aggravated in the past two years. Private economists cited the steep rise in the minimum wage and the introduction of a 52-hour workweek as the main culprits.
In the third quarter, the average household income increased 1.6 percent year-on-year to 5.3 million won. It was because their transfer income, or the government's financial support, has more than offset the drop in wage and business income. Earlier, the government had increased the top income tax rate from 40 percent to 42 percent. The move was aimed to improve income distribution, but the gap between different brackets has widened, indicating it is difficult to rectify inequality by the tax increase and government grants.
A fundamental solution is to let companies move more actively, thus creating more jobs. That requires reforming various regulations stifling businesses. However, the government and governing party are putting out bills that constrain corporate activities, such as ones enabling class actions and punishing industrial disasters. Economic policymakers ascribe the worsening employment and redistribution to external factors, including population aging and a downward economic cycle, hiding their policy failures. These officials should not blow their own horn for relatively sound economic performance amid the pandemic but listen to criticism that they should ― and could ― have done far better with different economic policies.
