S. Korea's Income Disparity Widens Due to Income-led Growth Policy

Although the South Korean government raised this year’s minimum wage substantially in a bid to improve people’s living standards and reduce income disparity, low-income households suffered a sharp decline in their income in the second quarter of this year whereas the top 20% income earners saw a significant increase. As a result, the income distribution index as an indicator of the degree of income disparity reached the worst level since 2008.

According to Statistics Korea, the average monthly nominal income of the bottom 20% households with at least two family members was 1,325,000 won in the second quarter of this year, down 7.6% from a year ago. The rate of decrease is slightly less than that of the previous quarter, 8.0%, yet it is the steepest Q2 decline since the records began in 2003. The income of those households continued to fall from 2016 to Q1, 2017, but showed an increase of 10.2% in Q4, 2017. It was a one-off increase though.

Likewise, the nominal income of the households in the second-lowest income bracket fell 2.1% to 2,800,200 won. The decrement is the largest Q2 decline, too. Besides, the average monthly income of the middle income earners edged down by 0.1% after a back-to-back increase from Q2, 2017 to Q1, 2018. This can be attributed to a 7% year-on-year decline in business income.
 

On the other hand, the average monthly nominal income of the top 20% reached 9,134,900 won with an increase of 10.3%, the first two-digit increase since 2003. That of the households in the second-highest income bracket rose 4.9%, the highest rate of increase since Q1, 2014.

South Korean households’ income gap is continuing to widen. The average monthly income of the top 20% was 5.23 times that of the bottom 20% in Q2, showing the widest gap since Q2, 2008. The multiple was 4.73 one year ago.