"Government Stimulus Measures Valid for Short-Term Consumption Boost... Medium- to Long-Term Employment Structure Improvement Needed" [Click eStock]

"Employment Polarization Weakens Domestic Demand Base"
..."Middle-Class Consumption Is Crucial"

On June 26, Shinhan Investment Corp. assessed the economic stimulus measures of the Lee Jaemyung administration, stating, "While the short-term effect of boosting consumption is valid, there is a need for improvements in the employment structure over the medium to long term." On this day, Lee Jinkyung, a researcher at Shinhan Investment Corp., commented, "The consumption environment for the middle class has weakened," and offered this evaluation.

Researcher Lee expressed expectations for the short-term consumption-boosting effects of the stimulus measures. He added, "The new administration's livelihood recovery consumption coupon policy, among others, aims to provide differentiated payments by income class," and explained, "While the funds are being distributed, household income can be temporarily supplemented." After the COVID-19 pandemic, a short-term increase in new consumption was also observed. Thanks to government transfer spending, the marginal propensity to consume was high, particularly among households in the first to third income quintiles. The second supplementary budget is expected to be executed during the third quarter, so the policy effects are likely to be reflected gradually over time.

However, given that structural limitations persist, additional policies to strengthen the overall economic conditions from a long-term perspective are needed. Researcher Lee pointed out, "Polarization in the Korean labor market is primarily due to structural factors such as industrial structure and technological change," and noted, "In the case of this supplementary budget, it is more of a short-term stimulus to address the current economic situation, rather than a measure to improve the economy's long-term fundamentals." He continued, "While there may be short-term increases in revenue for certain sectors such as retail, accommodation, and food services, as well as improvements in the construction sector and employment related to social overhead capital (SOC) projects, it is difficult for these to lead to the creation of high-quality, long-term jobs."

Looking at the new administration's second supplementary budget proposal, KRW 15.2 trillion is allocated to stimulate the economy (including KRW 10.3 trillion for livelihood recovery consumption coupons), and KRW 5 trillion for stabilizing livelihoods, totaling KRW 20.2 trillion. Researcher Lee highlighted the polarization in Korea's labor market, stating, "Over the past ten years, the proportion of middle-income workers among all employed persons has decreased by about 5.5 percentage points, while the shares of high-income and low-income workers have increased by 2 percentage points and 3.5 percentage points, respectively."

The wage gap is also widening. Compared to 2019, the average monthly wage for high-income earners has risen by 32%, while for low-income earners it has only increased by 20%. Researcher Lee emphasized, "If employment polarization and the decline in middle-class purchasing power continue, there is a high possibility that Korea will experience a prolonged consumption slump from a medium- to long-term perspective." He added, "When the total working-age population is on the decline, employment polarization weakens the domestic demand base, as middle-class consumption plays a crucial role in overall consumption."