Jobs and income hold the keyHousehold spending fell in 2016 for the first time since our national statistics office tracked the data in 2003. Household spending was down 1.5 percent from the previous year when factoring in the inflation. People spent less because their real income dwindled by 0.6 percent.
A bigger worry is the reason why their income was reduced. The income of salary workers, which made up 67 percent of all income, grew zero percent. Massive layoffs and scarce jobs amid restructuring in the shipbuilding and shipping industry last year, on top of income stagnation, dampened consumer spending.
Job insecurity has led to stagnation in household income and spending. People inevitably tightened their belt. They were watching what they eat and wear and how they spend their time. Household propensity to spend also hit the all-time low of 71.1 percent. In other words, if they have 1 million won ($883) at hand, they were spending 711,000 won and keeping the rest for a rainy day. Because income has decreased, they spend less and save whatever they can because of insecurity about the future.
Since depressed consumption stems from structural problems, no micro-economic action will help to revive demand. The latest measures the government came up with to stimulate domestic demand is pitifully nearsighted and ill-targeted. The idea of letting people go earlier on Fridays for longer weekends and discounts in train fees would work if they had the money and the will to spend.
What are needed are fundamental and delicate policies to revive consumer sentiment. Jobs must increase and excessive education spending and insecurity about old age must ease. The government should be fully aware that the country is looking straight to the ill-fated path of Japan, which went through two decades of recession.
JoongAng Ilbo, Feb. 27, Page 34