Why Does Inequality in South Korea Continue to Rise?*

Kwang-Yeong Shin Chung-Ang University Ju Kong Chung-Ang University

This paper explores the causes of the increasing inequality in family income in South Korea, identifying globalization, population change, and family system change as major causes. Globalization, as an exogenous socio-economic factor, including the 1997 financial crisis and the 2008 subprime mortgage crisis, has drastically transformed South Korea’s economic system and labor market, triggering the dissolution of the patriarchal family system through mass unemployment and increased precarious employment. Changes in the population and the family system, as endogenous socio-economic dynamics, have led to the rise of the single family through divorce and population ageing. These changes have contributed to the rapid increase in family income inequality because single families are vulnerable to the social risk of poverty and the elderly cohort has the highest rate of poverty due to underdeveloped social safety nets in South Korea. In the 2000s, these factors have simultaneously led to inequality in South Korea continuing to rise.

Keywords: Inequality, poverty, globalization, divorce revolution, ageing

* An early version of this paper was presented at the conference on Polarization in Divided Societies: Korea in a Global Context, held at the Central European University in Budapest, September 2-4, 2013, and at the Integrative Sessions RC/National Associations of the XVIII World Congress of Sociology in Yokohama, Japan, on July 16, 2014. I appreciate the comments made on the paper by the participants at both conferences and by the anonymous reviewers of the KJS. Direct all correspondence to Kwang-Yeong Shin, Department of Sociology, Chung-Ang University, 84 Seukseok-ro, Dongjak-gu, Seoul, 156-756, Korea (Email: [email protected], Telephone: 822-820-5180).

Korean Journal of Sociology | December 2014, Vol. 48, No. 6 | 31-48 32 Korean Journal of Sociology

INTRODUCTION

This paper explores the rise in economic inequality in South Korea, with a focus on changes in the distribution of income between individuals and families after the 1997 financial crisis. In South Korea, a major U-turn in inequality has been evident since the early 1990s. The Gini coefficients for household income inequality and individual wage inequality had both decreased steadily up until the early 1990s, but then rose rapidly from 1992 onward, five years before the financial crisis in 1997 (see Figure 1). The 1997 financial crisis exacerbated the rising trend in income inequality through neoliberal economic reforms, policy measures to resolve the financial-cum-economic crisis, being implemented by the Korean government under the guidance of the IMF(Cho 2007; Heo and Kim 2000) . Another financial crisis in 2008, triggered by the subprime mortgage crisis in the U.S., made rolling back the increasing inequality more difficult. Furthermore, due to an inadequate social welfare system, social changes such as population ageing, the fastest in the world, and family dissolution that weakens Confucian patriarchy have contributed to the drastic rise in family income inequality in the 2000s. Although rising inequality since the late 20th century is not unique to South Korea (for example, see Blank 2011; Mann and Riley 2007; OECD 2011; Therborn 2006), the country has received much attention due to its dramatic increases in both inequality and the poverty rate in the 2000s (OECD 2012b:111-142; Ryu 2012; Shin 2013a). Like other newly industrialized countries in East Asia, South Korea has frequently been cited as an example of rapid economic growth with relatively low levels of inequality (Aghion et al. 1999; Amsden 1989; Birddall et

Figure 1. Trends in Gini coefficients,1982-2010

Source | Ryu (2012:2). Why Does Inequality in South Korea Continue to Rise? 33 al. 1995; Wade 1990). Although South Korea has fully recovered from the economic crisis in terms of GDP per capita and dollar reserves, symptoms of social crisis such as the world’s highest rate of suicide and a rise in violent crime have been observed as aftermaths of the neoliberal economic reforms undertaken by both liberal and conservative governments. As a consequence, political discourses on inequality, called “discourses on social polarization,” are now significant public issues. The rise in inequality is an outcome of the complex economic, political, and social changes occurring in contemporary South Korea, reflecting the intersection of globalization with transformations in the population and the family system. In the following section, we will discuss the long-term trend in the Gini coefficient before and after the financial crises, with reference to the turning point in the U-shaped curve observed in the early 1990s. In the third section, the effects of the financial crisis and the subsequent neoliberal economic reforms on the distribution of income will be examined, including the rise of precarious work and the sharp increase in poverty resulting from deregulation of the labor market and increasing numbers of working poor. The fourth section deals with family and population transformation due to ageing and family dissolution, with the generation of new social risks and further poverty in the 2000s. These endogenous social factors, representing enormous social transformation in contemporary Korea and intensified by the neoliberal economic reforms, have contributed to the increased inequality and poverty. In the final section, we discuss the shortcomings of the government’s policies for preventing a worsening of income inequality in South Korea in the 2000s, as these continue to be based on old ideas relating to the redistribution effects of economic growth.

