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Asean

Inequality in South Korea

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Author: Hagen Koo, University of Hawai‘i at Manoa

Park Geun-hye, the current president of South Korea, pledged to rebuild the middle class and increase its size to 70 per cent of society, as part of her 2012 campaign. South Korean observers agree that this was an effective political strategy which greatly contributed to her election. In South Korea, as in many advanced economies, a major political discourse has emerged over economic polarisation and the declining middle class.

SOUTH KOREA LABOR

This is a far cry from the situation of two or three decades ago. South Korea is one of the ‘gang of four’ East Asian countries that achieved rapid economic growth while maintaining a relatively equitable income distribution. By the early 1990s, South Korea’s middle class had expanded vigorously, with as much as 70 per cent of the population identifying themselves as belonging to the middle class.

But this began to change in the mid-1990s. The major turning point was the Asian financial crisis that arrived in South Korea in 1997. It had devastating consequences for the economy and for the livelihoods of the working population. A huge number of people suffered from layoffs, early retirements and business failures, and many middle-class people experienced downward mobility. But the consequences of the financial crisis were uneven. While the majority of working people suffered tremendously, those who possessed financial resources took advantage of credit-scarce market conditions and came out of the crisis richer than before.

So, economic inequality increased noticeably during and after the crisis. South Korea’s average Gini coefficient — a measure of inequality — for 1990–1995 was 0.258, but with rising inequality its coefficient increased to 0.298 in 1999, two years after the onset of the financial crisis. It continued to increase, reaching 0.315 in 2010.

The same trend can be seen in income distribution: the share held by the top 10 per cent of income holders divided by that of the bottom 10 per cent has increased from 3.30 in 1990 to 4.90 in 2010. The income share of the top 1 per cent of the income pyramid was 16.6 per cent of national income in 2012.

The major sources of increasing income inequality are closely related to the neoliberal transformation of the South Korean economy. The neoliberal reform of the labour market over the past decade and a half produced a sharp cleavage between regularly employed workers on standard contracts and irregularly employed workers (those who are limited-term, part-time, temporary or dispatched). The latter group increased from 27.4 per cent of the working population in 2002 to 34.2 per cent in 2011. This means that approximately one third of South Korean workers suffer from insecure job conditions, receiving only around 60 per cent of regular workers’ wages with no medical insurance, severance pay or company welfare subsidies. The South Korean working class, which used to be relatively homogeneous in terms of the job market and wage conditions, has become internally divided — and this reflects growing income inequality in South Korea.

Another source of inequality is the changing salary system adopted by large South Korean firms. Since the late 1990s, a general trend among South Korean firms has been to discard the old seniority-based salary system and adopt the American style ability-based salary system. With this change, the wage gap between professional and managerial workers and the rest of the workforce has widened greatly. As the South Korean economy has moved towards being knowledge-based, the value of scarce skills and knowledge has increased and globalised business sectors have begun to offer extremely high salaries to attract talent.

Furthermore, in recent years, the significant income disparities that have long existed between South Korea’s conglomerate firms and medium to small-sized firms have become even greater in recent years. South Korea’s top 1 per cent of income earners are most likely to be employed in the leading South Korean conglomerates, like Samsung, Hyundai and LG, which have grown into truly world-class companies and become very profitable.

Finally, in South Korea, as in most societies, wealth inequality is much larger than earned income inequality. In 2012, the top 10 per cent of the population possessed 46 per cent of the country’s total wealth. The bottom 50 per cent possessed only 9.5 per cent. This wealth inequality initially developed during the earlier period of rapid economic growth (1970s–1980s) and emerged primarily from the booming real estate market. But in recent years, the stock market and other financial investments have replaced the real estate market as the major means of wealth accumulation.

The prospects for declining economic inequality in South Korea in the near future are very dim. Despite her campaign pledge, Park Geun-hye has done little to attack institutional sources of widening inequality like tax policies, the dualistic labor market or welfare policies. The most recent statistics released by a government source indicates that as much as 73 per cent of Seoul residents identified themselves as belonging to the ‘lower middle class’ or ‘lower class’.

Hagen Koo is a Professor of Sociology at the University of Hawai‘i at Manoa.

