"Income Gap Between Large Corporations and SMEs Widens Sharply for Employees With 1-3 Years of Service"

Income Gap Widens With Age Up to Early 50s
Income Stagnation Persists From Late 30s to Early 50s
"Stronger Government Linkage Needed for Naeil Chaeum Deduction"

A recent study found that the income gap between large corporations and small- and medium-sized enterprises (SMEs) widens as age increases and expands among employees with 1 to 3 years of service.

On September 8, the Korea Small Business Institute released a report titled "Measures to Promote the Naeil Chaeum Deduction by Narrowing the Wage Gap Between Large Corporations and SMEs," which presented these findings. According to the study, the ratio of the average monthly income of SME workers to that of large corporation workers continues to decrease with age up to the early 50s, indicating a widening income gap. Specifically, the ratio dropped from 65.2% for those aged 20-29 to 49.4% for those aged 40-44, and further to 42.4% for those aged 50-54.

This income gap stems from income stagnation among SME employees. The average monthly income of SME workers increased by 47.1% from ages 20-29 to 35-39, and by 52.0% from ages 20-29 to 50-54, showing that income growth nearly stagnates from the late 30s to the early 50s. During the same period, the difference in the income ratio between large corporations and SMEs by age group widened from 31.8 percentage points for those aged 35-39 to 81.6 percentage points for those aged 50-54.

Compared to the COVID-19 period, there were also age groups where income growth was particularly sluggish. The ratio of the average monthly income of SME workers to that of large corporation workers for those with less than one year of service increased by 2.9 percentage points, from 69.5% in 2020 to 72.4% in 2023, indicating a narrowing gap during the post-pandemic recovery. However, during the same period, the ratio for those with 1-2 years of service decreased by 2.6 percentage points (from 67.1% to 64.5%), and for those with 2-3 years of service, it decreased by 3.1 percentage points (from 65.1% to 62.0%), indicating that the income gap between large corporations and SMEs widened for employees with 1-3 years of service.

For SME wage workers, the average monthly income by length of service increased by 41.3% for those with 1-2 years of service, 49.3% for those with 2-3 years, and 57.3% for those with 3-5 years, based on those with less than one year of service. This shows that the increase in income is minimal between 1 and 5 years of service. During the same period, the income ratio gap between large corporations and SMEs by length of service continued to widen, from 17.5 percentage points for those with 1-2 years of service to 54.2 percentage points for those with 10-20 years of service, and kept expanding up to 20 years of service.

The Naeil Chaeum Deduction, operated by the Ministry of SMEs and Startups since 2014 to help SME workers build assets and accumulate lump-sum savings, had 119,374 participants from 41,552 companies as of the end of July this year. Notably, the participation rate was higher among small businesses and in non-metropolitan areas. Among companies with fewer than 29 employees, 74,942 workers from 34,823 companies had joined, accounting for 83.8% of all participating companies and 62.8% of all participants.

Roh Minseon, a research fellow at the Korea Small Business Institute, stated, "46.7% of SMEs have suffered business losses due to the turnover of key personnel over the past three years," adding, "In today's economic downturn, the widening income gap is likely to accelerate the outflow of core talent." She further emphasized, "It is necessary to introduce a Naeil Chaeum Deduction program targeting professionals engaged in R&D or artificial intelligence (AI) roles or those holding master's or doctoral degrees at SMEs, to promote collaborative Naeil Chaeum Deduction programs between large corporations and SMEs, and to strengthen the linkage between the Naeil Chaeum Deduction and government support programs."