Virus cements economic polarization, job market woes

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Job recovery crucial to bolster consumption

By Lee Kyung-min

Korea is increasingly bogged down by crushing jobs data amid the COVID-19 pandemic, in what many consider a vicious cycle where workers experiencing a reduction or outright loss of income cut spending which in turn tightens consumption further, clouding the prospect of a much-needed economic recovery.

Economists say the pandemic stimulus priorities should be about improving the financial conditions for low-income, small and medium-sized enterprises (SMEs) and industries hit hard by the virus, a group of people in direct and continued need of government assistance.

Further advancing the need for a targeted approach is the pandemic divide, a socioeconomic polarization among the haves and the have-nots already in significant progress that has exacerbated rapidly over the past year.

This is because the well-to-do can increase their financial assets in the form of stocks and real estate enabled by cheap borrowing costs standing at record-low levels due to fiscal and monetary easing, an emergency measure put in place to prevent the economy from crashing further.

Drawn from the emergency measures is not relief to small business owners or low-income earners but a quick increase of wealth for the rich, since borrowing money is easy for those with high credit and collateral to put up compared to those with low credit scores and a higher probability of default.

Lenders under heavy pressure to maintain robust financial soundness are more likely to grant loans to those who do not necessarily need them, whereas the same request is more likely to be denied to people whose survival is on the line.

“The income gap is widening at a troublingly rapid pace,” Seoul National University economist Kim So-young said.

An across-the-board deterioration in economic and financial conditions usually occurs once a recession has ended. Yet the current development is exhibiting a new aspect, as illustrated by overheating in the financial market wildly detached from the real economy.

“The local stock market exceeded the symbolic 3,000 mark and apartment prices have been on a steady rise over the past few years, all the while the number of unemployed people continues to surge almost every month since March. Owners of stocks and multiple homes are practically isolated from the economic recession whereas minimum wage workers and small business owners worry about putting food on the table,” he said.

The assessment is backed further by statistics agency data that showed the decrease in the number of self-employed with workers was the sharpest in more than two decades and a smaller yet corresponding increase in the number of self-employed without workers.

Inferred by the 2020 figures are that layoffs made by many small business owners in a desperate move not to shut down their business altogether.

The statistics agency data showed Korea had 5.53 million self-employed people, the lowest since 5.37 million in 1994 shortly before the Asian financial crisis broke out. Korea lost 75,000 self-employed jobs in 2020, a greater loss from 32,000 in 2019.

The number of self-employed with employees dropped to 1.37 million in 2020, reporting a decrease of 165,000 from a year earlier. This was the sharpest decline since a year-on-year decrease of 247,000 in 1998 amid the fallout from the Asian financial crisis.

By contrast, the number of self-employed without employees saw a year-on-year increase of 90,000 in the same period, the steepest jump in 19 years since 2001.

“Most of them are holding out after laying off workers, practically the only way to reduce fixed operating costs to offset the drop in sales following operation restrictions gathering bans. The minimum wage workers let go suffered a direct blow as a result,” Kim said.

The agency data also showed Korea's overall industrial output fell 0.8 percent in 2020 from a year earlier, the pandemic-caused first year-on-year decrease since it began compiling data in 2000.