Bank of Korea: "Income ratio of middle 50% to bottom 10% widened to 5.9 times... Policy response needed"

Bank of Korea 'Impact of COVID-19 on Household Income Inequality'

[Asia Economy Reporter Eunbyeol Kim] An analysis has emerged showing that income inequality among households has widened, particularly as the income of low-income groups has significantly decreased since COVID-19.

According to the Bank of Korea's report released on the 10th titled "The Impact of COVID-19 on Household Income Inequality," the ratio of median income to the bottom 10% income in the 2nd to 4th quarters of last year was 5.9 times, which is a larger gap compared to the same period in 2019 (5.1 times). Especially in the 2nd quarter of last year, when the COVID-19 shock was severe, the ratio surged to as high as 6.4 times.

The sharp decline in household income among low-income groups was the cause of the widening income gap between classes. According to the Bank of Korea, the income of the 1st quintile households decreased by an average of 17.1% in the 2nd to 4th quarters of last year. This contrasts with the upper groups, where the 5th quintile income decreased by only 1.5% and the 4th quintile by 2.7% during the same period.

The expansion of household income inequality after COVID-19 is analyzed to be due to a combination of employment shocks (increase in non-employed households) and income shocks (income reduction in low-income employed households).

When breaking down the 1st quintile income decrease into employment shocks and income shocks, the employment shock factor contributed about one-third (36.2%). Within the core working-age group, the contribution of this factor rises to about half.

Since COVID-19, the proportion of non-employed households (unemployed and economically inactive) in the 1st quintile income group increased by 8.7 percentage points. Particularly, in the core working-age group (ages 30?54), this proportion rose by as much as 10.4 percentage points. Song Sangyun, head of the Employment Analysis Team at the Bank of Korea’s Research Department, explained, "This was largely due to job losses among temporary and daily workers with unstable employment status in high-contact jobs and women-headed households with childcare burdens."

Looking at the income of households maintaining employment status, the income decrease among self-employed households engaged in high-contact jobs and women-headed households with children was identified as a major factor in widening the gap between middle and lower incomes. After COVID-19, the income of self-employed households in high-contact jobs and women-headed households with children decreased by 29.1% and 23.1%, respectively.

Song emphasized, "This analysis suggests the need to be cautious to prevent the widening of household income inequality caused by COVID-19 from becoming entrenched. The potential realization of further employment adjustments in self-employment and the widening gender income gap due to career interruptions among women-headed households with children could worsen income inequality in the future, so policy responses are necessary."

Meanwhile, the Bank of Korea excluded government subsidies and inter-household transfer income from this analysis, as including them could underestimate the impact of COVID-19 on household income.

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