TWO CRISES AND LABOR MARKET INEQUALITY

The First Crisis in 1997 A year after Korea became a member of the OECD in 1996, the country experienced a financial crisis that began with a drastic plunge in the Korean won against the U.S. dollar in the foreign exchange market. The Korean government requested help from the IMF’s rescue fund to avoid its economy becoming insolvent. The IMF provided rescue funding to the Korean government that was conditional on the immediate implementation of neoliberal economic reforms, including liberalization of the financial market, privatization of the public sector, labor market flexibility, and reform of the governance structure of chaebol companies, aimed at dismantling the economic institutions, norms, and culture that had developed in the period of rapid economic growth under the authoritarian regime. The IMF’s bailout package, which was supported by the IMF, the World Bank, the Asia Development Bank, and the G7, fundamentally transformed the Korean economy, demolishing almost half of the 50 largest 34 Korean Journal of Sociology

Figure 2. Trend in the Rate of Unemployment, 1985-1999

Source | Bank of Korea (1999:8). chaebols and creating more than one million newly unemployed in 1998. It was, in short, an attempt to abolish an economic system that was associated with crony capitalism, in which state intervention played a key role in the management of firms in the private sector, and to reinvigorate market forces that would be open to global financial capital.1 The post-crisis neoliberal reforms imposed by the IMF constituted a type of shock therapy in which market liberalization and deregulation of the labor market were introduced simultaneously, without consideration of their social effects on the distribution of income. The large chaebol companies were immediately restructured through corporate reorganization and major deals to swap affiliates between chaebols to achieve specialization of production. The restructuring was accompanied by massive layoffs to downsize the companies. By 1998, there were more than 100 thousand newly unemployed each month, resulting in a total unemployed figure of almost two million. Figure 2 shows the trend in the unemployment rate and the non-accelerating wage rate of unemployment (NAWRU), which adjusts the unemployment rate according to changes in the business cycle. The rate of unemployment skyrocketed immediately following the financial crisis, rising from 2.1 percent in October 1997 to 8.8 percent in February 1998. Even after adjusting for the business cycle, the rate of unemployment as measured by the NAWRU also rose rapidly. The size of the labor force decreased by more than 2.5 million, from 21,373,000 in February 1997 to 18,873,000 in February 1999. Those who were not in the labor force, due to

1 For a more detailed explanation of the nature of the economic system developed under the authoritarian regime, see Shin (1999). Why Does Inequality in South Korea Continue to Rise? 35

Table 1. Trends in the Rate of Unemployment by Age Group (%) 1985 1990 1995 1997 1998 1991–1995 Below 25 years 10.0 9.0 6.3 7.7 15.9 16.9 (1.7) (3.3) (-2.8) (-4.6) (-21.4) (-6.6) Above 25 years 2.8 1.7 1.4 1.9 5.8 6.8 (4.0) (3.0) (3.4) (2.1) (-3.4) (-1.6) Total 4.0 2.5 2.0 2.6 6.8 7.8 (3.7) (3.0) (2.7) (1.4) (-5.3) (-2.1) Note | ( ) refers to the rate of change compared with the previous year. Source | Bank of Korea (1999:7). the failure to obtain a job, were not even included in the government’s unemployment rate calculations; if these people were to be included, the number of people who were out of work would exceed four million. Elderly workers and female workers were the main layoff targets. Under the seniority wage system, older workers with higher wages were most vulnerable to mass layoff as employers tried to reduce labor costs. Female workers were vulnerable because the male bread-winner model was strongly supported by employers. Those who were dismissed from the labor market had three choices: unemployment, self-employment, and remaining out of the economically active population. One result of restructuring the economy was a freeze on the recruitment of new employees in the entire business sector and the public sector, generating massive numbers of young adults who failed to get jobs, including university graduates from February 1998. Consequently, unemployment among young adults also drastically increased. As we see in Table 1, the rate of unemployment among adults under 25 years of age doubled from 7.7 percent to 15.9 percent between 1997 and 1998, a 21.4 percent reduction in employment compared with the previous year. The high unemployment rate of young adults has not changed significantly since 1998 (see Table 1), as structural adjustment and restructuring has continued to occur. Young adults have been unable to avoid being squeezed out of employment. The number of people aged 18 to 29 years who were in employment decreased from 5,301,000 in 1997 to 3,856,000 in 2011; the employment rate dropped correspondingly from 58.0 percent in 1997 to 51.9 percent in 2011 (Keum 2012:40). Youth unemployment became a serious social issue when large numbers of young adults were unable to obtain employment even after passing the competitive university entrance exam and having expensive university tuition fees, the second highest among the OECD countries,2

