'EITC more effective than minimum wage for easing poverty'

By Choi Sung-jin

Contrary to widespread belief, the minimum wage system is not effective for easing poverty because it mostly benefits the middle-income class, a state think tank says.

In 2013, 1.52 million workers were not receiving minimum wages but only 30.5 percent belonged to poor households who failed to earn half the median income, according to a report released by the Korea Development Institute (KDI) Thursday.

That was mainly because there was more than one income earner in many families, the report said.

“This has resulted from the rapid weakening of the previous manufacturing-oriented industrial structure, with low demand for female workers, and a household economic structure in which men were the only breadwinners,” said Yun Hee-sook, a KDI senior fellow who wrote the report. “Whether and how many income earners a family has decides if it is poor or not.

According to Statistics Korea’s 2015 household survey, 77.4 percent of the bottom 10 percent of households on the income ladder had no family members employed, and only 1.2 percent had two or more employed. On the other hand, only 3.4 percent of the top 10 percent households had no income earners and 62 percent had two or more income earners.

“The government should consider introducing the earned income tax credit (EITC), which fits better with its policy goal of easing poverty, by selecting recipients based on household income and linking benefits to their economic activities,” Yun said. EITC is a benefit for working people with low to moderate income. The amount of EITC benefit depends on a recipient’s income and number of children.

“The larger the number of workers in a family, the smaller the benefits the government has to provide for poor households through EITC,” the researcher said. “Among unemployed people in low-income households, many are women, the aged and poorly educated, and the government needs to implement a labor policy that can enhance their working ability and support their employment.”