This article is part of an East Asia Forum miniseries examining inequality in Asia.

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Inequality in South Korea

Asean

ASEAN weathering the COVID-19 typhoon

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Vietnam's Prime Minister Nguyen Xuan Phuc addresses a special video conference with leaders of the Association of Southeast Asian Nations (ASEAN), on the coronavirus disease (COVID-19), in Hanoi 14 April, 2020 (Photo:Reuters/Manan Vatsyayana).

Author: Sandra Seno-Alday, Sydney University

The roughly 20 typhoons that hit Southeast Asia each year pale in comparison to the impact on the region of COVID-19 — a storm of a very different sort striking not just Southeast Asia but the world.

 

Just how badly is the COVID-19 typhoon thrashing the region? And what might the post-crisis recovery and reconstruction look like? To answer these questions, it is necessary to investigate the strengths and vulnerabilities of Southeast Asia’s pre-COVID-19 economic infrastructure.

Understanding the structure of the region’s economic house requires going back to 1967, when Southeast Asian countries decided to pledge friendship to one another under the ASEAN framework. While other integrated regions such as NAFTA and the European Union have aggressively broken down trade barriers and significantly boosted intra-regional trade, ASEAN regional economic integration has chugged along slower.

Southeast Asian countries have not viewed trade between each other as a top priority. The trade agreements in the region have been forged around suggestions for ASEAN countries to lower tariffs on intra-regional trade to within a certain range and across limited industries. This has lowered but not eliminated barriers to intra-regional trade. Consequently, a relatively significant share of Southeast Asian trade is with countries outside the region. This active extra-regional engagement has resulted in ASEAN countries’ successful integration into global value chain networks.

A historically outward-facing region, in 2010 around 75 per cent of Southeast Asian commodity imports and exports came from countries outside of ASEAN. This share of extra-regional trade nudged closer to 80 per cent in 2018. This indicates that ASEAN’s global value chain network embeddedness has deepened over time.

Around 40 per cent of ASEAN’s extra-regional trade is with the rest of Asia. From 2010 to 2018 Southeast Asian countries forged major trade relationships with four Asian countries: China, Japan, South Korea and India. Outside Asia, the United States is the region’s major trading partner. ASEAN’s trade focus on Asia’s largest markets is not surprising. Countries tend to establish trade relationships with large, geographically close, and culturally similar markets.

Fostering deep relationships with a few large markets, however, is a double-edged sword. While it has allowed ASEAN to benefit from integration in global value chains, it has also resulted in increased vulnerability to the shocks affecting its network connections.

ASEAN’s participation in global value chains has allowed it to transition from a net regional importer in 1990 to a net regional exporter in 2018. But the region’s deep embeddedness in a small and tightly-coupled network cluster of extra-regional global value chain partners has exposed it to disruption to any and all of its external partners. By contrast, ASEAN’s intra-regional trade network structure is much more loosely-coupled: a consequence of persistent intra-regional trade barriers and thus lower intra-regional trade intensity.

In the pre-COVID-19 period, ASEAN built for itself an economic house held up by just five extra-regional markets, while doing less to expand and diversify its intra-regional trade network. The data shows that ASEAN trade became increasingly concentrated in these few external markets between 2010 and 2018.

This dependence on a handful of markets does not bode well for risk and crisis management. All of the region’s major trading partners have been significantly affected by COVID-19 and this in turn is blowing the ASEAN economic house down.

What are the ways forward? The immediate task at hand is to get a better picture of the region’s position in global value chain networks and to get on top of managing its network risk exposure. Already there are red flags around the region’s food security arising from its position in food value chains. It is critical to look for ways to introduce flexibility into existing supply chains for greater agility in responding to crises.

It is also an opportune time for ASEAN to harness the technology transfer gains of global value chain participation and invest in innovation-driven diversification of products and markets. The region’s embeddedness in global value chain networks certainly places it in a strong position to readily access large export markets not just in Asia but also Europe and the Americas.

Over the longer term, ASEAN is faced with the question of whether it should seriously look…

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Asean

Can Asia maintain growth with an ever ageing population ?

To boost productivity in the future, Asian governments will have to implement well-targeted structural reforms today.

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