In the first quarter of this year, the nominal income of the South Korean households in the lowest 20% income bracket showed the steepest decline in history, while that of the households in the top 20% group posted the sharpest increase for Q1 in history. As a result, South Korea’s income distribution index reached the worst level since 2003. Experts point out that this is because the recent rapid rise in minimum wage led to more layoffs, negatively affecting the employment of low income earners in most cases. The Moon Jae-in administration’s income-led growth policy is facing a challenge.
According to Statistics Korea, the nominal income of those in the lowest 20% bracket totaled 1,286,700 won (US$1,158) per month in the first quarter of this year, down 8% from a year ago. The figure represented the lowest level since household income began to be tallied in 2003. During the same period, that of the top 20% households increased 9.3% to reach 10,151,700 won (US$9,136).
“The number of households with retirees increased a lot in the lowest income bracket with the aging of the population, resulting in a rapid decline in their nominal income,” Statistics Korea explained, adding, “In the highest income bracket, which is composed mainly of full-time workers and those in their 40s and 50s, the nominal income showed a significant growth on the back of an increase in wage.” It went on to say that all of the five brackets are almost equally affected by the rise in minimum wage.
Still, experts in the private sector are saying that the rapid increase in minimum wage led to the income decline in the lowest bracket. “The lowest bracket was the only one that showed a decline in income and this seems to be related to layoffs that followed the minimum wage adjustment,” said the Hyundai Research Institute, adding, “Welfare and distribution are indeed important, but the South Korean government should not overlook their side effects.”
In the meantime, the real income of South Korean households continued to rise in the first quarter. During the period, the nominal household income rose 3.7% from a year earlier to 4,763,000 won (US$4,286) per month. As a result, the household income growth rate, which had been 0% from the third quarter of 2015, exceeded 3% for the second consecutive quarter as is the case with their real income, which rose 2.4% year on year in Q1. The real income showed a positive growth for the first time in nine quarters in the last quarter of 2017.