2 Tuition fees in the U.S. are the highest of the OECD countries. Korea’s fees are the second-highest and Britain’s are third. See OECD (2012a:53). 36 Korean Journal of Sociology paid by their parents for at least four years. Parents felt panicked when their children couldn’t find jobs, because they had devoted themselves to supporting their children through their university education. Only 59.5 percent of college graduates found jobs and 6.7 percent continued on to graduate school, while 34.3 percent could not find a job one month after graduating in 2011 (KEDI 2012). This situation resulted in competition for shadow education, even among college students, aimed at gaining specific job qualifications such as proficiency in English or computing.3 In addition, the deregulation of the labor market saw various types of precarious employment being introduced in the post-crisis period, facilitating an expansion in non-regular labor. Instead of regular workers, companies began to use non-standard labor such as dispatched workers, workers on fixed-term contracts, and part-time workers to increase labor flexibility (Jung and Cheon 2006; Shin 2013b). Employment of non-regular workers was also used to lower labor costs because their average wage was less than 60 percent of that of regular workers. Furthermore, employers could save on welfare costs because low-wage workers typically did not want to pay unemployment insurance and other welfare expenses. An immediate effect of this labor market flexibility was a dramatic rise in precarious workers who were marginalized in the labor market and not properly protected by the social security system. The proportion of non-regular workers greatly increased, from 27.4 percent in 2002 to 37.0 percent in 2004, stabilizing at around 34 percent in the late 2000s (KLI 2013).4 Within this group, the proportion of workers on fixed-term contracts grew dramatically between 2002 and 2004, revealing that regular workers were being replaced by those on fixed-term contracts. Although the proportion of atypical workers, such as subcontracted workers, independently contracted workers, dispatched workers, and daily workers, has been stable at around 12-13 percent, the proportion of part-time workers has consistently increased, from 5.8 percent in 2002 to 10.3 percent in 2012.

The Second Crisis in 2008 The 2008 financial crisis triggered by the U.S. subprime mortgage crisis damaged the labor market further, due to defensive management measures to reduce the risk caused by the volatility in the global economy. After having already been hit by the financial crisis in 1997, companies now implemented managerial strategies to minimize the effects of contraction in the global market, reducing the numbers of their employees and placing a freeze on new recruitment. The labor market thus contracted, with the rate of employment dropping from 59.7

3 The cost of shadow education for college students was almost the same as that for high school students preparing for the university entrance examination (Lee 2008:98-151). 4 After much debate, the Tripartite Committee, comprising representatives from the state, labor, and employers, agreed on the definition of a non-regular worker. The definition of a non-standard worker was contentious because both employers and employees would be affected by the new regulatory scheme (see Shin 2013b:3-8). Why Does Inequality in South Korea Continue to Rise? 37

Table 2. Trends in Non-regular Labor and the Level of Monthly Wages, 2002-2012 (%) All Workers on Fixed- Atypical Workers Part-time Workers Non-regular Workers Term Contracts 2002.8 27.4/67.1 14.7/71.3 12.4/67 5.8/34.3 2003.8 32.6/61.3 21.3/65.1 11.9/58.2 6.6/29.8 2004.8 37.0/65.0 24.7/69.5 13.4/60.3 7.4/30.4 2005.8 36.6/62.7 24.2/67.2 12.7/58.5 7.0/28.3 2006.8 35.6/62.8 23.6/68.8 12.6/54.8 7.4/28.9 2007.8 35.9/63.5 22.3/71.7 13.9/55.4 7.6/27.9 2008.8 33.8/60.9 20.4/68.5 13.3/56.3 7.6/27.0 2009.8 34.9/54.9 21.3/59.1 13.9/54.1 8.7/24.3 2010.8 33.4/54.8 19.2/61.0 13.4/54.4 9.5/24.6 2011.8 34.2/56.4 19.7/62.9 13.9/55.3 9.7/25.3 2012.8 33.3/56.6 19.2/63.7 12.9/56.2 10.3/24.7 Note | ‌The numbers on the left in each cell give the proportion of each category in the entire labor force; the numbers on the right give the proportion of the average wage relative to that of regular workers. Source | KLI Labor Statistics, each year. percent to 57.4 percent between the first quarter of 2008 and the first quarter of 2009 (Hwang 2010a:10). Although the nature of the subprime mortgage crisis was financial, its effects immediately spread to the labor market. The 2008 financial crisis caused much more damage to the labor market than the previous financial crisis because it affected the weakest social group in the market, who were already experiencing hard times. The official unemployment rate was as low as 3.8% in the first half of 2009, but the modified unemployment rate, which included other groups such as those who had given up searching for a job but still wanted to be employed and those who were preparing for the examinations required to obtain a job in the public sector, was 8.5 percent (Hwang 2010b:77).5 The financial crisis in 2008 thus appears to have exacerbated the condition of the labor market, which had already been affected by the previous financial crisis, further differentiating the insecure labor force from the secure one, the latter including, in particular, regular workers in chaebol companies in unionized sectors. The increase in part-time workers was most conspicuous, rising by 2.7 percentage points from 7.6 percent in 2008 to 10.3 percent in 2012 (see Table 2). Like daily workers, part-time workers are an extremely flexible labor force, and are typically associated with the lowest wage and welfare costs. The average monthly wage for part-time workers was just under a third of that for regular workers and by 2012 it had reduced further, to a quarter. Employers were also able to save on welfare costs because part-time workers were reluctant to join

