Concerns growing over deepening social divide amid pandemic - Korea Times
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Concerns growing over deepening social divide amid pandemic

By Yi Whan-woo

The COVID-19 pandemic has dealt a blow to the economy and businesses, causing a stark divide among individuals, companies and industries ― the rich and poor, large and small companies, and IT and non-IT industries.

The coronavirus crisis has hit the poor and smaller players harder than the rest of society, making the so-called "corona divide" more and more pronounced with the prolonging pandemic despite vaccination rollouts and government quarantine measures.

What is of more concern, according to experts, is that such a divide will persist even when the unprecedented pandemic ends and the nation's economy recovers.

They say wealth inequality in the post-pandemic world is already taking shape as a long-lasting trend ― best explained through the "K-shaped" recovery, with the letter representing the diverging fortunes of the haves and have-nots.

Those who lag behind will be in a worse situation, although the country's economy, after contracting 1 percent in 2020, will climb to the 3 percent growth range this year as forecast by the Bank of Korea, the IMF and OECD.

By individuals and firms, the affected groups will include not only low-income earners and small- and medium-sized enterprises (SMEs) but also lower-tier conglomerates that lack scale, leading brands and robust balance sheets.

The affected industries are machinery, transport equipment, services and other sectors that are relatively far from digital technology, the work-from-home environment and contact-free interaction with consumers, rather than businesses that prospered during the pandemic.

"The growing wealth gap between the rich and the poor was there before COVID-19, but it certainly became more intense after the pandemic wreaked havoc on society," said Lee Geun-tae, a senior research fellow at the LG Economic Research Institute last week. "What is of greater concern is that the uneven recovery is being accentuated as a trend."

Lee noted that low-income earners have been hit hard because many of them work in "conventional" services, such as restaurant, that require physical contact with customers.

He said the record-low benchmark interest rate of 0.5 percent since May 2020 and quantitative easing were meant to boost economy in general, but have mainly benefited the rich who could afford to invest in a stock market bubble.

Accordingly, in 2020 the country had a Gini coefficient of 0.602 in terms of net worth, the highest in seven years, according to Statistics Korea.

A commonly used measure to compare income inequality, the Gini coefficient has a scale running from 0 to 1. The closer to zero, the more equal the nation's income is distributed.

Statistics Korea also showed the net worth of the top 20 percent of earners was 166.64 times higher than that of the bottom 20 percent in 2020. The difference increased from 125.6 in 2019, 105.29 in 2018 and 99.65 in 2017.

Regarding business, the operating profits of listed enterprises rose by 24.9 percent to 67.3 trillion won ($60.4 billion) from 2019 to 2020. This is attributed to strong performances in semiconductors, home appliances and other sectors that benefitted from the COVID-19 pandemic, according to the Korea Economic Research Institute (KERI).

When taking a closer look, however, the companies in the top 20 percent by sales earned 306 billion won more than those in the lowest 20 percent, up from 238 billion won in 2019.

The sales difference between the two groups soared from 266.6 times to 304.9 times between 2019 and 2020.

"This apparently suggests wealth is heavily concentrated among upper-tier companies," said Joo Won, deputy director of the Hyundai Research Institute.

Among them are Samsung, Hyundai Motor Group and SK that are characterized as "export-oriented businesses with well-experienced risk management and advanced research and development."

"Such characteristics are especially essential to survive in a COVID-hit economy," Joo said.

Lee Sang-ho, head of the KERI economic policy team underlined "not all conglomerates are winners" in terms of unevenly divided wealth.

"Don't misunderstand that it will only be SMEs that will struggle amid the widening wealth gap. Conglomerates that are categorized as minor players in their respective markets are not safe, either," he explained.

By industries, tech companies such as Kakao and Naver made headlines for their explosive growth and the average annual salary of their workers topping 100 million won for the first time in 2020.

The accumulation of fortunes is in stark contrast to the machinery sector that suffered a 72.8 percent decline in operating profits, one of the highest among pandemic-affected industries.

While IT and other non-contact industries are expected to prevail, Lee noted, a wealth gap within them will be present as well.

Without giving names and other details, Lee pointed out the top three companies in the electronics industry accounted for 91 percent of the operating profits of all 161 firms in the same sector.

Yi Whan-woo


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