By Yoon Ja-young
Real wages in relation to inflation rose only 0.08 percent in the third quarter, marking the smallest growth in two years and nine months. Economists say that stagnant wages can lead to sluggish consumption as well as deflation.
According to data from the Bank of Korea and the Ministry of Employment and Labor, the real wages of regular workers at workplaces with five workers or more averaged 2.96 million won a month in the third quarter, up from 2.95 million won a year ago, and the lowest growth since the fourth quarter of 2011.
The growth of real wages represents nominal income growth minus inflation. It reflects the real purchasing power of workers.
The growth rate has continued to fall for six consecutive quarters since the second quarter of last year when it stood at 3.4 percent. Some economists expect real wages to fall into negative figures during the fourth quarter.
While the country's GDP grew by an average of 3.2 percent annually between 2008 and 2013, and labor productivity by an average of 3 percent, the real wage of workers grew by an average of 1.3 percent during the same period.
Park Jong-kyu, a senior research fellow at the Korea Institute of Finance, said the country is going through "wageless growth," in which real wage remains stagnant despite increases in average labor productivity.
He said that stagnant real wages that led to a sluggish increase in household incomes resulted in low growth in the Korean economy. "Wages represent over 70 percent of the household income. When wages remain stagnant in real value, it will be difficult to increase the total household income," he said.
The sluggish household income contrasts with large cash piles held by Korean businesses. He explained that as wages, which are the main sources of household income from the business sector, remain stagnant, the national economy isn't improving despite good corporate performances.
"As a consequence, the households which are supposed to be saving are borrowing money, while businesses which are supposed to be investing are piling up cash. As the economic circle is turning in the opposite direction, it is difficult to revitalize the economy and the growth potential is weakening. The economy thus fell into low growth," the researcher said.
He said that the government should focus on solving the low-income issue of households instead of resorting to expansionary stimulus measures.
"If the economy is going through a temporary economic slowdown, conventional expansionary monetary and fiscal policies will work. When facing long-term slow growth due to structural problems, these won't work at all," said the economist.
Real wages in relation to inflation rose only 0.08 percent in the third quarter, marking the smallest growth in two years and nine months. Economists say that stagnant wages can lead to sluggish consumption as well as deflation.
According to data from the Bank of Korea and the Ministry of Employment and Labor, the real wages of regular workers at workplaces with five workers or more averaged 2.96 million won a month in the third quarter, up from 2.95 million won a year ago, and the lowest growth since the fourth quarter of 2011.
The growth of real wages represents nominal income growth minus inflation. It reflects the real purchasing power of workers.
The growth rate has continued to fall for six consecutive quarters since the second quarter of last year when it stood at 3.4 percent. Some economists expect real wages to fall into negative figures during the fourth quarter.
While the country's GDP grew by an average of 3.2 percent annually between 2008 and 2013, and labor productivity by an average of 3 percent, the real wage of workers grew by an average of 1.3 percent during the same period.
Park Jong-kyu, a senior research fellow at the Korea Institute of Finance, said the country is going through "wageless growth," in which real wage remains stagnant despite increases in average labor productivity.
He said that stagnant real wages that led to a sluggish increase in household incomes resulted in low growth in the Korean economy. "Wages represent over 70 percent of the household income. When wages remain stagnant in real value, it will be difficult to increase the total household income," he said.
The sluggish household income contrasts with large cash piles held by Korean businesses. He explained that as wages, which are the main sources of household income from the business sector, remain stagnant, the national economy isn't improving despite good corporate performances.
"As a consequence, the households which are supposed to be saving are borrowing money, while businesses which are supposed to be investing are piling up cash. As the economic circle is turning in the opposite direction, it is difficult to revitalize the economy and the growth potential is weakening. The economy thus fell into low growth," the researcher said.
He said that the government should focus on solving the low-income issue of households instead of resorting to expansionary stimulus measures.
"If the economy is going through a temporary economic slowdown, conventional expansionary monetary and fiscal policies will work. When facing long-term slow growth due to structural problems, these won't work at all," said the economist.
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