5 The largest category in the modified unemployment rate was those who were in latent unemployment, such as employees working less than 15 hours a week and those who had given up searching for jobs through disappointment. 38 Korean Journal of Sociology

Table 3. Trends in Monthly Wage by Size of Company (Number of Employees), 1980-2010 5-9 10-29 30-99 100-299 300-499 500+ 1980 - 177 177 173 183 178 1985 - 308 314 308 340 344 1990 - 549 572 603 698 741 1995 - 1,082 1,108 1,175 1,334 1,511 1997 - 1,283 1,342 1,418 1,619 1,774 1998 - 1,255 1,307 1,382 1,570 1,765 1999 1,192 1,376 1,439 1,561 1,794 2,019 2000 1,274 1,497 1,567 1,713 1,973 2,195 2005 1,783 2,081 2,259 2,517 2,822 3,541 2010 2,212 2,561 2,837 3,126 4,291 Source | 2012 KLI Labor Statistics (2012). insurance plans, to save on fees. For example, in 2012 only 11 percent of part-time workers joined the national pension scheme and 13.4 percent that for unemployment insurance (KLI 2012). Significant, but different, changes also took place in the high-income groups. People in those groups were able to increase their income due to a greater demand for knowledge- intensive jobs in sectors oriented toward international markets. Large chaebol companies that had survived the process of economic restructuring were able to become competitive in the global market and to increase their market share in both the domestic and the international markets. Job polarization between large and small firms thus became a new aspect of the increasing inequality in the post-crisis period. As we can observe from Table 3, the monthly wage gaps between firms of different sizes were not particularly large until 1997. For example, in 1980 there was almost no wage gap across firms of different sizes; the average monthly wage in firms with 10-99 employees was almost the same as that in firms with 500 or more employees. However, the wage gap gradually widened after 1998, segmenting the labor market by firm size. In 1998, the ratio of the monthly wage in large companies (more than 500 employees) to that in small companies (10-99 employees) was 1.41, gradually increasing to 1.47 in 1999 and 1.71 in 2005. Wage differentials by individual human capital have been declining, whereas wage differentials by firm size have been continually growing. The widening wage gap between workers in firms of different sizes appears to be a more important source of wage inequality than the type of employment (Jeong 2011). Polarization of the labor market was an outcome of the new management strategies of the large corporations. They aggressively pursued jobless growth, producing a steady expansion in sales without the creation of new jobs. By introducing labor-saving technologies, such as the automation and digitization of administrative work, the increase in the number of jobs was less than that expected by the growth in gross national product or company profits. As a result, the Why Does Inequality in South Korea Continue to Rise? 39

