South Korea’s income inequality hits record low on welfare policies

SEOUL (Xinhua) – Income inequality in South Korea hit a record low last year on the government’s income-led economic policy to bolster earnings of the low-income bracket, joint government data showed yesterday.

The Gini coefficient, also called Gini index, stood at 0.345 in 2018, down 0.009 from the previous year, according to joint data from Statistics Korea, the Bank of Korea (BOK) and the Financial Supervisory Service (FSS).

It was the lowest since relevant data began to be compiled in 2011. The ratio, used as the measurement of income or wealth inequality, represents a complete equality with zero and a complete inequality with one.

The index declined from 0.388 in 2011 to 0.352 in 2015, before edging up to 0.355 in 2016. It turned downward to 0.354 in 2017 and 0.345 in 2018 each.

The improved income inequality came as the government expanded welfare policies for the low-income bracket by providing more basic pension for the elderly and more unemployment benefits for the younger population.

The government launched a series of projects to create jobs for the older population, many of whom failed to make proper preparations for after-retirement life.

Business income of the high-income bracket declined last year on lacklustre economic growth, contributing to the narrowed income gap.

A woman walks past a commercial sign at a shopping district in Seoul. PHOTO: AFP

The ratio of average income for top 20 per cent income bracket to income for bottom 20 per cent, also called income quintile index, diminished to 6.54 in 2018 from 6.96 a year earlier.

It marked the lowest since relevant data began to be compiled in 2011. The lower index indicates the improvement in income inequality.

The bottom 20 per cent income bracket saw earned income reduce eight per cent last year, but it was offset by a double-digit increase in public transfer incomes such as public pension, basic pension, child-rearing benefit and employment subsidy.

Earned income of the top 20 per cent income bracket gained 6.3 per cent, but the business income plummeted 11.7 per cent on the faltering economic recovery.

Disposable income for households averaged KRW47.29 million (USD40,500) in 2018, up 1.2 per cent from a year earlier. Consumer price advanced 1.5 per cent last year.

The average household income was up 2.1 per cent over the year to KRW58.28 million (USD50,000) last year.

Meanwhile, household debts averaged KRW79.1 million (USD67,800) as of the end of March, up 3.2 per cent from a year earlier.

Those in their 40s had the largest debt of KRW106.89 million (USD91,600) in all age groups, trailed by KRW93.21 million (USD79,900) for those in their 50s, KRW89.15 million (USD76,400) in their 30s and KRW52.22 million (USD44,800) for those aged 60 or higher.

Those aged 30 or lower had the smallest debt of KRW31.97 million (USD27,400), but the on-year growth of 23.4 per cent was the fastest in all age groups. Among households with loan from financial institutions, 66.5 per cent said the repayment of the principal and interest was burdensome as of end-March. It was down 0.8 percentage points from a year earlier.

The BOK lowered its benchmark interest rate from 1.75 per cent to 1.50 per cent in July, before slashing it further to a record low of 1.25 per cent in October.

Those who replied that the debt repayment may be impossible was 6.2 per cent, while 75.7 per cent said they would pay back debts within maturity.