Working hard, but still 2nd-class

Inequality in a country with a long tradition of a market economy comes from the gap in total wealth, rather than simply incomes. But an accumulated inequality in wealth cannot be resolved quickly, so policies to reduce inequality mostly focus on income inequality. In a developed country, citizens may not become rich by working hard but can at least receive fair wages to enjoy a minimally humane life. However, Korea and developed countries have different ways of resolving inequality and addressing its causes. Structurally, Koreans cannot escape from inequality because people don’t receive fair wages for labor, not because they have no accumulated wealth. Generally, one may say wealth inequality is the cause of income inequality, but that’s not the case here.

Just as in other developed countries, inequality of wealth is far more serious than inequality of income. However, according to the personal income reports by the National Tax Service, less than 8 percent of income comes from dividends and interests and more than 92 percent comes from earned income - wages and salaries. Because the portion of earned income is overwhelmingly large and wages are extremely unequally distributed, the prime cause of inequality here is wage inequality. In Korea, the gap between the rich and the poor is certainly a matter of the haves and the have-nots, but the difference between those who receive fair compensation for their work and those who don’t is more serious. Korea’s wage income inequality is fourth among OECD member nations, and employment instability is ranked the highest. The combined effect of serious income inequality and employment inequality is devastating.

One aspect of Korea’s employment inequality is the corporate polarization between large conglomerates on the one hand and small businesses and contractors on the other. Another axis is the divided employment structure of regular and non-regular workers. Let’s look at the employment problem of the latter group. Since the 2007 financial crisis, the economy grew by 20.9 percent in the six years from 2008 to 2014, but the real wages of regular employees increased by only 6.1 percent. The wage increase of the regular employees was below economic growth, but the wages of irregular workers decreased by 2.8 percent in the same period. The wage level of part-time workers was only 56 percent of that of regular employees, who are not compensated in accordance with economic growth either. And the gap is growing wider. Another problem of irregular employment is the aggravation of quality in employment. When the fixed-term employment act was made law in 2007, 15.9 percent of total workers were temporary employees for a fixed term. In 2014, that number fell by a mere 1.3 percent to 14.6 percent. Moreover, the actual wages of fixed-term workers decreased by 7.8 percent, and the number of temporary workers paid by the hour increased by 3.2 percent to 10.8 percent. Contract workers have been replaced with even more flexible, part-time workers for lower wages and shorter employment terms.

Polarization between large conglomerates and small businesses is another cause for employment inequality. The average salary of small and mid-size manufacturing companies was 27.5 million won ($24,216) in 2014. The average wage, including the irregular contract workers of Samsung Electronics was 101 million won. The average for Hyundai Motors was 96.8 million won. For the six years after the financial crisis, the economy grew by 20.9 percent and actual wages for Samsung Electronics and Hyundai Motors increased by 41.5 percent and 23.9 percent respectively. But actual wages in small and medium-sized manufacturing businesses increased by 7.4 percent. The wage level for workers at Samsung Electronics and Hyundai Motor may not be a problem, but many of the small and medium businesses are contractors of large conglomerates, and the wage gap of four times cannot be reconciled with economic theories. In the end, large conglomerates offer unfair terms to their contractors.

Korea’s average employment period is the shortest among OECD member countries. A third of the workers are on contracts for less than a year, and the portion of workers employed for more than five years is the OECD’s lowest at 20 percent. One third of workers change jobs every year, which translates into unstable employment, not flexibility. The rate of conversion from irregular and temporary employment to regular and permanent employment is also the lowest among OECD members. One in 10 temporary workers is offered a permanent position after one year, and only two in 10 are converted after three years. In Korea’s labor market, upward mobility from irregular to regular employment or from a small business to a large corporation is nearly impossible to achieve by individual effort alone.

Only 20 percent of total workers in Korea are regular employees at large corporations, enjoying employment stability and wage increases on par with economic growth. Eighty percent of workers are discriminated against in wages, have unstable jobs or are marginalized from the benefits of growth. Citizens are divided by income inequality and employment inequality. Perhaps countries that are divided by what people earn for their work, like Korea, have a better chance of fixing the inequality problem than developed countries that are divided over what people already have. But if the current structure persists, citizens may be permanently divided into first-class and second-class citizens. Korea’s prime task is to resolve the income and employment inequalities before it is too late.

Translation by the Korea JoongAng Daily staff.
JoongAng Ilbo, July 9, Page 35

*The author is a professor of business management at Korea University.

by Jang Ha-sung