Stagnant wage growth

Despite the higher economic growth and improved job markets in the United States, Europe and Japan in recent years, the real wage increase rate here has been in the zero percent range, according to a Bank of Korea report. The BOK paper attributed the sluggish wage growth to declining labor productivity, population aging and the influx of female and immigrant workers.

More specifically, average wage gains of the members of the Organization for Economic Cooperation and Development dropped to 3.4 percent in the 2014-2016 period, compared with 7.3 percent tallied from 2001-2007 before the U.S.-originated global financial crisis hit the group of relatively wealthy countries. Offset by inflation during the period, the real wage increase has been all but zero, the central bank said.

The situation was worse for Korea where the quarterly economic growth rate hovers in the zero percent range. Monthly income per household in the second quarter dropped to 4.7 million won ($4,152) from 5.25 million won in the first quarter, and down 0.4 percent from a year ago.

The nominal increase rate of hourly wages in the first three months marked a setback of 2.9 percent from a year earlier. Everything, particularly the prices of food and other daily necessities, went up here except for workers’ paychecks.

The central bank report said, rightly, pushing for wage hikes that reflect economic growth can help improve household earnings and spending that could further contribute to the overall economy. And that brings one back to the controversy over President Moon Jae-in’s income (wage)-led growth policy.

Critics raise an issue with Moon’s policy, arguing that a priority should be placed on savings and investment rather than income and spending. Yes, growth comes from investment, but Korea’s investment rate remains at a low level with its capital accumulation also reaching those of other industrial countries. Japan’s economic growth rate has long been slowing amid the rapidly graying society and the sharply falling birthrate. Among OECD members, Japan is a typical country where the share of household income is too small, and that of corporate earnings is excessively large. South Korea stands where Japan did two decades ago.