Mid-income Bracket Drops by 10%P in a Decade

Korea’s middle-income bracket started getting smaller from the financial crisis in the late 1990s, and has continued to shrink since then.

If the middle-income bracket, which can be considered the “pillar of society,” decreases, while the low-income bracket increases, social disputes will deepen making consensus among the people more difficult to achieve.

According to a report entitled “The Definition of the Middle Income Bracket and Our Estimation,” released by senior researcher Yoo Gyeong-joon and researcher Choi Ba-ul of the Korea Development Institute Tuesday, the middle-income bracket accounted for 68.5 percent in 1996. But, the share fell to 61.9 percent in 2000 and 58.5 percent in 2006. Here, the middle-income bracket refers to households whose disposable income stays between 50 percent and 150 percent of the median income.

Median income means the income of the individual who stands at the center when people line up in order of income.

The share of the low-income bracket whose income is less than 50 percent of the median income stood at 11.3 percent in 1996. But, it increased to 15.7 percent in 2000 and 17.9 percent in 2006. At the same time, the high-income bracket also increased from 20.3 percent in 1996 to 22.4 percent in 2000 and 23.6 percent in 2006.

Choi said, “On the assumption that people belonging to the high-income bracket and those belonging to the low-income bracket have not been replaced by each other, it can be estimated that around 3 percentage points moved to the high-income bracket while the remaining 7 percentage points moved to the low-income bracket, among the 10-percentage-point decrease in the middle-income bracket.”

By disposable income, the income share of Korean households excluding the upper 20 percent income bracket and the bottom 20 percent income bracket decreased from 54.3 percent in 1996 to 51.6 percent in 2000. After increasing to 54.7 percent in 2006, it reversed, falling to 54.1 percent in 2007. The income share of the bottom 20 percent has kept decreasing from 7.9 percent in 1996, 6.2 percent in 2000, 5.7 percent in 2006, and 5.6 percent in 2007.

Among urban households, the share of the middle-income bracket surged to 75 percent in 1992. But, the share has kept falling since it tumbled to 65 percent in 1998. On the other hand, the share of the low-income bracket has been on the rise. When single households are considered, income disparity gets worse.

Yoo said, “Since the financial crisis, all indicators related with the middle-income bracket have deteriorated. The major reason behind the collapse is an increase in the low-income bracket and single households consisting of senior citizens resulting from the collapse of the self-employed and the disintegration of families.”

He urged the government to have a good understanding of people’s income and raise the efficiency of the nation’s welfare system, saying, “Even though the former government invested a lot in improving distribution of income, poverty has worsened due to the inefficiency of the welfare system.”

peacechaos@donga.com