Table 4. Trends in Inequality among Wage Earners, 2002-2010 Gini Coefficient P20/P80 Full-time Wage Full-time Wage Wage Laborers Wage Laborers Earners Earners 2002,8 0.346 0.309 2.75 2.53 2003,8 0.355 0.316 3.01 2.50 2004,8 0.355 0.314 3.01 2.78 2005,8 0.363 0.317 3.00 2.82 2006,8 0.358 0.316 3.04 2.78 2007,8 0.361 0.323 3.16 2.58 2008,8 0.353 0.314 3.13 2.80 2009,8 0.358 0.320 3.13 2.99 2010,8 0.363 0.324 3.20 3.00 Source | Bahn (2010:52). business share of gross national income (GNI) increased by 7.5 percentage points from 16.6 percent in 1995 to 24.1 percent in 2011, while the household share of GNI reduced by 9 percentage points over the same period (Kim and Park 2013:3). Table 4 shows the trend toward increased inequality among wage earners. The Gini coefficients for the hourly wage of casual wage earners (laborers) and full-time wage earners demonstrate increasing inequality for both types of wage earner, rising from 0.346 to 0.363 for casual wage earners and from 0.309 to 0.324 for full-time wage earners between 2002 and 2010. The gap in wages between high-income and low-income groups also widened over the same period. The ratio of the average wage of the highest-paid 20 percent to that of the lowest- paid 20 percent (P80/P20) also demonstrated a clear trend toward widening wage disparity, rising from 2.75 in 2002 to 3.20 in 2010 for casual wage earners and from 2.53 in 2002 to 3.00 in 2010 for full-time wage earners. There was corresponding polarization in the business sector in the 2000s. As market competition intensified and large corporations entered aggressively into retail and wholesale sectors, small-shop owners were not able to compete with these large firms in almost every business sector. Table 5 shows a widening gap in the rate of growth in profit achieved by different types of firm in the 2000s. Although there was a small gap between the rates of growth in profit achieved by the self-employed and corporations in the 1990s, the situation was markedly different in the 2000s. For example, the rate of growth in profit of the self-employed dropped sharply, from 10.2 percent in the 1990s to 1.5 percent in the 2000s, whereas that of corporations changed only slightly over the same period, from 12.8 percent to 10.2 percent. The gap in the rate of growth in profit thus increased, from 2.6 percentage points in the 1990s to 8.7 percentage point in the 2000s. The implication is that small businesses were not able to keep up with large corporations in terms of competitiveness and profit. By expanding their 40 Korean Journal of Sociology

Table 5. Rate of Growth in Profit (%) 1991-2000 2001-2011 91-96 96-00 91-00 01-05 06-11 01-11 Self- employed (A) 11.2 9.3 10.2 1.7 1.4 1.5 (-5.2) (+1.3) (-1.9) (-5.8) (-4.8) (-5.3) Corporations (B) 18.4 7.5 12.8 10.5 10.0 10.2 (+2.0) (-0.5) (+0.7) (+3.0) (+3.8) (+3.4) Gap (A-B) -7.2 1.8 -2.6 -8.8 -8.5 -8.7 Note | ‌The numbers in brackets refer to the difference in the rate of growth between the GNI and that of each category. Source | Kim and Park (2013:3).

operations via large shopping malls and franchise stores, the large corporations aggressively increased their sales and gained larger market shares in the domestic market. Through introducing advanced marketing methods and the super supermarket system, large chaebol companies entered the retail market for consumer goods (Kim and Park 2013:6).

TRANSFORMATION OF THE FAMILY AND NEW SOCIAL RISKS

Together with economic change, contemporary Korean society has experienced fundamental changes in family relationships, which affect both income distribution and the labor market. Lower birth rates and the diversification of family systems have taken place simultaneously, drastically undermining patriarchal social institutions and family culture. Since the mid-1990s, South Korea has joined the group of societies that have the lowest birth rates in the world, accelerating the ageing of the population.6 Furthermore, the combination of the low birth rate and the extended life expectancy has resulted in rapid population ageing and has also affected income inequality because of the changing composition of the typical family. The distribution of income is being reshaped because changes in family composition determine the number of wage earners within a family and, consequently, household income. The transformation of family composition began in the early 1980s. As Table 6 shows, there has been a drastic decline in the proportion of families with more than 5 members, from 49.9 percent in 1980 to 8.1 percent in 2010. In contrast, the proportions of single-person and two- person families have substantially increased, by 19.1 percentage points for single-person families and 13.8 percentage points for two-person families. By 2010, nearly a quarter of all households were single-person households and one out of 11 Koreans lived alone. In recent years, the growth in single-person families has been the most dramatic, reflecting complex

6 The group of countries with the lowest birth rates comprises mostly East Asian countries such as South Korea, Hong Kong, Taiwan, Japan, and Singapore. Why Does Inequality in South Korea Continue to Rise? 41

Table 6. Changes in Family Size Distribution (%) and Average Number of People in a Family, 1980-2010 Average Number of Year 1 person 2 people 3 people 4 people Above 5 people People 1980 4.8 10.5 14.5 20.3 49.9 4.55 1985 6.9 12.3 16.5 25.3 39.0 4.09 1990 9.0 13.8 19.1 29.5 28.7 3.71 1995 12.7 16.9 20.3 31.7 18.4 3.34 2000 15.5 19.1 20.9 31.1 13.4 3.22 2005 20.0 22.2 20.9 27.0 10.0 2.90 2010 23.9 24.3 21.3 22.5 8.1 2.70 Source | National Statistical Office, Census, each year.

