These statistics come from the yearly 2006 and 2007 'selected issues' reports from the IMF on Korea, available at their online archive here.
Wish this graphed the divergence between labour productivity and real wages back further (say to 1990) so one could grasp the larger trend. The dip in 2001 was probably from the credit crisis and a bit of a hangover from the 1997 crisis. At any rate, post-2002 it is clear that incomes are not rising with increased productivity.
I believe this figure (from SERI) is higher now, anyways, that exports and inequality seem to be going up together is certainly a indicator that not much is trickling down.
This last one is from a 2007 OECD report on labour market duality in Korea, it uses one of the more conservative measures of levels of irregular work (it does not include regular workers who are not paid bonuses and overtime which would make the 2005 figure approx 47%) but it still looks damning in comparision nonetheless.
The figure to look for here is adjusted consumption figure for Korea. The point here is that domestic consumption as % of GDP lags, link.
Chart 1: Let's remember that Korea still ranks near the bottom of the OECD in terms of per capita GDP, and we can't expect it to meet average levels of social spending quite yet.
ReplyDeleteChart 2: I think this graph coincides with the large rise in use of irregular workers by Korean companies, and the slowdown in hiring of unionized (expensive) workers. The mathematical effect is not so much that Korea's workers are producing so much more than before, but that they are doing for cheaper, because they aren't receiving all the unionized benefits. Also, during the early 2000's, many Korean chaebol were establishing overseas produciton bases in China and Vietnam, etc., thereby enhancing Korea's GDP per Korean employee, even though no Korean employees were involved.
Chart 3: This is interesting, especially in view of the fact that the won strengthened from 1350 to 1050 over 2002-2004. Together with chart 2, this is showing that really, it is the large exporters that are driving economic growth, while domestic workers aren't achieving much.
Chart 4: Not necessarily a bad thing. Temporary unemployment is often voluntary, as people leave jobs they hate, learn new skills, take an entrepreneurial risk, travel, etc. I've voluntarily left the workforce a few times in my working life. I would show up in this table as a stat, but it didn't mean that I was a victim of a poor economic system.
Korea needs greater labor market flexibility. Some middle ground between a small number of highly expensive, highly protected chaebol unionized workers, and large numbers of unprotected irregular workers. You're right, with Chart 1, that a little more social safety net would help a lot in creating a body of workers that fall in the middle.
Thanks for the comments. Nice to have some dialogue on this. Just a few comments back if you check up on this.
ReplyDelete1. It would be nice to get some comparative facts on this vis a vis other countries. Still Korea does rank as the 13th largest economy, so certainly not much is being redistributed in terms of welfare expenditure, maybe concrete, not welfare.
2. I guess that overseas investment comes in terms of there being more value added in Korea if there is spatial extension of product cycles, etc. I don't know/think it gets measured in terms of gdp directly -- but i'm not an economist. I'm not sure exactly how much of the type of overseas investment based on product chains goes on or how much of it is producing solely for other markets (eg Hyundai India, etc). Certainly a lot of the SME's in light manufacturing moved overseas, but domestic investment in manufacturing dropped down. In recent years most fixed plant investment has been finance, IT, and only a bit in manufacturing sectors like shipbuilding. The SERI site has a lot of info.
3.Yes, the export sector accounts for a large share. I think this can be problematic as domestic demand has not grown with the increase in exports. There is another graph on this from a recent IMF report that I read, part of the 'global decoupling' debate we've been seeing, I'll add it on the other post in a sec if I can find it. The report itself is interesting in that the IMF itself criticizes East Asian countries for not spending their trade surpluses and recommends more social spending among other measures. But that begs the question of how that money is going to be spent if there isn't (A) higher wages or (b) stronger social safety net. If you follow the tone of my blog, one could also add (c) a strong progressive voice to articulate the need for that kind of redistribution. I'm a firm believer that competition solely on the basis of wage costs is a race to the bottom. Stronger labour laws and redistribution would encourage competition on the basis of productivity. However, I'm a believer that other conditions such as over-competition and over-production also need to be controlled for in some way as well. How to do that though is another debate.
4. There are many forms of flexibility and they don't all involve temporary status. I think the point here is that the numbers are very very high, much of which is in the service sector. One could also add migrants to this and regular workers (over ten percent of which) who don't get regular benefits and should be considered irregular workers -- there is a good note on measuring this on the OECD report. Part of the expansion of irregular work stems from 97. It is important to mention that regular employment was higher in the 80s but the rights at work and status were still precarious if need be. Certainly policy to address these issues would have to range per sector.
Thanks again for the comment!
Sorry, on second read my comment #2 was vague. What I was saying was that overseas investment shouldn't make it into GDP directly for manufacturers. But it could make it in in the sense that light manufacturing going overseas provides more room for manufacturing higher up the value chain. IE Hyundai makes more component parts in China then assembles more completed autos in Korea. But based on trends in facility investment in Korean manufacturing I'm not sure how much of this there is. Certainly there is expansion in the big 5 industries (cars, ships, electronics, steel, and semiconductors). But the aggregate facility investment rates are still lower than pre-1997 trends and investment in finance and services is where much of the facility investment seems to be coming from -- which is not a great indicator for inequality and more an indicator of speculation. Not that there isn't room for greater financial intermediation but looking at Seoul real estate prices I'm a bit nervous for the future.
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