Failing report card

Despite the government spending a huge amount to help lower-income Koreans, the income gap has widened. According to the latest data from Statistics Korea, average disposable income for the richest income group was 5.3 times that of the poorest in the second quarter. That is the largest gap since 2003, when the statistics office started to collect related data. The gulf basically stems from a relative increase in the top group’s household income. The lowest income group actually saw their disposable income decrease after paying taxes and interest on money they borrowed.

The widening of the income gap resulted from our economic slump. Though earned income of all households grew by 4.5 percent on average compared to last year, the first quintile group’s earned income shrank by a whopping 15.3 percent in the second quarter as a result of drastic hikes in the minimum wage and sharp cuts in hires due to a slowed economy. The statistics show that self-employed people mostly in the second or third quintile group are falling into the first quintile group as stagnation continues.

We have repeatedly stressed that the growing income gap owes much to the Moon Jae-in administration’s weird economic experiment based on so-called “income-led growth” policies, which are actually meant to narrow the income and wealth gaps. The government’s insistence on arbitrarily raising wages to help the low-income bracket backfired in the second quarter of last year, when the fifth quintile groups earned 5.23 times more than the first quintile group — the largest gap since 2008. That is an unwanted side-effect of the income-led growth policies. Yet the government pushed ahead with them, saying, “You will see positive effects of the policy next year.” But the failing report card in the second quarter shows that is not true.

The government is struggling to avoid a further widening of the income gap through fiscal inputs. Without generous spending on welfare programs such as child allowances, unemployment benefits and basic pension for the elderly, the income gap between the fifth and first groups would reach as much as 9.07 times.

A state has an obligation to help the poor. But at the same time, it must maintain its fiscal integrity. If its spending of 54 trillion won ($44.6 billion) to help support job security over the past two years went nowhere, it must think again. To make matters worse, our trade row with Japan and the Sino-U.S. trade war cast a dark shadow over our economy. The government must scrap its income-led growth policies.

JoongAng Ilbo, Aug. 23, Page 30