social changes in contemporary Korea such as family dissolution, gender-specific population ageing and individualization. In short, the Confucian family system has been rapidly weakening over the past three decades. Divorce is one reason for the increasing number of single-person households. Non-marriage and the death of a spouse were previously the main reasons for a single-person household, but divorce became an important factor after the financial crisis in 1997. Divorce increased by 5.5 times between 1995 and 2010, surpassing other reasons for a single-person household. In 1995, single-person households resulting from divorce comprised only 7.1 percent of the total number of single-person households; this figure increased to 16.0 percent in 2010. The total number of single-person households increased by 2.5 times over this period, with no significant change occurring for single-person households resulting from non-marriage, the death of a spouse, and separation (National Statistical Office 2013). Divorce also contributed to an increasing number of single-mother or single-father families. Following the mass layoffs after the financial crisis in 1997, divorce numbers exploded as economic stress within the family became increasingly intense and patriarchal norms were threatened, leading to a crisis for the male bread-winner family model in which a husband was solely responsible for earning money for the household while a wife stayed at home doing domestic chores. The financial crisis in 1997 endangered the patriarchal system based on the male-bread winner model through the wholesale unemployment of married men in the post- crisis period. The rate of divorce in South Korea doubled immediately after the financial crisis; by 2003, South Korea had the highest divorce rate among the OECD countries. As a result, the proportion of single-father or single-mother families increased rapidly, from 8.6 percent of all households in 1995 to 12.3 percent in 2010 (National Statistical Office 2013). In light of the influence on Koreans of the Confucian family culture, in which divorce is regarded as a violation of moral dignity, the dramatic increase in the divorce rate was extraordinary. The mass unemployment of male workers undermined the power and authority of men within their 42 Korean Journal of Sociology

Table 7. Rates of Poverty by Marital Status, 2012 Male Female 2006 2012 2006 2012 Unmarried 12.54 12.11 9.02 7.83 Married 15.39 11.31 15.34 11.31 Divorced 33.94 33.74 36.82 34.13 Bereaved 37.17 45.05 45.35 54.10 ‒ Note | ‌The estimate of the rate of poverty was based on equivalence income, measured as family income divided by √n; where n is the number of family members. The estimation of rates of poverty was based on the Korean Welfare Panel Survey conducted by the Korea Institute of Health and Social Affairs since 2004. .

families and also forced housewives into paid employment, disturbing the traditional roles of husband and wife within the family. Economic hardship was thus a significant threat to a recalcitrant patriarchal culture, transforming gender relationships within families. The increasing rate of divorce also resulted in more grandparent and grandchildren families, as divorced couples gave up custody of their children.7 Numbers increased rapidly, from 58,108 in 2005 to 66,789 in 2009 (National Statistical Office 2005). The Ministry of Women and Family reported that more than half of the grandparent and grandchildren families resulted from divorce (Ministry of Women and Family 2010). In 2006, grandparent and grandchildren families comprised 3.3 percent of all families in which divorce had occurred and 15.3 percent of all poor families (National Statistical Office 2013). An immediate effect of family dissolution was a sharp increase in the probability of falling into the trap of poverty, sometimes classed as a type of new social risk. Family dissolution resulted in a rise in new social risks because single-person or single-parent households were vulnerable to unemployment and poverty. Unlike the old social risks, the new social risks grew in importance not because of poor individual human capital but because of a change in social institutions such as marriage and family structure. As Table 7 shows, the rate of poverty varies significantly with marital status. Those who are divorced have a poverty rate more than three times higher than that of married-couple households. Separation by death leads to much higher rates of poverty because it mostly occurs among elderly people. As Table 8 shows, single-person households face both highly unfavorable labor market conditions and highly unfavorable living conditions. Compared with families comprising at least two people, single-person households have experienced a dramatic change in their economic status. In 1991, the Gini coefficients for the income of single-person households were similar for working singles (0.24399) and non-working singles (0.24016) in 1991. However, in 1996 there was a marked divergence according to working status, 0.29689 for

7 The official definition of a grandparent and grandchildren family is a family comprising grandparents over 65 years of age and grandchildren below 18 years of age. Why Does Inequality in South Korea Continue to Rise? 43

Table 8. Gini Coefficients for Income by Number of Family Members Single Above 2 Total 1991 Working 0.24399 (7.0) 0.29798 (56.2) 0.23829 (63.3) Non-working 0.24016 (2.2) 0.31045 (34.6) 0.31828 (36.8) Total 0.29334 (9.2) 0.26667 (90.8) 0.26906 (100.0) 1996 Working 0.29689 (7.5) 0.24677 (54.4) 0.25300 (61.9) Non-working 0.45697 (5.4) 0.32149 (32.7) 0.34682 (38.1) Total 0.37434 (12.9) 0.27789 (87.1) 0.29116 (100.0) Note | The numbers in brackets give the proportion relative to the total number of households. Source | Jeong et al. (2001:33) working singles and 0.45697 for non-working singles. Families of at least two people saw little change in income inequality between 1991 and 1996, whereas the change for single-person families was enormous.

