Poor Getting Rapidly Poorer
The prolonged recession is threatening poorer Koreans by making jobs scarcer and cutting even their paltry earnings. Pushed closer to the edge, more and more low-income earners turn to loan sharks to meet their desperate cash needs. Economists say this trend does not appear to be a temporary blip but signals a structural crisis.
The incomes of the poor are dropping fast. According to Statistics Korea on Monday, the average monthly disposable income of people in the bottom 10 percent of the income bracket stood at W717,000 in the third quarter of this year, down 16 percent on-year. It was the biggest drop since the government began tallying such statistics in 2003. Over the same period, overall household income grew 0.7 percent.
Financial authorities say the trend stems from an increase in the number of households who generate no income whatsoever after losing their jobs in the recession. Poor households usually make ends meet by working temporary jobs, and these are the first to be cut when the economy heads south.
This trend is clearly evident in the latest statistics. As of October of this year, the number of temporary jobs on contracts for less than one year and day-to-day positions of less than one month declined by 97,000, while the number of regular workers grew by 25,600 to 13 million. That means almost 100,000 poor people lost their jobs over the past year.
Experts say the malaise is a sign of a looming structural crisis. As the weakest link begins to break down, a chain reaction of lost income could spread to other wage groups.
"The fact that temporary jobs declined in spite of a booming construction industry shows that the retail and restaurant industries have shed a lot of workers," said Sung Tae-yoon at Yonsei University. "This should be seen as a sign of a crumbling economy."
According to the Labor Ministry, restaurants and bars employed 93,870 people as of October this year, down by more than 30,000 from a year ago. Job losses and income drops in low-income groups lead to a vicious cycle of deteriorating finances as a growing number turn to loan sharks as they are unable to service their bank loans.
Household loans from small savings and loans firms, which are favored by low-income earners who are unable to get a loan from a big lender, stood at W16.6 trillion as of June this year, up 80 percent compared to the same period of 2015 (US$1=W1,168).
According to industry sources, insolvent credit card loans where payment is more than 90 days late stood at W1.4 trillion as of the third quarter, accounting for around six percent of their total assets.
Cho Young-moo at LG Economic Research Institute said, "Layoffs by ailing shipbuilders, shipping companies and petrochemical manufacturers have led to more and more people turning to high-interest loan sharks. That needs to be resolved soon."