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Korea¡¯s per capita income stood at US$14,162 last year nine years after going past the US$10,000 landmark in 1995. The per capita income growth remained nearly the same over the decade, considering that it took Korea 4~6 years on average to double its per capita income since the early 1960s. There are two reasons behind the dull income growth: sluggish labor productivity and capital investment. If the situation goes unchecked, it will not only lower a short-term economic growth rate but also hurt long-term growth potential, prolonging the current economic depression.
¡ß Sluggish Investment
Major developed countries like the U.S, Japan, Germany and Britain saw the capital investment growth rate surpass the economic growth rate while their per capita income soared from US$10,000 to US$20,000. In the U.S, capital investment grew at a rate of 4.8 percent a year on average, higher than the economic growth rate of 3.2 percent between 1978 and 1988 when the per capita income doubled from US$10,000 to US$20,000. In Japan, which witnessed a jump in per capita income from US$10,000 to US$20,000 in six years, investment in equipment grew at a rate of 8.8 percent, more than twice as high as the economic growth rate of 3.4 percent during the period. However, the Japanese capital investment growth rate fell to 0.9 percent while the economic growth rate dropped 1.3 percent a year over the decade since 1991.
In Korea, capital investment grew at a rate of 3.2 percent until last year since 1995, lower than the economic growth rate of 4.6 percent. Kyonggi University professor Lee Ki-young attributes the sluggish investment in equipment to a lack of business confidence since the 1997 financial crisis, high wages, anti-business sentiment and uncertainties of the global economy.
As a result, Korea¡¯s capital investment rate, which is calculated by dividing nominal gross domestic product by nominal capital investment, has been below 10 percent since 2003. After 1973, the capital investment rate was below 10 percent only twice in 2003 and 2004, except for the period immediately after the 1997 financial crisis. The capital investment rate is expected to remain below 10 percent this year if sluggish investment in facilities continues in the second half of the year.
¡ß High Wages and Low Labor Productivity
A study by the U.S. Bureau of Labor Statistics suggests that Korea ranked first of out of 29 countries in wage increases from 1975 to 2003 with a whopping 13.2 percent a year. The figure was far higher than Japan¡¯s 7.1 percent and Germany¡¯s 5.9 percent, let alone the U.S.¡¯s 4.6 percent.
As a result Korean wages jumped to 47 percent of the U.S.¡¯ in 2003 from around 10 percent in 1985. But national per-capita income is only a third that of the U.S.
In addition, the wages of some Korean industries have already overtaken those of their American counterparts. At Hyundai Motor, for example, the labor cost per car produced at its Alabama plant is 90 percent of its Ulsan plant¡¯s.
The greater problem is that wages are rising while labor productivity is only 39 percent that of the U.S. Korean workers work over 2,300 hours a year, 200-500 hours more than their American and Japanese counterparts, but they fall far short of what is needed to fill the productivity gap.
Prof. Nam Sung-il of Sogang University says, ¡°As long as aggressive labor unions prevail along with high wages and low productivity, businesses will find it difficult to invest in domestic facilities.¡±
(englishnews@chosun.com )
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