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Working Class Still Feels Pinch of Economic Crisis

Posted July. 08, 2010 14:48,   


A 54-year-old woman running a clothing shop near the Bucheon subway station in Gyeonggi Province recently decided to change her business to a chicken restaurant or pizzeria due to weak sales.

She borrowed 30 million won (24,520 U.S. dollars) from an acquaintance two years ago and had made the monthly repayments, including interest, whenever her conditions allowed it. Over the past six months, however, she has been unable to make the payments.

“News reports say the economy is recovering but I can’t feel the effects,” she said. “I’ve frequently said since last year that the going’s gotten tough. Now I say ‘I’m dying.’”

Though the economy grew 8.1 percent in the first quarter this year and employment recorded its highest growth in eight years in May, the working class has felt little of the recovery. The self-employed and small- and mid-size businesses say they have difficulty paying interest on loans.

○ Bubble in statistics

The working class feels the impact of economic recovery from employment. When people get jobs, they earn income, spend money, and have room to feel the warm breeze of the recovery. Though this year saw a marked increase in jobs, the effects are not pronounced due to the base effect stemming from worsened employment conditions last year.

The number of people employed in May was 24,306,000, up 586,000 year-on-year and 367,000 more than that of May 2008, when the global financial crisis had yet to hit. If the 100,000 temporary jobs created by government stimulus measures are excluded, the number of new jobs would be even lower.

The real economy has yet to get back on track, but comparison with the situation a year ago, when the economy was in a dismal condition, creates a statistical illusion.

Shin Min-yong, in charge of economic research at LG Economic Research Institute, said, “It’s hard to say that the job market has made a strong turnaround when compared to employment conditions before the jobless crisis,” adding, “If economic indicators continue to improve, ordinary people will feel the effects of recovery.”

Industry production and capital investment increased slower compared to pre-crisis levels. The facility investment index in May was 126.2, up 23 percentage points year-on-year, but was just 3.1 points higher than in May 2008 (123.1).

Corporate investment brings about higher employment but a slight rise cannot create many jobs.

○ Aggravating polarization

The economic crisis led to a widening gap between large and small companies, high-and low-income households, and regular and temporary workers. This is another factor that barely makes improvement in business conditions noticeable in the working class.

An owner of a small company producing parts for handsets in Seoul’s Gangseo district said, “I haven’t had much benefit from economic recovery due to the falling won,” adding, “This is because export growth has slowed due to weak economic conditions in the U.S. and Europe while raw material prices are rising.”

“Small- and mid-size companies are on alert since banks are reluctant to give loan extensions though such companies submit contract documents.”

Small- and mid-size companies will have more difficulty as banks are expected to begin loan withdrawal if the government suspends support measures for smaller companies, such as the expansion of loan guarantees, as part of an exit strategy this month.

The performance gap between big and small companies keeps widening. Large companies saw pre-tax net profit rise to 5.9 percent last year from 3.3 percent in 2008, while that of smaller companies rose to 2.2 percent from minus 2.7 percent over the same period.

The situation for temporary workers and low-income families is especially getting worse. The top 80 percent of earners saw income grow last year, but those of the bottom 20 percent declined 0.9 percent. The average wage of a temporary worker was 60.5 percent of that of a regular worker in March 2008, but declined to 54.7 percent in March this year.

Jeong Yu-hun, a senior researcher at Hyundai Research Institute, said, “Businesses avoided hiring regular workers in the economic crisis, so no improvement was made in the lives of low-income families and temporary workers. Because of this, they feel the economy is still in bad shape.”

President Lee Myung-bak told a Cabinet meeting Tuesday, “The economy has made a clear turnaround but small businesses, the self-employed and the working class still feel the pinch of the economic crisis,” urging solutions.

Mindful of the severity of the situation, the government will pursue measures to spread the effects of recovery to the working class in the latter half of this year. The first task is to provide jobs and education to the poor to lift them from poverty and overhaul transaction practices for improved profits at large corporations so that the recovery spreads to small-and mid-size companies.

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