Korea’s middle class is under growing stress. They are shrinking and not optimistic about their future.
The middle class, namely a two-person household with a monthly income of 1.75 million to 5.25 million won, accounted for 67.7 percent of the population in 2010, down from 75.4 percent in 1990.
Statistics Korea reports the rise of the poor class to 12.5 percent from 7.1 percent in the past two decades. About 54 percent of the 3.9 million new urbanites in the two-person households during the period fell into the lower income class. Only 1 percent moved up to middle class.
Korea also ranks low in middle-class population among OECD nations. It ranks 18th out of the 21 member countries surveyed.
Even the current middle class are unhappy as eight out of 10 say that they are unstable financially, far above the Asian average of 55 percent.
The two economic crises — the financial crisis in 1997 and the credit card crisis in 2002 — thinned the middle class base. Many of the eight million middle-class people are likely to fall to the poor class as these Baby-boomers, born from 1955 to 1963, have begun to retire. Many unemployed people in their 20s and 30s have yet to dream of becoming middle class.
The growing use of workers under temporary contracts has reduced the middle class as they tend to work with lower wages and fewer social benefits.
This means even middle-income earners have seen little increase in their paychecks despite the rise in gross domestic product per capita and productivity.
The squeeze on the middle class is also a worldwide phenomenon due to the global economic woes typified by high inflation and the jobless rate. Even the Oxford Dictionary picked the “squeezed middle” as its word of 2011.
The globalized economy has eliminated many high-quality jobs. Tax policies favoring the rich have also reduced the middle class.
The middle class makes society stable and works as a buffer between the poor and the rich.
Long-term and consistent macroeconomic policies will keep the middle class growing. Keeping inflation below income gains is critical. Tax policy is an indispensable tool for enabling wage-earners and the self-employed to become middle class. More temporary workers should be able to get full employment. Government spending on services that benefit the middle class should increase.
Keeping the property market stable is crucial as Koreans put 80 percent of their wealth in houses. Nearly all buy a house through borrowing. They are now struggling to repay interest on the debts as the trade of houses stagnates.
The record household debt, more than a year’s GDP, is likely to make many of today’s middle class poorer.
The more middle-income households Korea has, the less fiscal restraint the government will face.
The political parties have yet to unveil campaign pledges for the middle class. They are either seeking to penalize the rich and chaebol or to expand consumption-oriented welfare programs.