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The Imbalance between Household and Corporate Incomes in the Korean Economy: Examining the Phenomenon, the Causes, and the Implications

Author Kang, Doo-Yong Date 2013.02.05 Issue No 549
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While major Korean companies have continued to generate unprecedented revenues over the last several years, the household income level has remained far adrift from the growth rate of the corporate income level. This situation signifies a grave imbalance in the Korean economy.

 

○ Since 2000, the average income of large Korean companies has grown at a double rate during the period of industrialization in Korea, while the average income of household grew merely at a quarter rate during that period.

 

- In terms of disparity of the growth rate between corporate and household income level from 2000 to 2010, South Korea comes in second, behind only Hungary among the OECD member-states.

 

- This growth imbalance has been worsening since 2007, with the corporate-household income ratio setting new records each year since 2008.

 

- Since much of the dramatic growth in the average corporate income has resulted from failing to distribute corporate revenues to households and the public sector, the growth in corporate income and the decrease in household income are the two sides of a coin.

 

○ This continued imbalance between corporate and household incomes will ultimately undermine domestic demand, drag down the growth of the national economy, and heighten the problem of household debt.

 

- From 2000 to 2010, South Korea recorded the lowest rate for household income growth among the OECD member-states that posted positive growth.

 

○ The causes for this imbalance include a decline in the labor distribution ratio (with wages remaining stagnant), the continuous decrease in the revenues of the self-employed, and the tax scheme (which gives relatively more advantages to companies than to individuals and households).

 

○ The Korean Government needs to come up with policy measures which ensure a more balanced growth of the national economy by providing the benefits of the growing economy much more to actively, wage earners, the self-employed, and others.