Korea worst in income inequality in Asia-Pacific

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Economy

Thu, September 21, 2017 | 19:34

Finance

Korea worst in income inequality in Asia-Pacific

Posted : 2016-03-16 17:13

Updated : 2016-03-16 19:28

By Kim Jae-won

Korea's income inequality is the worst among 22 countries in the Asia-Pacific region with the top 10 percent of the population receiving 45 percent of the total income, the International Monetary Fund (IMF) said Wednesday.

The Washington, D.C.-based organization said that Korea's income inequality has worsened over the last two decades, undermining the country's growth sustainability. This was announced in its working paper, "Sharing the growth dividend: analysis of inequality in Asia," written based on 2013 ― the latest data available.

"Korea shows a surprisingly large increase by 16 percentage points since 1995 and records the highest level among the available countries with the top 10 percent earning 45 percent," said the report.

Korea suffers from widening income inequality between haves and have-nots. Generational income inequality also poses problems in Asia's fourth-largest economy, as young jobseekers have trouble landing quality jobs due to sluggish growth. The nation's youth unemployment rate hit a record high of 12.5 percent in February, up from 9.5 percent the month before; while the average jobless rate in surveyed countries reached 4.9 percent.

The organization attributed this trend been attributed to rapid aging, the wage gap between regular and non-regular workers and gender occupational inequality. It also said that social mobility is declining in the country, referring to recent studies.

Singapore came second in the table, with the top 10 percent owning 42 percent, followed by Japan with 41 percent. New Zealand also marked relatively high income inequality as its top 10 percent own 32 percent of the total income.

In terms of the top 1 percent's income shares, Singapore topped the list with 14 percent, followed by Korea with 12 percent, up from 7 percent in 1990. The top 1 percent in Japan, Australia, Malaysia and India also owned around 9 percent of the total income, showing high levels of inequality.

The IMF said that countries in the Asia-Pacific region need to address inequality of opportunities by broadening access to education, health and financial services.

"Also fiscal policy could combat rising inequality, including by expanding and broadening the coverage of social spending, improving tax progressivity, and boosting compliance. Further efforts to promote financial inclusion, while maintaining financial stability, can help," said the paper.

The organization said that elevated levels of inequality are harmful for the pace and sustainability of growth, leading to suboptimal investment in health and education. The IMF also pointed out that widening inequality can weaken support for growth-enhancing reforms and may spur governments to adopt populist policies and increase the risk of political instability.

The report recommended that tax and expenditure policies be carefully designed to meet distributional objectives.

"Expanding and broadening the coverage of social spending is critical for more effective redistribution," it said. "This includes improving low-income families' access to higher education and adequate health services as well as a better targeting of social benefits, which can also finance an expansion of their coverage."

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