The purpose of this study is to review the economic development strategy that has been pursued since the 1970s, in terms of income distribution and the changes in economic structure due to those strategies. Also, this study analyzes factors that worsened or helped to improve income distribution between social classes.
South Korea has experienced rapid economic growth since the 1970s. Despite the number of methods employed to improve income inequality, such as overall wage improvements, price stabilization, and increases in employment throughout the years of economic development, the government was unable to address income inequality, which was caused by rapidly increasing real estate prices and financial asset income. Income inequality has not been improved since the government failed to reduce the wage gap.
The concentration of financial savings asset ownership is much greater than the concentration of income. Moreover, the economic development strategy never intended to worsen this situation, but the concentration of land asset ownership which was a consequence of incomplete systems was much more severe than the concentration of financial savings asset ownership. Therefore, the negative impact on the structure of income distribution due to the increase of real estate prices even during the (price) stabilization period was far more serious than previously thought. By verifying policy variables including rice prices, wages, and monetary and exchange rates that affect the structure of income distribution and influence growth or inflation through a simulation model, this study was able to analyze the effect on the economy as a whole. This analysis should be considered in order to control policy variables with the intention of improving the income distribution structure. Economic growth and price stabilization should not be sacrificed to improve the structure of income distribution in the long run.
From this research, we were able to determine that our country exhibits much higher concentrations of land asset ownership than financial asset ownership, and the ownership of financial assets is much greater than income inequality. This is a common phenomenon in economically advanced economies, but we lack institutional framework to control concentrating factors caused by the concentration of capital ownership.
To improve income distribution, the government should implement policies as follows:
First, the government must strengthen the institutional framework to prevent individuals from gaining all their profit from land ownership (housing prices rise eventually according to land value).
Second, an institutional framework should be developed to avoid high-income groups from profiting from the increase in stock prices or financial savings assets.
Third, in order to reduce the income gap between urban and rural areas, the price increase rate of agricultural products such as rice, which the government can control, should always maintain a slightly higher rate than the rate of wage growth.
Fourth, an institutional framework should be developed to reduce the income gap between occupations, large and middle-sized companies, and the manufacturing industry and service sectors, while maintaining autonomous wage adjustment between labor and management.
Fifth, the government must find ways to prevent tax evasion by reorganizing the estate tax system, due to the high possibility that the foundation of capitalism might weaken if the government tries to directly reform the current concentration of asset ownership.
Sixth, the government should focus on improving the housing finance system for low income earners in order to distribute land and housing assets, which are primarily owned by the rich, to the middle class.
Finally, the redistribution of national welfare should be reorganized so that the benefits can be concentrated on poorest income classes.
한국의 경제개발전략과 소득분배(The economic development strategy and income distribution of South Korea)
|Series Title; No||정책연구시리즈 / 89-06|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < General|
|Holding||KDI; KDI School|