Author: Hagen Koo, University of Hawai‘i at Manoa
Park Geun-hye, the current president of South Korea, pledged to rebuild the middle class and increase its size to 70 per cent of society, as part of her 2012 campaign. South Korean observers agree that this was an effective political strategy which greatly contributed to her election. In South Korea, as in many advanced economies, a major political discourse has emerged over economic polarisation and the declining middle class.
This is a far cry from the situation of two or three decades ago. South Korea is one of the ‘gang of four’ East Asian countries that achieved rapid economic growth while maintaining a relatively equitable income distribution. By the early 1990s, South Korea’s middle class had expanded vigorously, with as much as 70 per cent of the population identifying themselves as belonging to the middle class.
But this began to change in the mid-1990s. The major turning point was the Asian financial crisis that arrived in South Korea in 1997. It had devastating consequences for the economy and for the livelihoods of the working population. A huge number of people suffered from layoffs, early retirements and business failures, and many middle-class people experienced downward mobility. But the consequences of the financial crisis were uneven. While the majority of working people suffered tremendously, those who possessed financial resources took advantage of credit-scarce market conditions and came out of the crisis richer than before.
So, economic inequality increased noticeably during and after the crisis. South Korea’s average Gini coefficient — a measure of inequality — for 1990–1995 was 0.258, but with rising inequality its coefficient increased to 0.298 in 1999, two years after the onset of the financial crisis. It continued to increase, reaching 0.315 in 2010.
The same trend can be seen in income distribution: the share held by the top 10 per cent of income holders divided by that of the bottom 10 per cent has increased from 3.30 in 1990 to 4.90 in 2010. The income share of the top 1 per cent of the income pyramid was 16.6 per cent of national income in 2012.
The major sources of increasing income inequality are closely related to the neoliberal transformation of the South Korean economy. The neoliberal reform of the labour market over the past decade and a half produced a sharp cleavage between regularly employed workers on standard contracts and irregularly employed workers (those who are limited-term, part-time, temporary or dispatched). The latter group increased from 27.4 per cent of the working population in 2002 to 34.2 per cent in 2011. This means that approximately one third of South Korean workers suffer from insecure job conditions, receiving only around 60 per cent of regular workers’ wages with no medical insurance, severance pay or company welfare subsidies. The South Korean working class, which used to be relatively homogeneous in terms of the job market and wage conditions, has become internally divided — and this reflects growing income inequality in South Korea.
Another source of inequality is the changing salary system adopted by large South Korean firms. Since the late 1990s, a general trend among South Korean firms has been to discard the old seniority-based salary system and adopt the American style ability-based salary system. With this change, the wage gap between professional and managerial workers and the rest of the workforce has widened greatly. As the South Korean economy has moved towards being knowledge-based, the value of scarce skills and knowledge has increased and globalised business sectors have begun to offer extremely high salaries to attract talent.
Furthermore, in recent years, the significant income disparities that have long existed between South Korea’s conglomerate firms and medium to small-sized firms have become even greater in recent years. South Korea’s top 1 per cent of income earners are most likely to be employed in the leading South Korean conglomerates, like Samsung, Hyundai and LG, which have grown into truly world-class companies and become very profitable.
Finally, in South Korea, as in most societies, wealth inequality is much larger than earned income inequality. In 2012, the top 10 per cent of the population possessed 46 per cent of the country’s total wealth. The bottom 50 per cent possessed only 9.5 per cent. This wealth inequality initially developed during the earlier period of rapid economic growth (1970s–1980s) and emerged primarily from the booming real estate market. But in recent years, the stock market and other financial investments have replaced the real estate market as the major means of wealth accumulation.
The prospects for declining economic inequality in South Korea in the near future are very dim. Despite her campaign pledge, Park Geun-hye has done little to attack institutional sources of widening inequality like tax policies, the dualistic labor market or welfare policies. The most recent statistics released by a government source indicates that as much as 73 per cent of Seoul residents identified themselves as belonging to the ‘lower middle class’ or ‘lower class’.
Hagen Koo is a Professor of Sociology at the University of Hawai‘i at Manoa.
This article is part of an East Asia Forum miniseries examining inequality in Asia.