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Policy Analysis The Income-led Growth in Korea: Status, Prospects and Lessons for Other Countries 경제개혁, 경제발전

저자 주상영, 이강국, 나원준, 전수민, 조동희 발간번호 20-01 자료언어 English 발간일 2020.10.08

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   Income-led growth is at the core of the Moon Jae-in administration’s economic policy. It aims to build an inclusive economy by enhancing the capacity of household consumption and improving distribution, through a more active role of the state and social agreements. This report laregely reviews what the Moon administration’s income-led growth has achieved and has not, as of the end of 2019 (due to the data availability). The reader is advised to keep in mind that the administration had been in two and a half years into the 5-year term by the end of 2019, and the growth effect may take a longer time to realize. The main goal of this interim review is to share the rare case of the income-led growth policies with the policy research circles abroad.
    After an introduction in Chapter 1, Chapter 2 applies the approach of Hein and Vogel (2008) to Korea, to have an idea of the growth regime of the Korean economy. An economy is said to be in a wage-led (profit-led, respectively) growth regime if the aggregate demand increases (decreases, respectively) with labor income share. Because the self-employed takes a large share of the labor force in Korea, the chapter uses adjusted measures of labor income share, following Jeon and Joo (2015, 2018). The empirical evidence indicates that the Korean economy is in a wage-led growth regime, at least since the currency crisis in late 1990s. This is largely because consumption is more sensitive than investment or net export to labor income share, and this sensitivity has become stronger after the currency crisis. This finding suggests that the main cause of the post-crisis consumption
slowdown in Korea is the concurrent decline in labor income share. This supports the relevance of the Moon administration's income-led growth strategy, which can be interpreted as an attempt to improve the factor income distribution.
    Chapter 3 outlines the directions and contents of the Moon administration’s income-led growth policies. It introduces the virtuous circle that the income-led growth aims at creating, consisting of increase in decent jobs, increase in the household income, enhancement of the household’s capacity for consumption and economic growth. The chapter introduces a detailed structure of this circle, the three pillars of the income-led growth, namely increasing household income, reducing household expenses and expanding welfare and safety net, and the composition of the detailed policies aimed at achieving each of them. It also points out the shortcomings of the current structure and composition. Moreover, it discusses the relationship between the income-led growth and the two other directions of the Moon administration’s economic policy, namely innovative growth and fair economy.
    Chapter 4 offers a brief interim economic assessment of the income-led growth, focusing on the changes in growth and income inequality between 2017 and 2019. It provides evidences that private consumption stayed solid during the period, while construction and equipment investments fell, and income distribution (especially wage inequality and wage share) improved. Growth rates, however, were disappointing, due partly to the global rise in
protectionism. It argues that fiscal policy was too conservative to properly support the pursuit of income-led growth, leaving more revenue in 2018 than expected, for instance.
    Chapter 5 discusses the minimum wage increases of the Moon administration, which dominated the public’s perception of the income-led growth. The statutory minimum wages were raised, compared to the previous year, by 16.4% for 2018 and 10.9% for 2019. As a result, the hourly minimum wage has risen by 29% from KRW 6,470 in 2017 to KRW 8,350 in 2019. The chapter discusses the socio-economic impacts of the minimum wage raise in the Moon administration. It also reviews the changes of the Moon administration’s policy directions in fairly detail, during which the minimum wage was at the center of the policy debates.
   Chapter 6 offers a brief evaluation of the Moon administration’s social safety net policy in the context of the income-led growth. It reviews how the Korean social insurance and welfare systems, such as the Basic Living Security, Basic Pension and Child Benefit, have been reformed. It assesses the policies related to social services and welfare delivery system. It also discusses the “Mooncare”, the health care policies of the Moon administration.
    Finally, Chapter 7 discusses labor protection in the context of the income-led growth of the Moon administration. It reviews the literature on labor market institutions, trade unions and collective bargaining. It explains the characteristics of the Korean labor market and discusses possible ways to improve the current system of labor protection in Korea. It critically reviews the Moon administration’s labor protection policies and suggests policies that are more consistent with the income-led growth.
   Income-led growth is at the core of the Moon Jae-in administration’s economic policy. It aims to build an inclusive economy by enhancing the capacity of household consumption and improving distribution, through a more active role of the state and social agreements. This report laregely reviews what the Moon administration’s income-led growth has achieved and has not, as of the end of 2019 (due to the data availability). The reader is advised to keep in mind that the administration had been in two and a half years into the 5-year term by the end of 2019, and the growth effect may take a longer time to realize. The main goal of this interim review is to share the rare case of the income-led growth policies with the policy research circles abroad.
    After an introduction in Chapter 1, Chapter 2 applies the approach of Hein and Vogel (2008) to Korea, to have an idea of the growth regime of the Korean economy. An economy is said to be in a wage-led (profit-led, respectively) growth regime if the aggregate demand increases (decreases, respectively) with labor income share. Because the self-employed takes a large share of the labor force in Korea, the chapter uses adjusted measures of labor income share, following Jeon and Joo (2015, 2018). The empirical evidence indicates that the Korean economy is in a wage-led growth regime, at least since the currency crisis in late 1990s. This is largely because consumption is more sensitive than investment or net export to labor income share, and this sensitivity has become stronger after the currency crisis. This finding suggests that the main cause of the post-crisis consumption
slowdown in Korea is the concurrent decline in labor income share. This supports the relevance of the Moon administration's income-led growth strategy, which can be interpreted as an attempt to improve the factor income distribution.
    Chapter 3 outlines the directions and contents of the Moon administration’s income-led growth policies. It introduces the virtuous circle that the income-led growth aims at creating, consisting of increase in decent jobs, increase in the household income, enhancement of the household’s capacity for consumption and economic growth. The chapter introduces a detailed structure of this circle, the three pillars of the income-led growth, namely increasing household income, reducing household expenses and expanding welfare and safety net, and the composition of the detailed policies aimed at achieving each of them. It also points out the shortcomings of the current structure and composition. Moreover, it discusses the relationship between the income-led growth and the two other directions of the Moon administration’s economic policy, namely innovative growth and fair economy.
    Chapter 4 offers a brief interim economic assessment of the income-led growth, focusing on the changes in growth and income inequality between 2017 and 2019. It provides evidences that private consumption stayed solid during the period, while construction and equipment investments fell, and income distribution (especially wage inequality and wage share) improved. Growth rates, however, were disappointing, due partly to the global rise in
protectionism. It argues that fiscal policy was too conservative to properly support the pursuit of income-led growth, leaving more revenue in 2018 than expected, for instance.
    Chapter 5 discusses the minimum wage increases of the Moon administration, which dominated the public’s perception of the income-led growth. The statutory minimum wages were raised, compared to the previous year, by 16.4% for 2018 and 10.9% for 2019. As a result, the hourly minimum wage has risen by 29% from KRW 6,470 in 2017 to KRW 8,350 in 2019. The chapter discusses the socio-economic impacts of the minimum wage raise in the Moon administration. It also reviews the changes of the Moon administration’s policy directions in fairly detail, during which the minimum wage was at the center of the policy debates.
   Chapter 6 offers a brief evaluation of the Moon administration’s social safety net policy in the context of the income-led growth. It reviews how the Korean social insurance and welfare systems, such as the Basic Living Security, Basic Pension and Child Benefit, have been reformed. It assesses the policies related to social services and welfare delivery system. It also discusses the “Mooncare”, the health care policies of the Moon administration.
    Finally, Chapter 7 discusses labor protection in the context of the income-led growth of the Moon administration. It reviews the literature on labor market institutions, trade unions and collective bargaining. It explains the characteristics of the Korean labor market and discusses possible ways to improve the current system of labor protection in Korea. It critically reviews the Moon administration’s labor protection policies and suggests policies that are more consistent with the income-led growth.
Preface

