Disposable income falls first time in a decade

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Disposable income falls first time in a decade

The middle class seems to be doing fine, at least according to recent government statistics. Incomes grew between 4 and 5 percent in the first quarter of 2019 for households in the middle 20 percent income bracket.

But the news was not all good. People living at the extremes in terms of income have seen their fortunes wane, while overall disposable income fell for the first time in a decade.

Statistics Korea, which released the data on Thursday, also cautioned against reading too much into a slight improvement in incomes in one category.

According to the release, average household income in the first quarter, when compared to the same period the previous year, increased 1.3 percent to 4.83 million won ($4,050). Income earned from work, which accounted for 66.7 percent of the total average monthly income, nudged up 0.5 percent to 3.22 million won.

The study has found that self-employed businesses are still struggling as the income from private businesses actually fell 1.4 percent to an average 892,200 won.

Incomes fell 2.5 percent to 1.25 million won for households in the bottom 20 percent category. The top 20 percent experienced a 2.2 percent decline to an average 9.93 million won. This was the first time in three years that incomes for the upper 20 percent declined.

In the bottom 20 percent, the income earned from work plummeted 14.5 percent to an average 404,400 won. Many people in that bracket were reported to have lost jobs as small businesses, including restaurants and convenience stores, have been cutting back on staff, burdened by higher labor costs due to the increase in the minimum wage.

It has been argued that the government’s goal of helping the lower income households by raising the minimum wage has actually hurt them more by causing job losses.

The statistics agency warned that the overall increase in the average household monthly income shouldn’t be seen as a sign of economic recovery.

“If you look closely, the labor income has only been able to increase 0.5 percent while business income has actually shrunk, which shows that the situation in creating income isn’t easy,” said Park Sang-young, welfare statistics director at Statistics Korea.

Statistics Korea said in the case of the lowest 20 percent bracket, the decline was largely cushioned by various government aid programs, such as child care payments and higher unemployment benefits.

According to the statistics agency, transfer income for the lowest 20 percent increased 5.6 percent to 631,000 won. That’s half the average household income in that bracket, indicating that reliance on the government is growing.

The top 20 percent bracket experienced a drop in income because of a sharp increase in income in the first quarter of 2018 and because bonuses fell. Many households fell from higher brackets to lower ones, and this in part explains the increase in average income in the middle.

In the first three months of the year, disposable income fell 0.5 percent to 3.75 million won. The statistics agency cited rising taxes, pension subscriptions, national health insurance payments and loan interest. Spending in these categories rose 8.3 percent.

The household income figure released by Statistics Korea on Thursday has once again raised questions over the Moon Jae-in government income-led growth policies.

The government remains optimistic. Finance Minister Hong Nam-ki during a meeting on Thursday said while the income of those in the bottom 20 percent has declined, the rate at which it has fallen has declined, while the income of the bottom 40 percent bracket has gone up.

He said the government will continue to make efforts to raise incomes for those most in need.

BY LEE HO-JEONG [lee.hojeong@jooongang.co.kr]
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