AGING AND POVERTY

Outside the labor market, another source of rising inequality is the rapid aging of the population due to the increasing proportion of elderly people (above 65 years of age). Elderly people are typically poor because they do not usually engage in economic activity. Rapid population ageing is a hidden factor in income distribution because this segment of the population is, for the most part, not visible in the labor market. In South Korea, population ageing is the most rapid in the world. It will take just 18 years for the proportion of the population aged above 65 years to move from 7 percent to 14 percent (between 2000 and 2018), and only 8 years to move from 14 percent to 20 percent (between 2018 and 2026) (see Table 9). Compared with countries such as France and Germany, the rapidity of population ageing in South Korea is exceptional. In South Korea, children traditionally take care of their ageing parents. However, this custom has been drastically eroded as industrialization and urbanization have progressed. On marrying, children today typically form independent households and young brides no longer wish to take care of their parents-in-law. Westernized family relationships between children and their parents have become the new social norm. Hence, many parents must now prepare to support themselves in later life. Two factors exacerbate the economic insecurity of the elderly. One is early retirement; the other is the overall lengthening of life expectancy due to economic growth and improvement in health-care systems. Following the financial crisis in 1997, early retirement was introduced by companies to reduce labor costs. As we can see from Table 10, the average age of formal 44 Korean Journal of Sociology

Table 9. Growth in the Proportion of People above 65 Years of Age Year in Which Proportion Reaches: Length of Time (Years) Country 7% 14% 20% 7%->14% 14%->20% Korea 2000 2018 2026 18 8 Japan 1970 1994 2006 24 12 France 1864 1979 2018 115 39 Italy 1927 1988 2006 61 18 USA 1942 2015 2036 79 21 Germany 1932 1972 2009 40 37 Source | National Statistical Office(2005: 22)

Table 10. Age of Retirement, Stipulated Age of Retirement and Actual Age of Retirement, 2011 Age of Retirement From Stipulated Age of Difference Between A Age of Final Main Job (A) Retirement as Surveyed and B Retirement (B) Overall 54.1 56 14.0 68.1 Men 54.4 56 12.9 67.3 Women 53.8 56 14.5 68.3 Source | Phang et al. (2012:6).

Table 11. Rate of Poverty by Age Group, 2012 Age Group (Years) Average Wage (10,000 Korean won) Rate of Poverty (%) 15-29 125.88 30.48 30-39 234.03 12.10 40-49 265.07 11.43 50-59 251.83 15.90 60-80 101.35 53.88 Total 205.14 54.17 Source | ‌Calculated from the Korea Welfare Panel Survey (Korea Institute of Health and Social Affairs 2012) by the authors. retirement in 2011 was 54.1 years, with little significant difference between men and women. However, the age of final retirement from work was 68.1 years, showing that workers spent 14 more years working after retiring from their main jobs. Because they have not saved enough for later life and the state welfare system for the elderly is inadequate, older people have to continue to earn after retiring from their main jobs. These post-retirement jobs are mostly precarious jobs with low pay and security. As life expectancy increases, the period of low income or no income after retirement lengthens. If the situation remains the same as it is now, increasing poverty among the elderly is increasingly likely. In 2012, those aged above 60 years had the highest rate of poverty (53.88 percent) of the age cohorts in South Korea (see Table 11). There was a massive discrepancy Why Does Inequality in South Korea Continue to Rise? 45 between people in their 50s and people over 60 in terms of the rate of poverty: 15.9 percent vs. 53.88 percent. These figures clearly demonstrate that more than half of all elderly people in South Korea suffered from poverty in 2012. The OECD has also recently reported that the relative rate of poverty among the elderly in South Korea was, at 48.3 percent, the highest of all of the OECD members (OECD 2012c). The later stage of life has become the most differentiated period in the life course of Koreans with respect to income and other forms of social provision. For example, the distribution of class status has been directly affected by age cohort membership. In 2007, the proportion of the cohort in their 30s that belonged to the middle class was almost 29.7 percent, with 16.2 percent belonging to the petty bourgeoisie. However, for those in their 50s, the proportion belonging to the middle class was only 10.5 percent with that belonging to the petty bourgeoisie rising to 36.5 percent (Shin 2013a:148-155). The trend continued for those in their 60s, with the petty bourgeoisie increasing to 53.7 percent and the middle class declining to 3.6 percent. The petty bourgeoisie, mostly small-shop owners in the service sector and farmers, represents a core section of the precarious population with low incomes and high social risks. The elderly experience the most severe social risks, such as economic deprivation and poor health, and this is directly related to South Korea having the highest suicide rate among the elderly in the world in the 2000s. Not only is South Korea’s overall suicide rate the highest in the world, but suicides are also concentrated in the elderly population. The suicide rate among the elderly is therefore much higher than for other age groups in South Korea (Kwon et al. 2009; OECD 2012c:39).8 Elderly people who are out of the labor market comprise the core proportion of the poor in South Korea and are exposed to a high suicide probability.

