Government payments to offset high fuel prices lifted incomes at the bottom of South Korea's earnings ladder, sharply narrowing the gap between the country's highest- and lowest-earning households. Distribution measures improved, but more than half of low-income households still spend more than they take in each month.
The income quintile ratio for equivalized disposable income fell to 4.97 in the second quarter from 5.45 a year earlier, a drop of 0.48, according to household income and expenditure survey results released by the National Data Office on the 27th. That is the lowest reading since the current survey method took effect in 2019.
The quintile ratio compares the top 20% of households with the bottom 20% based on disposable income — the money households can actually spend or save — and adjusts for differences in living costs by household size. A lower ratio means a smaller income gap.
The government's fuel price relief payments were a major factor behind the narrowing. Transfer income averaged 931,000 won a month, up 20.4% from a year earlier. Public transfer income within that total jumped 27.6% to 731,000 won from 573,000 won.
"Public transfer income includes public pensions, the basic pension and social benefits," an official at the National Data Office said, adding that the fuel price relief payments were counted as social benefits. The payments ranged from 100,000 won to 600,000 won per person depending on income and place of residence. The Ministry of Economy and Finance also assessed that the payments contributed to the improvement in the quintile ratio.
Average monthly household income rose 230,000 won to 5.295 million won from 5.065 million won. By simple arithmetic, the 158,000-won increase in public transfer income accounted for 68.7% of the total income gain. Overall income rose 4.5% in nominal terms and 1.5% after adjusting for inflation.
Income growth was also relatively stronger among lower earners. Monthly income for households in the bottom 20%, or the first quintile, rose 7.5% to 1.283 million won. Households in the top 20%, or the fifth quintile, saw income rise just 3.8% to 11.15 million won, while their wage income fell 1.7%. The faster income growth at the bottom and the decline in wage income at the top also helped narrow the gap.
Better distribution figures did not mean household income foundations had strengthened. Wage income across all households averaged 3.218 million won a month, up just 0.8%, failing to keep pace with 3.0% inflation. Real wage income fell 2.1%, a second consecutive quarterly decline after a 1.7% drop in the first quarter.
Finances remained tight for low-income households. First-quintile households had average monthly disposable income of 1.094 million won but spent 1.372 million won on consumption, or an average of 277,000 won more than they had available each month. The share of first-quintile households running a deficit fell to 52.7% from 56.7% a year earlier but still exceeded half. Essential spending — including food and non-alcoholic beverages, housing, water and fuel, and health care — accounted for 53.0% of their total consumption.
The National Data Office said, however, that the figures alone are not enough to conclude that income distribution has improved. Quarterly income is subject to strong seasonal swings and volatility, the agency said, so any official assessment should come from the annual survey of household finances and living conditions.
"Quarterly household income carries seasonality and volatility, so it is difficult to conclude from a single quarter that distribution has improved," an official at the National Data Office said.