Executive Summary

Contributors

Chapter 1. Introduction
1. The Birth of the Income-led Growth in Korea
2. About this Report

Chapter 2. Is the Korean Economy in a Wage-led or Profit-led Growth Regime?
1. Introduction
2. Measuring Labor Income Share
3. Effects of Labor Income Share on Aggregate Demand
4. Labor Income Share and Consumption
5. Labor Income Share and Investment
6. Labor Income Share and Net Exports
7. Labor Income Share and Aggregate Demand
8. Concluding Remarks

Chapter 3. The Structure of the Income-led Growth Policies of the Moon Jae-In administration
1. Basic Scheme
2. Policy Composition and the Three Pillars
3. Additional Discussions

Chapter 4. Economic Performances of the Income-led Growth
1. GDP and Its Main Components
2. Employment
3. Income Distribution
4. Fiscal Expansion

Chapter 5. The Minimum Wage Debates in Korea
1. Introduction
2. Initial Criticisms and Some Evidences Against Them
3. Employment Effects of the Minimum Wage Raises in 2018 and 2019
4. Impact of the Minimum Wage Raises in 2018 and 2019 on Wages and Income
5. Change of Direction
6. Conclusion

Chapter 6. Assessment of the Social Safety Net Policies
1. Background
2. Reforms of the National Basic Living Security System
3. Reinforcement of the Basic Pension
4. Child Benefits, Youth Welfare, Unemployment Assistance and Housing Welfare
5. Social Services and Welfare Delivery System
6. The Mooncare

Chapter 7. Transition to an Inclusive Regime of Industrial Relations

1. Introduction
2. Economic Impacts of Labor Market Institutions
3. Labor Unions and the Collective Bargaining System
4. System of Extending Collective Agreements
5. Institutional Improvement in the Korean Labor Market
6. Alternative Labor Policies for Income-led Growth

References

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