Amid miserable economic situation, Moon revives long-dead “income-led growth” slogan
One of the biggest issues dragging down South Korean President Moon Jae-in’s approval rating is his economic policies. Recent surveys showed that many people cited the government’s economic policies, including those related to real estate and the unstable job market, as the reasons behind their negative assessments of the President.
Among the reasons for a negative assessment of Moon, real estate policies came in first with 23 percent, followed by the government’s response to the Covoid-19 at 17 percent, according to Gallup Korea poll results released last week. Another 9 percent cited lack of progress in addressing problems related to the economy and people’s livelihoods.
This study clearly shows that South Koreans are more sensitive about domestic issues that are mostly related to daily life, rather than foreign policy issues such as North Korea’s denuclearization or negative sentiment toward other countries. The study showed that only 3 percent of respondents cited relations with North Korea as the reason behind the negative assessment, and the figure for problems with foreign policy was 1 percent.
This is typical in South Korea when North Korea issues disappear from international attention. The threat of Pyongyang’s nuclear and missile programs remains, but people are not paying as much attention as they do when North Korea launches intercontinental missiles, tests nuclear weapons, or holds summits with counterparts in Seoul and Washington.
President Moon praised himself for reputed signs of economic recovery and argued that his so-called income-led growth policy is working during his speech marking four years in office on Monday. His remarks on the controversial income-led growth policy drew mockery among conservatives. The main opposition People Power Party released a statement that said “Moon’s perception is totally different from the public, and it is questionable whether he actually is living under the same sky.”
The income-led growth policy was one of Moon’s key campaign promises, and he pushed ahead with it from the beginning of his term. Many experts warned that the policy, which aims to spur economic growth by boosting household income and demand generated by greater spending power, is doomed to fail, since it goes against basic principles of economics.
The basic concept is to raise households’ incomes by raising the minimum wage so that people can spend more money. This experimental policy was introduced as the maximum workweek was reduced from 68 to 52 hours. However, these two initial – and centerpiece – economic policies eventually were not successful, and led to worsening income inequality and a fall in the number jobs. Moon and members of his administration have not used the term “income-led growth” for nearly 18 months, as if they realized that the policy was not working, but the president brought it up again.
“Having chosen alleviating economic inequality as a national task, my Administration has vigorously pushed ahead with policies for income-led growth and inclusiveness since the beginning of its launch,” he said. “We have consistently pushed for a number of policies, including raising the minimum wage, converting non-permanent employees to permanent workers, shortening working hours, raising the basic pension for senior citizens, introducing child allowances, making high school education free and strengthening health insurance coverage.
“Voices have been raised in opposition owing to concerns over the impact on the market. There have, however, been undeniable positive results: In the least, employment and social safety nets have been strengthened and distribution indicators have improved.”
He argued that his economic policies helped the country recover from COVID-19. “No one could have imagined that Korea would become the country to restore its economy to pre-COVID-19 levels the fastest among the OECD member states,” he said. “However, we have successfully pulled it off beyond all expectations.”
Moon used the word “economy” 48 times in his speech. It was used more than COVID-19 (26 times) and vaccine (13 times). He argued that the government will take every measure it can to raise the economic growth rate by over 4 percent this year for the first time in 11 years. Many economists and experts argued that this goal is not realistic if Moon continues with his income-led growth policy, and that there are concerns that he trying to meet the goal by expanding government spending and involvement in the market to facilitate economic growth.
This was the first time that Moon mentioned income-led growth since November 2019. At that time, he used statistics showing that income of the lowest income group, or those who fall into the bottom 20 percent bracket, has improved. He cited statistics to argue that his income-led growth policy is working. However, he was criticized for showing just one side of the statistics. The overall income for the lowest income group has risen, but their income from the workforce had been decreasing for seven consecutive quarters at that time. This means that overall income increased due to government subsidies, instead of the improved job market and economic situations.
Moon’s latest remarks about income-led growth also came at a somewhat strange time as well. It came after news broke in the morning that former Prosecutor General Yoon Seok-youl, who is the leading presidential candidate according to several surveys, met with one of the country’s key economic experts. The media reported that Yoon was told by Kwon Soo-woo, chairman of the Korean Self-employed Research Institute and former Vice President of Samsung Economics Research Institute, that the “Self-employed are those who were hit the hardest by the hikes in the minimum wage and income-led growth, and they are the key to building (a) strong middle-class in the country.”
Substantial economic data shows that the income-led growth policy has failed. The government raised the minimum wage by 16.4 percent in 2017 and another 10.9 percent in 2018. However, it did not lead to improvement in the job market, as the government has argued.
The employment rate was 58.6 percent in the first quarter, which is 1 percentage point lower than the 59.6 percent recorded in the first quarter of 2017, which was when the Moon administration came to power. During the four years under Moon, the number of high-quality jobs with a workweek of more than 40 hours dropped by 1.95 million, while the figure for temporary jobs of less than 40 hours a week rose by 2.13 million. This occurred largely due to the sharp increase in the minimum wage over a short period. This shows that the number of stable jobs is decreasing, while only temporary or unstable jobs are increasing.
During the four years of Moon’s term, the number of employed rose by 269,000 in South Korea. This is significantly lower than the figure under the Park Geun-hye administration (1.69 million), and Lee Myung-bak administration (991,000) during the first four years of their terms. The broad youth unemployment rate among youth (15-29) rose from 23.6 percent in the first quarter of 2017 to an all-time high of 26.5 percent in the first quarter of this year. This figure includes the unemployment rate of part-time workers, long-term job seekers, and people who gave up on finding jobs, which are not included in the normal unemployment rate.
“It is largely affected due to companies and self-employed reducing the number of new hires due to the sharp increase in the minimum wage,” said Shin Se-don, an economics professor at Sungshin Women’s University. “Income-related statistics have worsened due to weak employment statistics, and this is leading to a fall in the number of available jobs in the country.”
Meanwhile, the term income-led growth has been used by conservatives, and young people in particular, to ridicule the current administration for its illogical policies. People satirized it by coming up with terms such as “wagon-led horse,” “promotion-led leadership,” “marriage-led dating,” and “Seoul National University-led studying.”
Among the many comments posted about articles about the president’s latest remarks, one quoted Napoleon Bonaparte’s aphorism – “Never interrupt your enemy when he is making a mistake.”
