COVID-19 Widened the 'Income Gap'

Statistics Korea, 2020 Q1 Household Trends Survey

Kang Shin-wook, Commissioner of the Korea National Statistical Office. (File photo) [Image source=Yonhap News]

[Sejong=Asia Economy Reporter Joo Sang-don] The income gap between the top 20% and the bottom 20%, that is, income inequality, which partially reflects the impact of the novel coronavirus infection (COVID-19), has worsened in the first quarter of this year. While the total income (earned + business income) of the bottom 20% group slightly decreased, the income of the top 20% actually increased.

According to the '2020 First Quarter Household Trends Survey Results' announced by Statistics Korea on the 21st, the equivalized disposable income quintile ratio rose to 5.41 times, up 0.23 points from 5.18 times in the first quarter of last year.

The income quintile ratio is the value obtained by dividing the equivalized disposable income of the top 20% (5th quintile) by the income of the bottom 20% (1st quintile). A higher value indicates a greater degree of income inequality.

Kang Shin-wook, Commissioner of Statistics Korea, explained, "The deterioration in income distribution is due to the differing growth rates of earned income and business income, which account for the largest share of current income, across income quintiles. The lower growth rate of employment sector income, which combines earned income and business income, in the low-income quintiles appears to have contributed to the overall worsening of income distribution compared to the same period last year, despite the expansion of public transfer income."

The first quarter quintile ratio this year cannot be directly compared with previous figures. This is because since January last year, Statistics Korea has been conducting integrated surveys on income and expenditure for about 7,200 sample households nationwide. However, in 2019, both the existing survey results and integrated results were published together, and the income quintile ratio for the first quarter of 2019 based on the existing survey was 5.8 times. This means that income inequality had eased compared to the first quarter of 2018 (5.95 times) but worsened again this year.

In fact, the income of the 1st quintile decreased by 1,000 won from 1,499,000 won in the first quarter of last year to 1,498,000 won. Earned income (salary, bonuses, etc.) was 513,000 won, down 3.3% year-on-year, and property income (interest, dividends, etc.) decreased by 52.9%.

On the other hand, the income of the 5th quintile increased by 6.3% to 11,158,000 won compared to 10,491,000 won in the first quarter of last year. This was because earned income (+2.6%), property income (+44.8%), and transfer income (pensions, etc. +18.2%) all increased, except for business income (-1.3%).

The growth rate of 'disposable income,' which is the amount available for consumption expenditure and savings after subtracting non-consumption expenditures from income, was also steeper for the 5th quintile. The 1st quintile's disposable income increased by 3.9% year-on-year to 1,234,000 won, while the 5th quintile's surged by 8.3% to 8,768,000 won.

The deficit household ratio, which is the proportion of households whose consumption expenditure exceeds disposable income, increased for the 1st quintile and decreased for the 5th quintile. Generally, the lower the income quintile, the higher the deficit household ratio, because consumption expenditure exceeds disposable income. However, the problem is that this ratio is rising for the 1st quintile and falling for the 5th quintile. The deficit household ratio for the 1st quintile rose from 46.0% in the second quarter of last year to 49.8% in the third quarter, 51.6% in the fourth quarter, and 53.0% in the first quarter of this year. Conversely, for the 5th quintile, it decreased from 12.0% to 11.3%, then 9.2%, and finally 7.9% over the same period.

This content was produced with the assistance of AI translation services.