Why can’t we feel benefits of $20,000 in income?

Exchange rate, other factors don’t make you as rich as figure suggests

By Kang Seung-woo

Many Koreans here may have felt left out when they came across the news that the nation’s per capita income will recover to the $20,000 mark this year for the first time in three years and may reach an all-time high of $23,000 next year.

According to the Bank of Korea, the nation’s per capita gross national income (GNI) is forecast to reach $20,510 this year and rise to $22,998 to $23,866 next year. The per capita GNI is the value of a country’s final income in a year, divided by the mid-year population, which in Korea is often quoted in dollars.

If Korea ends this year in accordance with this rosy outlook, Korea will become the eighth country in the world to tally $20,000 in per capita income among countries which have a population of 40 million or more.

The positive news, ironically, has displeased many Koreans from the middle- and low-income bracket as they are not feeling the change. For them, the rising number means that economic polarization between haves and have-nots has been increasing.

Economists said that policymakers should not be too excited about the news as the rise has been boosted by some behind-the-scene factors, such as the won’s appreciation against the dollar, noting that only large businesses and rich families may feel the effects of the recovery and GNI growth

“It is true that everyone’s income will not be able to meet the standard (because it is showing average individual earnings),” said Shin Suk-ha, a research fellow of the Korea Development Institute (KDI).

“A stronger domestic currency, caused by the U.S. Federal Reserve’s stimulus measures, heavily influenced the per capita GNI growth rate in dollars. Considering several lingering factors including high inflation and the low interest rate, not many people will feel the change,” said Ha Joon-kyung, an economics professor at Hanyang University.

In 2007 the per capita GNI reached $21,659, but the upward trend was short-lived, falling below the $20,000 level in 2008. It recorded a five-year low of $17,071 last year.

“Despite its recovery to the $20,000 mark, increasing per capita GNI can intensify the imbalance in income levels,” said Lee Geun-tae, a senior economist at LG Economic Research Institute.

“The advanced economies usually see that the higher the income level, the deeper the gap between haves and have-nots and Korea could also see this trend.”

There are several signs that the income gap is widening.

The Gini coefficient is a measurement of income inequality and its number ranges between 0 and 1, with a higher figure meaning it’s more unequal. The nation’s index fell slightly from 0.298 in 2008 to 0.296 in 2009, but it is expected to rise again this year.

“Thanks to the government’s support for the poor and a sluggish property market, the Gini coefficient declined last year, but the gap is likely to widen once the government effects go away,” Lee said.

In addition, the labor force share of the income pie is getting smaller and smaller every year. The ratio of laborers’ income to the total national income has been on the decline since 2006. The ratio stood at 61.3 percent in 2006, but it dropped to a five-year low of 60.6 percent in 2009.

Yu Byoung-gyu, an executive director at the Hyundai Economic Research Institute, added, “In the process of economic growth, the wealth disparity has expanded.”

Market experts said that Korea should come up with a new strategy to cope with a new economic paradigm in order to achieve its goal of lifting the per capita income above $30,000 ― a barometer for an advanced country. They also said that the government needs to invest in nurturing creative human resources.

The International Monetary Fund (IMF) said in May that Korea’s per capita income is unlikely to exceed $30,000 by 2015 as the nation’s potential growth rate declines and inflation accelerates.

“Korea’s industrial structure is based on the manufacturing industry and durable goods, but developing countries and China are also competing with us in these sectors. We are sandwiched between them. So, we need to concentrate on industries in which we can maximize economic efficiency and expand the growth potential like the service industry,” Lee said.

“The shipbuilding, steel and auto industries, which copied the Japanese market, has guided Korea to $20,000 thus far, but from now on the country has to compete after acquiring those who have high-caliber talent, which it has not shown interest in,” an economics professor at a Seoul-based university said.