CONCLUSION

The financial crisis in 1997 and the subprime mortgage crisis in 2008 fundamentally transformed the Korean economy, leading to the simultaneous dismantling of the crony capitalism that had developed under the authoritarian regime and the introduction of neoliberal globalization. An immediate effect of the neo-liberalization of the Korean economy was a rapid increase in income inequality. However, other social factors have also contributed to the rise in income inequality; for example, increasing inequality in the labor market has been exacerbated by changes in family relationships and the composition of the population. This paper explores the increasing inequality in contemporary South Korea, focusing on three dimensions of social change: neoliberal labor market reforms, family dissolution and

8 South Korea’s suicide rate stands at 33.5 suicides per 100,000 people, 2.6 times higher than an average of the OECD countries at 13.3 suicides and the highest of all of the OECD countries for 8 years (OECD 2012c). 46 Korean Journal of Sociology population ageing. These dimensions are partially interconnected in that casualization of the labor market has contributed to the rise in divorce and mass layoffs of older workers, affecting the distribution of income and leading to impoverishment. Casualization of the labor market has resulted in an increase in precarious work via various types of non-standard work and in mass unemployment. Mass layoffs have undermined the Confucian patriarchy by weakening the traditional ideology of male dominance at home, based on the male bread-winner model. Mass layoffs have thus led to an unprecedented increase in the rate of divorce. In addition, the combined effect of retirement ages being lowered to increase flexibility in the labor market and life expectancy becoming longer has accelerated impoverishment among the elderly, which is an important element of increasing inequality outside the labor market. Economic and social transformations have generated new social risks that directly affect socially excluded groups. Under the current poor social welfare provisions, social groups such as unemployed youth, divorced women and retired elderly people have a high probability of falling into the trap of poverty and social exclusion. The rise in income inequality has thus been accompanied by the expansion of the poor, both working poor and non-working poor, in the 2000s. Although the economy has fully recovered in terms of macroeconomic indicators such as the rates of unemployment and economic growth, the unreversed trend toward a high level of inequality and poverty has rendered the population more insecure and vulnerable to economic fluctuations. The results of this include the delaying of marriage among young people, a reluctance to have children, a weakening of marital stability, and an increasing rate of suicide among the elderly in particular. Multiple causal relationships between these factors perpetuate the high level of income inequality and poverty existing in South Korea. The state has not responded sufficiently enough to halt the tendency toward crisis. As demanded by the IMF, the Korean government introduced several welfare programs in 1999 and 2000. Although the IMF enforced neoliberal economic reform, it also demanded a strengthening of social safety nets. The IMF considered that welfare policies should be aimed at crisis management rather than the enhancement of social rights and the consolidation of social safety nets. Welfare programs such as unemployment insurance and public assistance were thus so limited that they could not halt the rising inequality and poverty. Although several new welfare programs were introduced, the absolute amount of social spending was very small compared with other Third World countries. The average social spending of OECD countries in 2005 was 18.9 percent of GDP, whereas that of Korea was only 4.8 percent, the lowest of the OECD countries (OECD 2013). Although Korea’s proportion of social spending grew rapidly from 4.8 percent of GDP in 2005 to 9.2 percent of GDP in 2010, it remained far below the average for all of the OECD countries in 2010, 22.1 percent of GDP, and that for Latin American countries in 2010-2011, 19.2% of GDP (ECLAC 2010:135). The lack of development of social welfare systems has therefore failed to halt or reverse the trend toward increasing inequality and poverty in South Korea in the 2000s. Why Does Inequality in South Korea Continue to Rise? 47

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Kwang-Yeong Shin is Professor of Sociology at Chung-Ang University. His research areas include social stratification and inequality, the comparative political economy, and democratization. In 2013 he published A Study of Inequality in South Korea (Hankuk sahoe bulpyongdung yonku) and “Economic Crisis, Neoliberal Reforms and the Rise of Precarious Work in South Korea” in American Behavioral Scientist. He is currently carrying out research on comparative inequality in East Asia and Europe.

Ju Kong is a PhD student of the Department of Sociology at Chung-Ang University. Her research interests are health inequality, gender and social stratification.

Submitted Oct. 12, 2014; Accepted Nov. 19, 2014