Middle Class Shrinking, Income Gap Widening
By Lee Hyo-sik
Staff Reporter
The number of middle-class families has declined since the 1997-98 Asian financial crisis on stagnant income growth as a result of sluggish business conditions and job creation, the state-run Korea Development Institute (KDI) said Tuesday.
It also said the income gap between the haves and have-nots has widened over the years, despite the previous administration's policy priority on the redistribution of wealth, calling on the Lee Myung-bak administration to establish a more cost-effective social welfare system.
The institute said middle-class households accounted for 54.5 percent of the total in 2006, down from 61.9 percent in 2000 and 68.5 percent in 1996.
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 the median earnings, while those earning less than 50 percent are defined as the low-income class.
Among once middle-class households, a greater number fell into poverty from 1996 through 2006 than climbed the ladder to join the high-income bracket, the KDI also said.
The low-income bracket accounted for 17.9 percent of Korea's total households in 2006, up from 11.2 percent 10 years ago, while the portion of high-income families rose to 23.6 percent from 20.3 percent.
The institute also said the middle-class earnings accounted for 54.7 percent of the nation's total household income in 2006, slightly up from 54.3 percent 10 years ago, while wages earned by low-income households accounted for 5.7 percent, down from 7.9 percent over the 10-year period.
Meanwhile, the top 20 percent income bracket earned 4.49 times more than the bottom 20 percent of households in 1996. But the gap widened by 6.79 times in 2000 and 7.02 times in 2006, indicating that the income disparity has deepened over the past 10 years.
``Following the Asian financial crisis, the number of working middle-class households dropped as many businesses went bankrupt and workers lost their jobs. The majority of them then opened restaurants and other small businesses to make ends meet, but their financial condition worsened on prolonged sluggish business conditions,'' the KDI said in a report.
Many of the once working middle-class fell into poverty because of falling income amid the tight job market, while the rich have become richer as they have been able to accumulate more wealth through stock and real estate investment, the institute noted.
``The previous Roh administration spent a larger portion of fiscal budget to introduce a range of welfare programs aimed at narrowing the income gap between the rich and the poor. But the disparity has widened and the number of middle-class families has decreased as those who are in need did not benefit much from state support schemes,'' it said.
The KDI suggested the government first precisely assess the income distribution among households and then set up cost-effective social security-related programs targeting only those who truly need help from the government.