The poor become poorer amid economic woes
Households at the bottom 20 percent of the income bracket saw their average real income fall 6.5 percent in the third quarter of this year from a year earlier, according to Statistics Korea on Monday. Meanwhile, the richest 20 percent's inflation-adjusted average income declined only 2 percent. This indicates that deteriorating economic conditions such as runaway inflation and higher interest rates have had a far more severe effect on the poor.
Simply put, the poor have become poorer due to deeply entrenched socioeconomic inequality. This trend will inevitably lead to a vicious cycle of a fall in consumption, an economic slump, widening of the income gap and deepening inequality. It also dampens people's hopes of an improvement in their standard of living after the pandemic.
The data also show the top 20 percent made 5.75 times more income than the bottom 20 percent during the July-September period. This is higher than the 5.34 times recorded a year before. Over the past three years, the COVID-19 pandemic has widened income disparity, forcing the poor to bear the brunt of the unprecedented global public health crisis. On the other hand, the rich have become richer on the back of asset price bubbles which were formed due to monetary easing and fiscal expansion.
Now, the situation is becoming worse. Soaring prices and rising interest rates are causing the poor and vulnerable to suffer higher living costs and growing interest payments. According to the statistics office, individual borrowers' interest payments surged 19.9 percent in the third quarter of this year from the year before as the average mortgage rates more than doubled to as high as 7 percent.
More seriously, the middle class, the backbone of democracy, has been shrinking at an alarming rate. According to the Hyundai Research Institute, the ratio of the population in the middle class dropped to 44 percent in 2020 from 47.1 percent in 2019. The figure was presumed to decline further in 2021 and this year, given the widening income and wealth gaps. The crumbling of the middle class could pose a grave threat to our society because it will hurt social cohesion and create conflicts between the haves and have-nots.
President Yoon Suk-yeol should not forget his campaign promise to narrow economic inequality and address social polarization. But his administration has yet to work out detailed measures to keep the promise. Instead, it has been seeking to lower corporate tax rates and ease the tax burden for owners of multiple homes. It has also proposed to cut inheritance and gift tax rates. Thus the government cannot avoid criticism for pushing for tax cuts for the rich.
Yoon and his policymakers need to map out comprehensive measures to help the poor earn more income. They should double down on creating more jobs, strengthening the social safety net and offering more welfare programs for the poor and underprivileged. In addition, they should strive to help improve the people's livelihoods by taming inflation and speeding up the economic recovery.
Households at the bottom 20 percent of the income bracket saw their average real income fall 6.5 percent in the third quarter of this year from a year earlier, according to Statistics Korea on Monday. Meanwhile, the richest 20 percent's inflation-adjusted average income declined only 2 percent. This indicates that deteriorating economic conditions such as runaway inflation and higher interest rates have had a far more severe effect on the poor.
Simply put, the poor have become poorer due to deeply entrenched socioeconomic inequality. This trend will inevitably lead to a vicious cycle of a fall in consumption, an economic slump, widening of the income gap and deepening inequality. It also dampens people's hopes of an improvement in their standard of living after the pandemic.
The data also show the top 20 percent made 5.75 times more income than the bottom 20 percent during the July-September period. This is higher than the 5.34 times recorded a year before. Over the past three years, the COVID-19 pandemic has widened income disparity, forcing the poor to bear the brunt of the unprecedented global public health crisis. On the other hand, the rich have become richer on the back of asset price bubbles which were formed due to monetary easing and fiscal expansion.
Now, the situation is becoming worse. Soaring prices and rising interest rates are causing the poor and vulnerable to suffer higher living costs and growing interest payments. According to the statistics office, individual borrowers' interest payments surged 19.9 percent in the third quarter of this year from the year before as the average mortgage rates more than doubled to as high as 7 percent.
More seriously, the middle class, the backbone of democracy, has been shrinking at an alarming rate. According to the Hyundai Research Institute, the ratio of the population in the middle class dropped to 44 percent in 2020 from 47.1 percent in 2019. The figure was presumed to decline further in 2021 and this year, given the widening income and wealth gaps. The crumbling of the middle class could pose a grave threat to our society because it will hurt social cohesion and create conflicts between the haves and have-nots.
President Yoon Suk-yeol should not forget his campaign promise to narrow economic inequality and address social polarization. But his administration has yet to work out detailed measures to keep the promise. Instead, it has been seeking to lower corporate tax rates and ease the tax burden for owners of multiple homes. It has also proposed to cut inheritance and gift tax rates. Thus the government cannot avoid criticism for pushing for tax cuts for the rich.
Yoon and his policymakers need to map out comprehensive measures to help the poor earn more income. They should double down on creating more jobs, strengthening the social safety net and offering more welfare programs for the poor and underprivileged. In addition, they should strive to help improve the people's livelihoods by taming inflation and speeding up the economic recovery.
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