Income statistics are skewed by data omission

The poor are getting poorer, contrary to what the government claims. Even the lower middle-class is struggling.

It turns out that due to the way the statistics have been calculated, with an entire subset of the population excluded, the numbers reported do not match reality, the JoongAng Ilbo reports.

When single-person households are included, which are 30 percent of all households in Korea and haven’t been factored into the government’s calculations, average incomes of the bottom quintile have fallen over the past two years, suggesting that the government’s income-led growth policy has not had the desired effect.

The JoongAng Ilbo worked with Rep. Choo Kyung-ho of the Liberty Korea Party (LKP) to recalculate the data using recently released figures from Statistics Korea.

According to Statistics Korea, the households in the lowest 20-percent income bracket made 1.25 million won ($1,070) per month on average in the first quarter this year, down 10.3 percent from the same period two years ago - right before the Moon Jae-in administration came into office.

The average income for the second quintile reached 2.84 million won in the first quarter of 2019, which is up 0.3 percent from two years ago.

Statistics Korea has only released numbers on households with multiple members on the grounds of maintaining continuity in statistics.

But it has been argued that the statistics do not actually reflect reality, as the numbers do not take into account single-person households.

Including numbers on single-member households, the average income for the lowest quintile was found to have decreased 13.6 percent to 657,955 won in the first quarter this year from 761,207 won posted in the same period two years ago. The number for the second quintile dropped 6.5 percent, from 1.92 million won to 1.79 million won during the same period.

When including single-person households in the calculation, the decline is especially apparent when it comes to earned income and business income.

The decline in earned income for the lowest quintile households would go from 25.9 percent to 30.8 percent when single-person households are included. The decline in business income for that group went from 18.3 percent to 33.4 percent when single-person households are added.

In the second quintile, earned income would go from a 1-percent decline to a 0.8-percent decline, while business income would go from 8.5 percent to and 22.7 percent.

Incomes for the first and second quintile households increased 0.8 percent and 1.4 percent respectively in the first quarter this year compared to one year ago.

Experts say the increase is due mainly to the base effect.

Choo argues that the numbers show that the Moon administration’s income-led growth policy has disturbed the lives of common people contrary to the policy’s aim.

“Contrary to the income-led growth policy’s goal to raise the income level of low-earning households, [earnings for them] fell due to the rise in the minimum wage and the sluggish economy,” Choo said.

“The results show that the income-led growth policy is not working at all.”

The income gap between the poor and rich has also widened, as the average income for wealthy households has increased during the same period. While the first and second quintile households saw significant declines in their incomes, earnings in the top two quintile households increased 6.2 percent and 6.7 percent, respectively.

“Although earnings for the lowest earners who kept their jobs increased, the average income for the cohort fell, as there were many who lost their jobs,” said Park Young-bum, an economics professor at Hansung University.

“To prevent the situation from worsening, the minimum wage should be frozen or applied in a disproportionate manner depending on industries.”

Some also worry that too many low-income households are relying on government subsidies.

The proportion of transfer income to total income for the lowest quintile households in the first quarter this year reached 76.6 percent, compared to 66.8 percent posted in 2017. The proportion for second quintile households increased from 27.1 percent to 35.6 percent.

“As the government is providing more subsidies, there is an increased tendency for people to rely on government support,” said former Statistics Korea Commissioner Yoo Gyeong-joon, a professor at Korea University of Technology and Education.

“It is important that low-income households be provided with incentives to escape poverty themselves, but as there are not many jobs available, their incomes are not showing any improvement.”

BY SOHN HAE-YONG [ko.juntae@joongang.co.kr]