Firms outgrow households in income

By Kim Rahn

The earnings gap between households and businesses is widening, with household incomes accounting for an increasingly small portion of the nation’s total.

Concerns are rising that Korea’s income polarization may widen further, while several conglomerates are making profits and small companies and households’ earnings are not growing much.

Data by the Bank of Korea (BOK) showed Monday that companies’ disposable income grew 80.4 percent from 68.9 trillion won ($66.3 billion) in 2008 to 124.3 trillion won in 2013.

During that period, household disposable income rose 26.5 percent from 599.3 trillion won to 758.3 trillion won.

Of the nation’s total disposable income, households’ incomes accounted for 66.5 percent in 2008 but dropped to 65.9 percent in 2012, while companies’ shares rose from 7.6 percent to 10.8 percent.

While households feel their earnings are not increasing much, statistics show otherwise ― Korea’s per capita gross national income (GNI) exceeded $26,000 last year and is expected to reach $30,000 this year according to several economic research centers.

“It is true the economy is picking up. But the recent rapid growth of GNI is attributable to revised standards of national accounts calculation and the strong won against the dollar. It is different from earnings that people really make,” researcher Lee Geun-tae of the LG Economic Research Institute said.

Indeed, the personal gross disposable income (PGDI), which may be the closest figure to households’ real purchasing power, was $14,690 in 2013, about half of the GNI.

Director General Jung Yung-taek at the BOK said, “The PGDI includes households and non-profit institutions, and when excluding the latter, we presume households’ PGDI was $14,000.”

The PGDI accounted for 57.5 percent of the GNI in 2008 and 2009, but declined to 55.3 percent in 2010 and 2011 and 55.4 percent in 2012.

The 2012 ratio was lower than 21 OECD members’ average, 62.6 percent, and Korea ranked 16th, according to the BOK.

However, considering that countries ranked 18th to 21st were Sweden, Denmark, the Netherlands and Norway where the governments collect huge taxes to offer quality welfare programs, and excluding them, Korea is almost at the bottom.

Economic analysts say large companies’ gains are not trickling down to small companies and to households, which again results in growing household debts and dull domestic demand.

Lee said a handful of big companies including Samsung Electronics and Hyundai Motor are mainly raising the figures up but many other big firms and most small- and mid-sized ones have poor profitability.

“If companies are to increase workers’ wages and have their earnings trickle down to households, they need to have large profits. But despite high sales, their profitability is low compared to their investment, as competition with other Asian rivals, such as Chinese companies, is getting keen,” he said.

Professor Kim Sang-jo at Hansung University pointed out employees’ average wage has not increased much since 2008 and companies are presenting more and more non-regular jobs that accompany smaller incomes.

“If companies prefer low wages and non-regular jobs like today, it is sure that households’ purchasing power, which is the basis of domestic demand, cannot become strong,” Kim said. “If firms prefer them for their short-term profit, it can boomerang back on them in the long term.”

Researcher Park Jong-kyu at the Korea Institute of Finance called for companies to invest more.

“Companies make money but do not expand reinvestment and employment. They just reserve money and their gains are not used for productive activities,” he said.