Amid shrinking income, young people need jobs - and more

By Choi Sung-jin

Good news is hard to find for Korea’s younger generation these days.

A recent report said the household income of people in their 20s and 30s fell last year, for the first time since the government collected related statistics. Another gloomy tally showed the unemployment rate of people aged 15-29 soared to 12.9 percent in February, also the highest since officials began to gather such figures.

Government statisticians divide household income into four types by their sources -- labor, business, property and transfer income. According to Statistics Korea’s household surveys between 2003 and 2015, labor, or earned, income grew 4.8 percent but transfer income rose 8 percent.

This means income transferred from other people, such as parents and children, called private transfer income, and income transferred from the government, such as basic and national pensions, called public transfer income, increased its share of household income while that of earned income shrank. Of course, earned income still makes up the biggest share with 70 percent, but it is expected to fall rapidly, experts say.

Hit hardest by this trend are young people, who rely on wages more than any other age groups. Last year, the share of earned income of families whose breadwinners are younger than 39 stood at 78.6 percent of the total, nearly 10 percentage points higher than the average 69.1 percent.

The share of earned income falls as the heads of household age, to 72 percent in the 40s, 71.4 percent in the 50s, and 46.8 percent in the 60s or older.

The earned income of the 20-30 generation fell for two reasons -- the dearth of jobs and scarcity of decent jobs. Last year, youth unemployment hit 9.2 percent, the highest since 2000. More noteworthy was the widening gap between the young jobless rate and overall employment rate, from the high-3 percentage point range in the 2000-2002 period, to the mid-4 percentage point range during the following decade, and to the mid-5 percentage point range in the last two years.

Landing jobs is difficult but getting decent - or regular - jobs is harder still. Between 2003 and 2015, the share of non-regular workers, such as part-timers and contract workers, increased only among workers in their 20s and 30s.

Among 100 workers in their 20s who got jobs in 2006, 33 were non-regular workers but the comparable number increased to 35 in 2015. On the other hand, the corresponding numbers for workers in their 30s, 40s and 50s dropped by 8.5, 8 and 7.3 persons, respectively.

The grim situation for young people is due in part to the government-initiated move in 2009 to slash starting salaries. In the wake of the 2008 global financial crisis, the government called for reducing salaries for entry-level workers to encourage companies to hire more staff, which spread to state enterprises, financial companies and even to the 30 biggest family-run conglomerates. As a result, people who joined the job market in 2009 and later received 20-30 percent less pays than those who did so before 2009 while doing the same work.

Technological progress that replaces humans with machines is a threat to workers of all ages, but it is more menacing for young workers. When managers want to trim their workforce, they target employees with the shortest careers, most of whom are outside the union’s protective walls, or stop hiring altogethe.

Advanced countries that experienced technological innovation ahead of Korea have experienced this phenomenon. According to the unemployment statistics of OECD countries between 1971 and 2014, there was hardly any difference between the youth unemployment rate and the overall jobless rate in the 1970s - just 0.007 percentage point - but this widened to 1.14 percentage point in the 1980s, 1.52 percentage point in the 1990s and 1.71 percentage point in the 2000s.

The Korean government’s efforts to prevent the contraction of earned income of younger generations are focusing on creating more jobs. The Park Geun-hye administration’s answer is the “peak wage” system, which cuts salaries of aged workers to make more money available to hire young workers. Civic groups are calling for the businesses to draw on their cash reserves to invest and hire more.

These efforts, while necessary, cannot solve the unemployment and the falling income of younger generations, given these problems have been progressing for about a decade in Korea, and for decades in advanced countries, especially in these times of machines replacing humans in job markets, experts say.

One of the fundamental solutions is “youth allowance,” they said. Its advocates call for increasing young people’ income in part through transfers rather than forcing them to struggle to expand their earned income.

Anthony B. Atkinson, professor of London School of Economics and a renowned authority in equality issue, explains youth allowance from the aspects of “initial capital” and “social inheritance,” in his book “Inequality.” Youth allowance can serve as seed money that makes up for shaky earned income caused by joblessness and job insecurity, and such allowances should come not through private transfers but through public transfers. Professor Atkinson suggests about 10,000 British pounds, or 16 million Korean won, as the optimal size of such allowance.

In this country, Mayor Park Won-soon of Seoul Metropolitan Government and Mayor Lee Jae-myung of Seongnam City are making similar moves, albeit in much smaller scale, but came under harsh criticism from conservatives, including the incumbent government, as “irresponsible populist acts.”