South Korea’s middle-income households see slow income growth

Income growth last year for households in the upper-middle 40 to 60 percent income bracket fell to a record low. As income and wealth polarization deepens between high- and low-income groups, the economic foundation of the middle class, often described as the backbone of society, is weakening. While earnings for top-tier households, many of which include professionals, rose sharply and welfare programs were concentrated on the lowest-income groups, middle-class households were largely left out.

According to data from the National Data Office’s national statistics portal, the average income of households in the middle third of the income distribution reached 58.05 million won last year, an increase of 1.8 percent from a year earlier. This is the slowest growth rate since the statistics were first published in 2017 and is lower than last year’s 2.3 percent rise in consumer prices. During the same period, income for the top 20 percent of households grew by 4.4 percent, and the bottom 20 percent saw a gain of 3.1 percent, both surpassing the growth rate of middle-income households.

The slow income growth among middle-class households stems largely from modest gains in wages and business revenue. While large corporations continue to expand, deteriorating domestic and global conditions have intensified financial pressure on medium and small enterprises. As a result, wage growth for middle-income workers, who are heavily employed in these sectors, has weakened. Rising costs for raw materials and labor, combined with falling consumer spending, have also hurt business income for self-employed service workers, another core group within the middle class.

Household income, which reflects the combined earnings of all members, is further constrained by employment challenges facing young adults. Last month, the employment rate for people ages 15 to 29 was 44.3 percent, marking 19 straight months of decline. Asset growth among middle-class households has also slowed. Their average assets this year reached 425.16 million won, a 3.6 percent increase from last year, below the 4.9 percent rise recorded for all households. Many middle-class families rent or own lower-priced homes, leaving them unable to benefit from steep price gains in high-end apartments in Seoul and other metropolitan areas.

A sustainable solution is to raise productivity in medium and small enterprises and in the service industry, creating higher-quality jobs for middle-class households, including young workers. From this standpoint, corporate tax increases that constrain wage growth would be counterproductive. Premature cuts to working hours could also place additional pressure on middle-class earnings. The outdated income tax system should be updated to ease the rising burden of labor income taxes, which have grown an average of 9.3 percent per year over the past five years. If middle-class income stagnation continues, weaker consumption could trigger a cycle of further income losses.