By Kim Jae-kyoung
Staff Reporter
The Korean middle class is in serious trouble due to the deepening economic recession.
The shrinkage of the middle class is mainly a result of many middle-class households falling into poverty due to falling income triggered by the prolonged economic slump.
Kim Tae-hoon, 38, an employee of a small manufacturing company in Seoul, said that the ongoing downturn has pushed him into the low-income group from the middle class.
``Before the financial crisis hit the country, we were a middle class family. I had a decent salary and had no problem with buying stuff and servicing debt payments,'' Kim said.
``But with the crisis shaking our company, we work on a three-shift basis, which means that I earn only a third of what I used to. As a result, I can't afford to service my debts and buy all that I need, so I work as a designated driver for drinkers at night,'' he added. ``Now I feel as though I'm way below middle class.''
Like Kim, an increasing number of middle-class households are falling into poverty or are on the cusp between the middle and low-income classes.
According to the Hyundai Research Institute, the number of middle-class families has declined sharply over the past three years.
The institute said middle-class households accounted for 49.9 percent of the total in 2008, down 7.6 percentage points from 57.5 percent in 2005. It was the first time for the portion to fall below the 50 percent mark.
The middle class refers to those who earn between 50 percent and 150 percent of the nation's median income. The upper class makes above 150 percent of median income, while those earning less than 50 percent are defined as the low-income class.
The low-income bracket accounted for 23 percent of Korean households in 2008, up from 18.1 percent in 2005, while the portion of high-income families rose to 27.1 percent from 24.4 percent.
``The shrinkage of the middle class was due to the manufacturing sector's weakening capability to create jobs and households' worsening financial soundness following the burst of the credit bubble,'' a Hyundai economist said.
New job growth has been on the decline since the 1997-1998 financial crisis. The growth rate averaged 1.7 percent from 2000 to 2008, down from an average of 2.3 percent between 1990 and 1997. In particular, the number of jobs in the manufacturing sector decreased by 0.6 percent every year on average since the Asian financial crisis.
The credit bubble was another big factor. Many households saddled with household debts are exposed to bankruptcy due to job losses caused by the business slowdown. The number of applicants for the credit recovery program jumped by 24.2 percent to 79,144 in 2008 from a year earlier.
``The decrease in the size of the nation's middle-class is worrisome as it can destabilize the economy by weakening domestic demand, deepening social conflict and increasing social costs to protect the poor,'' the economist said.
``To prevent further contraction, the government should prioritize creating more stable jobs and strengthening the social safety net by developing cost-effective social welfare programs,'' he added.
He said the survival of the middle class depended on tax-and-spend mechanisms and the government needs to take a close look at Canada and Europe, where the middle class is faring relatively well. In these countries, the government plays a central role in supporting the middle class through tax benefits and subsidies.
In his book ``The Decline of the Middle Class: an International Perspective,'' Steven Pressman, a U.S. economist, said that in a modern global economy, the middle class can only be self-sustaining with active government programs because the free market produces great inequalities of income.