Hankyung Research Institute "Last Year Household Net Disposable Income Up 1.9%, Lowest Since Statistics Compilation"

[Asia Economy Reporter Ki-min Lee] Last year, the growth rate of household net disposable income was the lowest since statistics began in 1975.

The Korea Economic Research Institute (KERI) announced on the 10th that, based on an analysis of the "Trends in Net Disposable Income of Households, Corporations, and Government" using the Bank of Korea's Gross Domestic Product (GDP) income account statistics, household net disposable income increased by only 1.9% last year, marking the lowest growth rate ever recorded. Net disposable income refers to income after depreciation and income redistribution.

This rate is lower than during the Asian Financial Crisis (2.8%) and the Global Financial Crisis (3.5%). Compared to 28 OECD countries with available statistics on household net disposable income growth rates, Korea ranked 26th, placing it in the lower tier.

KERI explained that despite employee compensation, which corresponds to workers' wages, rising by 3.5% last year, household net disposable income remained sluggish due to decreases in property income and household business profits by 7.2% and 2.2%, respectively, and an expanded negative margin in net current transfers (social security expenditure costs). KERI also noted that household net interest income, recognized as the main source of savings, turned negative for the first time since statistics began in 2017, with the negative trend continuing to widen.

Last year, corporate income also regressed to levels seen four years ago. Corporate net disposable income peaked at 193.1 trillion won in 2017 but sharply declined to 158.5 trillion won last year, effectively returning to the 2015 level (158.2 trillion won).

The decline in corporate income is attributed to negative growth in corporate operating surplus, which has decreased for two consecutive years, with the reduction rate expanding from 1.2% in 2018 to 8.3% last year. KERI pointed out that this trend contrasts with the positive growth in operating surplus during major crises such as the Global Financial Crisis (1.1% in 2008, 5.3% in 2009) and the European Debt Crisis (0.3% in 2012).

From 2010 to last year, government income increased by an average of 5.5% annually, surpassing the growth rates of households (4.2%) and corporations (0.8%). The sharp increase in the government's share is analyzed to be influenced by the average annual 8.1% rise in current taxes and social contributions on household and corporate income and wealth during the same period.

Regarding this, Choo Kwang-ho, Director of Economic Policy at KERI, stated, "Both corporations and households faced difficulties last year due to income slowdown or decline. Net disposable income in corporations decreased for two consecutive years, causing significant impact, and although employee compensation in households increased moderately, the decline in property income such as dividends and interest, as well as self-employed business surplus, resulted in the lowest income growth rate since statistics began in 1975."

Director Choo added, "The weakening vitality of production agents such as corporations and the self-employed negatively affects components of household income, including employee compensation, operating surplus, and property income, ultimately leading to a slowdown in household income. To increase household income, it is necessary to create a business-friendly environment for corporations and the self-employed."

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