Income gap grows, spending falls as virus effects felt

Economy

Published: 21 May. 2020, 17:43 Updated: 21 May. 2020, 20:18

Income gap grows, spending falls as virus effects felt

A store in Myeong-dong, central Seoul, offers discounts on Thursday. Despite average household incomes increasing compared to a year ago in the first quarter, spending has dropped sharply. [YONHAP]

Korea's income gap widened as the coronavirus made its mark, and household spending dropped at a sharp rate.

According to Statistics Korea on Thursday, the average household income in Korea increased 3.7 percent in the first quarter compared to a year earlier to reach 5.35 million won ($4,360). The study excluded people who live alone.

Labor incomes rose 1.8 percent while business incomes rose 2.2 percent. Non-work related incomes such as real estate and even pension incomes rose 4.7 percent.

Disposable income rose 5.1 percent to 4.29 million won.

But the increases in household incomes were largely seen in the top 20 percent income class, with lower growth for the less affluent. People in the bottom 20 percent saw no changes.

If incomes are divided into five groups, the top 20 percent in the first three months of this year saw average monthly income expand 6.3 percent compared to the previous year to 11.2 million won.

The second 20 percent saw average monthly income grow 3.7 percent to 6.34 million won.

The bottom 20 percent remained flat at 1.49 million won, whereas the fourth 20 percent inched up 0.7 percent to 3.17 million won.

The middle 20 percent saw average monthly income grow 1.5 percent to 4.62 million won.

The gap between the top 20 percent and bottom 20 percent widened compared to a year ago.

Last year the difference between the top and bottom tiers was 9 million won. This year, that expanded to 9.71 million won, a 7.8 percent increase.

In the case of the top 20 percent, labor incomes rose 2.6 percent. In the bottom 20 percent, they dropped 3.3 percent — cuts in pay or job losses due to the coronavirus.

People in the fourth 20 percent group saw labor incomes shrink 2.5 percent, and the middle 20 percent saw 4.2 percent shrinkage.

“The bottom 20 percent saw the lowest income growth [of all group],” said Kang Shin-wook, head of Statistics Korea. “When looking at the jobs report, temporary and day workers saw the biggest job losses."

Kang said he was more concerned about the impact of the virus on the second quarter, stressing that the first quarter report included January and February, when there was little impact.

“The reason incomes rose is because the coronavirus influence didn’t happen [equally] between January and March,” Kang said.

The coronavirus also forced households to significantly reduce spending, especially lower-income households.

In the first quarter of the year, household spending declined 4.9 percent year-on-year. Spending on consumer goods and services tumbled 6 percent. Non-consumer spending such as paying for weddings and funerals as well as social security insurance premiums retreated 1.7 percent year-on-year.

Expenses related to food and beverages increased 10.5 percent while spending on health and welfare increased 9.9 percent.

But spending on restaurants and lodging as well as cultural activities, entertainment and education — most susceptible to social distancing rules — saw sharp declines.

Spending on restaurants and lodging fell 11.2 percent while culture and entertainment spending was cut 25.6 percent. Spending on education fell 26.3 percent.

The top 20 percent’s spending in the first quarter shrunk 2.3 percent year-on-year while the second tier's spending only fell 1 percent compared to the previous year.

However, the bottom 60 percent reduced their spending significantly.

The lowest 20 percent spent 10 percent less than a year earlier, while the fourth group's spending fell 7 percent. The middle group cut spending by 9 percent.

“The impact of the coronavirus is clearly showing,” Kang said.

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