The Bank of Korea: "Last Year's Potential Wage Loss Rate 7.4%...Selective Support Needed"

BOK Issue Note 'The Impact of COVID-19 Spread and Social Distancing on Wages and Income Distribution'

[Asia Economy Reporter Eunbyeol Kim] Last year, it was analyzed that South Korea's potential wage loss rate reached 7.4% due to the spread of COVID-19 and the implementation of social distancing measures. The spread of the infectious disease and social distancing measures were found to restrict the labor of low-income groups more than high-income groups, worsening income distribution. Last year, the Gini coefficient and poverty index also rose by 0.009 points and 6.4 percentage points, respectively.

On the 1st, the Bank of Korea stated in 'BOK Issue Note: The Impact of COVID-19 Spread and Social Distancing on Wages and Income Distribution' that "When strong social distancing is implemented in response to the spread of COVID-19, the overall labor supply in the economy decreases, and wages significantly decline."

This analysis is based on the assumption that from March to December last year, social distancing level 1 was implemented for 5.5 months, level 2 for 3.5 months, and level 2.5 for 1 month.

Oh Sam-il, Deputy Director of the Employment Analysis Team at the Research Bureau, explained, "The potential wage loss rate reaches 7.4%, confirming that the government’s fiscal support helped cover some of the wage losses." Although the standards differ, the Household Income and Expenditure Survey showed an average wage loss rate of 3.1% in the second and third quarters of last year, which is much lower than the Bank of Korea’s estimated potential wage loss rate (-7.4%).

It was estimated that if strong lockdown measures (equivalent to South Korea’s social distancing level 3) implemented in Italy, Spain, and other countries in March and April last year were applied for one month, the annual labor supply would decrease by 4.9% (59% for the relevant month), and wages would decrease by 2.6% annually (31.2% for the relevant month).

By industry, face-to-face service sectors, and by occupation, service and sales jobs, as well as low-skilled positions showed significant declines in work availability index and wages during lockdown measures. By personal characteristics, men, temporary and daily workers, low-education, low-income individuals, and jobs involving face-to-face contact were estimated to experience large drops in work availability index and wages during lockdowns.

Deputy Director Oh emphasized, "The wage loss rate due to lockdown measures is estimated to be higher among low-income groups, indicating that the spread of COVID-19 worsens income distribution," adding, "Since distribution has further deteriorated, it is the right direction to reduce inequality through selective measures."

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