Korea's Economic Inequality Level Among the Worst in the World
The level of income polarization and economic inequality in South Korea is among the worst in the world. The middle class has crumbled over the last 20 years since the 1997-98 Asian Financial Crisis, known in South Korea as the “IMF Crisis,” and there has been a growing gap between the haves and the have-nots, leading to the “winner-take-all economy.”
South Korea’s P90/P10 index, the ratio of the disposable income of the top 10 percent with that of the bottom 10 percent, has increased from 5.73 in 2016 to 5.78 in 2017, according to the result of a recent survey on household finance and welfare conducted by Statistics Korea, the Financial Supervisory Service and the Bank of Korea.
The P90/P10 is a key indicator that measures the income inequality of the OECD countries. The higher the number, the more serious the income inequality is. As of 2016, South Korea ranked high in terms of income inequality, following the United States with 6.3 and Lithuania with 5.8 as of 2016.
In particular, South Korea is one of the countries with fastest widening income gap. The concentration of income in the top 10 percent of the South Korean population aged over 20 has grown by 8.3 percent points from 35 percent in 1996 to 43.3 percent in 2016.The growth is the second highest after Ireland with 9 percent points, which ranks first among OECD countries that have unveiled the index of income concentration.
The income concentration of the top 1 percent has also risen from 7.8 percent in 1996 to 12.2 percent in 2016. South Korea has shown the same growth with Ireland with 4.4 percent points.
The Gini coefficient, another commonly used measurement of income inequality, shows a similar result. Based on disposable income, South Korea has recorded 0.355 in 2016 with a downward for the first time in five years and maintained the same level in 2017. A Gini coefficient of zero expresses perfect income equality, while a Gini coefficient of 1 expresses maximal inequality. Surpassing 0.4 represents income inequality.The Gini coefficient places South Korea as the fifth-worst country based on income gap among OECD countries, coming after Mexico with 0.459 in 2014, Chile with 0.454 in 2015, Turkey with 0.404 in 2015 and the United States with 0.391 in 2016.
South Korea’s Gini coefficient of households with two members or more in cities has been rapidlydeteriorated since the Asian Financial Crisis in 1997. The figure jumped from 0.257 in 1997 to 0.285 in 1998 and 0.288 in 1999. It has been maintaining at a high level after peaking at 0.295 in 2009 right after the global financial crisis.
South Korea’s decile of income distribution which divides the average income of the top 20 percent income-bracket by that of the bottom 20 percent, has also expanded from 6.98 in 2016 to 7 in 2017. It means that the top 20 percent of South Koreans earn 7 times more than the lowest 20 percent and the income inequality is getting worse.
The problem of income distribution has continued even after South Korean president Moon Jae-in came to office.A household survey conducted by the Statistics Korea in the fourth quarter of last year shows that the top 20 percent of South Koreans earn 5.47 times more than the lowest 20 percent, which is one of the worst income gaps that the country has experienced since 2003.
In his New Year’s speech, Moon said, “We still have many people who have the rigor of lifedespite a remarkable national economic growth because the benefits from the economic growth that we have achieved together are concentrated on a small number of upper class and big companies and they have not shared equally.”