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Weakening middle class

Publication Date : 21-01-2013


One of the key campaign promises South Korea's President-elect Park Geun-hye made is to expand the middle class to cover 70 per cent or more of all households. It is necessary to expand the middle class and empower it if she is to promote political stability by reducing friction between rich and poor and boost economic growth based on the newly gained stability.

But the pursuit of her goal will undoubtedly prove to be easier said than done, given the yawning gap between her 70 per cent target and the current level. Moreover, the distribution of gross national income is increasingly skewed in favor of not households but corporations, making it difficult to empower the middle class.

There is no universally accepted definition of the middle class. To some people, it may simply mean households that are neither rich nor poor. To some others, it may mean households that are placed between the top 20 per cent and the bottom 20 per cent in income distribution.

A Korean business daily has come up with a typical Korean middle- class family based on its recent survey: one that resides in a 132-square-metre apartment house, drives a Sonata-class passenger car, earns 6 million won (US$5,500) per month and holds 500 million won ($461,000) in net assets.

But one of the most widely accepted definitions of the middle class is those that belong to a group of households whose income ranges from 50 per cent of the median income to 150 per cent of it. President-elect Park’s economic advisers probably have this definition in mind when they refer to her election pledge to expand the middle class to 70 per cent of all households.

According to a recent study conducted based on this definition, the middle class in Korea accounted for 55.5 per cent of households in 2011, down 5.7 percentage points from 2003. Those below this income grew by 2.6 percentage points to 18.1 per cent of the total in the same period. The middle class could have been even smaller, given that one-person and rural households were not included in the study.

A dwindling middle class would undoubtedly have serious political implications for the incoming Park administration. It would pose no less serious of a problem if an alarmingly small number of people should feel they belong to the middle class. But that was just what a business weekly found it its recent survey.

The weekly said only 16 per cent of the respondents were found to believe they were in the middle class (compared to 48.4 per cent in China and 28.8 per cent in Japan). This finding showed that there was a sea change in perception during the past two decades. According to a 1989 survey, 60.6 per cent of Korean people believed they belonged to the middle class.

As the middle class was weakening, the rich got richer and the poor poorer. The study found the share of the total income given to the middle class dropped from 54.2 per cent in 2003 to 48.1 per cent in 2011.

Another indication of skewed income distribution is the finding that average household income grew faster than the median household income. According to the study, the average income grew 8.47 per cent, from 34.1 million won in 2003 to 36.9 million won in 2011, while the median income increased 5.12 per cent, from 30.2 million won to 31.8 million won during the same period.

The gap in wealth distribution is also widening, as evidenced by a report from Statistics Korea, which said the share of wealth held by the top 20 per cent of households has increased by 3 percentage points to 46.4 per cent during the past one year.

The weakening of the middle defies easy explanation. It has multiple causes, ranging from a deepening economic slump and incessant corporate restructuring to the overcrowding of the self-employed and a sharp rise in the number of underpaid, non-regular workers. As such, there is no quick fix.

As one of President-elect Park’s economic mentors put it, it is necessary to engineer a “paradigm shift” in the nation’s economic management if it is to deal effectively with what appears to be intractable problems, such as the low birthrate, the fast graying of the population and a protracted period of low growth.

Unless all these problems are properly addressed, the Park administration will certainly find it difficult to focus on policies geared for fairer income distribution as a means to expanding and empowering the middle class.

US$1 = 1,038 won


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