Back To Top

[Editorial] Getting poorer

Misguided policy results in cutting income of less-privileged households

Recent government data showed income earned by the country’s poorest households has decreased over the past two years, in yet another indication that President Moon Jae-in’s misguided economic policy has failed to bring its intended outcome.

Since assuming office in May 2017, the Moon administration has pushed for a set of measures aimed at increasing the earnings of low-income households, which it hopes would result in spurring growth by boosting consumption.

But the average monthly income of households in the bottom 10 percent bracket fell 16.2 percent in nominal terms from 959,000 won ($804) in the first quarter of 2017 to 803,000 won in the same period this year, according to figures from Statistics Korea. In particular, disposable household income -- amount of money available to households for spending and saving after deduction of taxes and other mandatory charges -- plummeted 31.8 percent from 767,262 won to 582,226 won over the cited period.

This steep downturn betrays the government’s efforts to strengthen support for less-privileged households by taking labor-friendly steps and expanding welfare programs.

Affected by Moon’s campaign pledge to raise the wage floor to 10,000 won per hour by 2020, the country’s hourly minimum wage jumped 29.1 percent over the past two years to 8,350 won. The growth rate represents more than double the average of 14.2 percent for 28 member states surveyed of the Organization for Economic Cooperation and Development, according to a recent study by the Korea Employers Federation.

The government is exerting pressure on companies to turn temporary jobs into permanent ones, while the maximum workweek has been dropped to 52 hours from 68.

The Moon administration has also expanded welfare benefits, boosting the average monthly transfer income of households in the bottom 10 percent bracket by 13.6 percent over the past two years to 577,463 won in the first quarter of 2019.

However, the increase in transfer income, which includes basic pension for elderly people and child allowances, was more than offset by a drop in earned income. The poorest 10 percent of households saw their monthly earned income shrink 40.5 percent to 146,928 won over the cited period.

The sharp reduction in earned income is attributable largely to steep minimum wage hikes and other ill-conceived pro-labor measures taken by the Moon administration, which have driven mostly low-wage workers out of their jobs. Actually, the average number of employed persons in individual households in the bottom 10 percent income range was down 0.03 from a year earlier to 0.64 in the first three months of the year.

This shows the government’s efforts to increase fiscal spending to add mostly temporary jobs have done little to support vulnerable households.

Moon and his aides have no one else but themselves to blame for the worsening livelihoods of low-income people. Many economists and corporate officials have cautioned that the administration’s policy which is detached from reality would be doomed for failure.

The administration has recently shown signs of adjusting the pace of minimum wage hikes, suggesting it would no longer stick to Moon’s campaign pledge. In a report released earlier this month, the International Monetary Fund advised Korea to keep its minimum wage increase below its production growth, which reached 3.6 percent in 2018.

Entering the third year of his five-year term, Moon has stressed that his administration should now begin reaping tangible economic results. But the latest data on household income indicate the government’s economic performance will only worsen unless it goes beyond adjusting the pace of minimum wage increase to rethink the relevance of its income-led growth policy.

It is just unreasonable to insist on implementing ineffective employment and welfare programs at the cost of fiscal expansion only to be offset by a cut in earned income. The Moon administration should pay heed to calls for a policy shift to forging a more business-friendly environment to encourage companies to increase investments and hire more workers.

Many local firms are struggling to cope with deteriorating external conditions as well as increased burdens imposed by anti-corporate measures at home. According to recent data from the Korea Exchange, the country’s listed firms saw their profits decline sharply and financial health worsen significantly in the first quarter of the year.

The Moon administration would be guiding the economy over the cliff with a further delay in redressing its ill-conceived policy.