Expanding welfare programs is supposed to help reduce poverty in a society. What has happened in Korea in recent years, however, is that the proportion of poor households continues to increase despite the introduction of various benefits.
A study released this week suggested concrete figures showing this worrisome trend, which would undermine social cohesion and vitality unless addressed in a proper and quick manner.
According to the study, which traced income changes of some 7,000 households over several years, the country’s economic disparity has widened as wage earners find it increasingly difficult to rise to higher income levels.
Slightly over 22 percent of poor households earning less than half the median income lifted themselves out of poverty last year. The proportion was the lowest since a state-funded think tank began the research in 2006 when the corresponding figure stood at 32.4 percent.
On the contrary, the ratio of middle-income families that fell into poverty continued to increase, from 6.1 percent in 2012 to 9.8 percent in 2013 and 10.9 percent in 2014. In a phenomenon that seemed related to this trend, the number of Koreans who applied for a personal debt bailout program rose by 4.6 percent from a year earlier to a record high of 110,707 last year, according to court records. The tendency of high-income households to stay in their bracket rose by 2.1 percent from a year earlier to 77.3 percent in 2014.
The results of the survey by the Korea Institute for Health and Social Affairs, a state-funded think tank, should lead government policymakers and politicians to rethink their current approach to benefit programs. It may make little sense for Korea to spend beyond its means to finance universal welfare benefits that have done little to help poor people get out of poverty. The policy focus needs to be on increasing the earnings of low- and middle-income households.
In the early stages of the country’s economic development, Koreans had dreams that they could move up the social ladder if they worked hard, and such beliefs enabled them to endure hardships. While they were very sensitive to inequality, they also remained hopeful that things would be better ― especially for their children.
This optimism, however, seems to have almost vanished. In a 2013 poll of 1,000 adult Koreans, nearly 60 percent of respondents said they did not expect their economic conditions to improve in five years’ time. More than 53 percent disagreed that effort was duly rewarded in Korean society.
In today’s Korea, the high-level income bracket is increasingly being fixed, with a growing number of middle-income households plunging into poverty or teetering on the brink. This widening economic disparity may be attributed mainly to the inheritance of wealth among rich families and the decrease in the number of well-paying jobs offered to working-class households. In the 2013 poll, 31 percent of respondents saw the inheritance of wealth as the greatest reason for the economic polarization, followed by 22.2 percent who cited inequality in the job market.
The number of low-paying irregular employees increased from about 5.45 million in 2006 to more than 6.07 million last year, with opportunities to land preferred jobs at large corporations and public institutions being reduced over the period. The prolonged economic slowdown makes it more difficult to create more decent jobs. The Bank of Korea and private research institutes have recently put forward growth estimates for this year, which are far lower than the government’s projection of 3.8 percent. With no clear sign of an economic recovery in sight, leading Korean companies plan to cut the number of new recruits this year.
The rising costs of housing and education also seem to have put a heavier burden on middle- and low-income families.
With people losing hope of moving up the financial ladder, the possibility is increasing that their frustration will end up creating social rifts and undermining social cohesion. The dissolution of families will accelerate, particularly among those with low incomes.
It is disappointing that policies being pursued by the government are far from helping less privileged people move up the social ladder. Expanding welfare programs without increasing taxes on large corporations and the wealthy has resulted in heavier burdens on working-class families.
It also makes no sense for the government to consider slashing regional educational budgets to make up for deficits caused by adhering to welfare benefits offered to all households regardless of their income levels.
Efforts to boost real estate markets have also been inefficient at reducing economic inequality. What is now required of government policymakers and politicians may be to change their conventional policy framework and focus on measures to facilitate social mobility in Korean society.
By Kim Kyung-ho
Kim Kyung-ho is an editorial writer for The Korea Herald. He can be reached at firstname.lastname@example.org. ― Ed.