[Editorial] Wageless growth

By Korea Herald

Boosting wages helps economy grow

  • Published : Apr 30, 2014 - 20:33
  • Updated : Apr 30, 2014 - 20:33
“Wageless growth,” a phenomenon characterized by a drop in real wages despite an improvement in real labor productivity, is more serious in Korea than in other OECD countries, a report from the Korea Institute of Finance shows.

The report says that in Korea, real wages and real labor productivity had moved in tandem before the global economic crisis erupted in 2008. Then the two began to move in different directions, with real wages going south despite continued gains in real labor productivity.

Korea’s real wages, nominal wages adjusted for inflation, dropped 2.3 percent between 2007 and 2012, contrasting with a 19.4 percent increase between 1997 and 2002 and a 17.6 percent gain in the 2002-07 period.

Among the 28 OECD countries with comparable data, 11 posted a sharper decline in real wages than Korea in the 2007-12 period. But the 28 included the five European countries hit worst by the crisis ― Portugal, Italy, Ireland, Greece and Spain ― and five others that ranked below 40th place in terms of per-capita GDP. When these countries were excluded, only three ― the United Kingdom, Japan and Israel ― had a larger decline in real wages than Korea.

But these three countries’ productivity growth was much slower than that of Korea. Korea’s real labor productivity, which is calculated by dividing real gross domestic productivity by the number of workers, gained 9.8 percent between 2007 and 2012, the fastest among the 18 countries.

As a result, the gap between wage growth and productivity improvement was bigger in Korea than in the 17 other OECD countries.

Wageless growth stems partly from domestic companies’ response to the global economic crisis. Many corporations sought to restrain wage growth as the business outlook remained murky. As a result, their earnings increased much more rapidly than household income.

A recent report of the Bank of Korea showed that corporate earnings have grown 80.4 percent during the past five years, while disposable household income increased 26.5 percent.

Sluggish growth in household income hampers economic growth, as it is the biggest obstacle to spurring domestic consumption.

To address the problem, the government needs to come up with policies aimed at increasing the share of national income that goes to workers.

One such policy is to eliminate the large wage gap between regular and irregular workers. Last year, irregular workers earned on average less than two-thirds what regular workers did.