Increase in Government Support Funds Leads to Improvement in Income Inequality After COVID-19

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Following the COVID-19 pandemic, the effect of various government support funds has increased, resulting in a slight improvement in income inequality among domestic households.

According to the household distribution account released by the Bank of Korea on the 5th, from 2020 to 2022 after the COVID-19 outbreak, the income share of the low- to middle-income brackets, which are the 1st to 3rd quintiles, increased, while the high-income brackets, the 4th and 5th quintiles, decreased.

When dividing income into five quintiles, the share of total gross national income (GNI) held by the highest 5th quintile fell from 45% in 2020 to 42.8% in 2022. The 4th quintile decreased from 23.6% to 22.7%.

On the other hand, the lowest income bracket, the 1st quintile, rose from 5.5% to 6.8% during the same period, the 2nd quintile increased from 10.3% to 11.7%, and the 3rd quintile went up from 15.5% to 16%.

The Bank of Korea explained that the income share of the 1st to 3rd quintiles generally showed an upward trend, while the 5th quintile continued to decline.

This is analyzed to be largely influenced by transfer income. Transfer income refers to income households receive from non-economic activities, including both public and private subsidies. After the COVID-19 outbreak, low- to middle-income households received substantial government support funds such as basic pensions and disaster relief payments, which is understood to have improved income inequality.

A Bank of Korea official stated, "Households in the 1st and 2nd quintiles saw an increase in their share of total disposable income as they received social benefits such as basic pensions from the government," adding, "The 5th quintile declined due to payments of regular taxes such as income tax." However, the official also noted, "This is the result of aggregation at the household level, so it is not appropriate to use it for welfare comparisons between individuals or as an inequality indicator."

Regarding the consumption share by income quintile from 2018 to 2022, the 1st and 2nd quintiles showed an upward trend, while the 5th quintile showed a downward trend, indicating a reduction in consumption disparity. The Bank of Korea analyzed that this was due to the 5th quintile households significantly reducing non-essential consumption starting from 2020, when the COVID-19 pandemic began.

This is the first time that data on income, consumption, and savings by household quintile, known as the household distribution account statistics, have been published. The Bank of Korea prepared the data as experimental statistics following the guidelines of the Organisation for Economic Co-operation and Development (OECD) and announced plans to compile related statistics annually going forward.

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