Income declines continue for most vulnerable

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Income declines continue for most vulnerable

The income gap continues to widen, according to data from Statistics Korea released Thursday, with record-pace declines reported for lower-income households.

Government policies that were supposed to lift the earnings of workers and drive consumption were largely blamed for the drops, as double-digit increases in the minimum wage led to job losses and the shutting of some smaller business.

In the fourth quarter of 2018, the income of households in the lowest 20-percent income bracket dropped 17.7 percent to 1.24 million won ($1,101). This is the sharpest year-on-year drop since the data were first compiled in 2003. The incomes of those in the top 20-percent bracket rose 10.4 percent to 9.32 million won.

The most significant declines were in terms of labor income. For those in the lowest 20-percent category, labor income fell 36.8 percent. That compares to an increase of 14.2 percent for those in the top 20-percent category.

A sharp drop in the labor income of the bottom 20 percent suggests that many in this group have lost their jobs. Income from business fell 8.6 percent for those in the lowest category.

The widening gap is becoming a political problem for the current administration, especially as overall household income rose 3.6 percent in the fourth quarter.

“[The government] feels a heavy responsibility, and we will focus more on executing policies targeted towards the lower-income households so that the wealth distribution situation will improve,” Finance Minister Hong Nam-ki said in a meeting with top economic policymakers, including the Blue House senior economic secretary and the statistics agency chief.

The widening income gap comes at a time when other major indicators have disappointed as well.

Despite the administration’s promise to increase quality jobs, in January the number of new jobs added compared to the previous year was the lowest in five months, at 19,000. Exports in January fell for the second consecutive month with the pace of the fall accelerating.

While the finance minister conceded that the loss of jobs has played a role in the poor household income results, he added that other factors may also be relevant, such as the aging society and the strong income growth in the fourth quarter of 2017.

While industry participants criticize the government’s increase in the minimum wage, the Moon administration has been vigorously defending the income-led growth policy.

In a meeting with representatives of small businesses earlier this month, President Moon apologized for the struggles they currently face due to the minimum wage rise, but at the same meeting also said the minimum wage should eventually be increased again.

“If actions such as the lowering of credit card commissions, support for a job creation fund, support for the four insurance programs, protection of shop leases and the improvement in the relationship between franchisers and franchisees were taken, small businesses would have been able to absorb the wage hike,” Moon said.

On Thursday, Finance Minister Hong said if the government’s comprehensive policies to encourage the creation of more jobs and expand the social safety nets are implemented, the income situation of those in the bottom category will improve.

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