South Korea's economy continues to grow on the back of a semiconductor boom, but the "K-shaped" polarization of consumption is deepening. Low-income households are struggling under the burden of food and housing costs, while high-income households are increasing spending on car purchases, travel and leisure.
According to the Korean Statistical Information Service (KOSIS) on Tuesday, housing, water and fuel accounted for the largest share of consumption expenditure among households in the bottom income quintile (lowest 20%) in the first quarter of this year, at 21.7%, followed by food and non-alcoholic beverages at 20.8%. Combined, the two categories made up 42.5% of total consumption. In effect, nearly half of their spending goes to rent, utilities and food.
In contrast, households in the top income quintile (top 20%) spent the largest share on transportation (14.7%) and food and accommodation (14.1%). This means they are actively opening their wallets for car purchases, dining out and travel. Even within the same consumption categories, where households spend their money differs entirely by class.
◇ "Some Travel, Others Worry About Food Costs" = The gap in spending amounts was also stark. Transportation expenditure averaged 116,000 won per month for the bottom quintile, compared with 819,000 won for the top quintile — a difference of more than seven times. "In both quintiles, car purchases made the largest contribution, and fuel costs for transportation also increased," an official from the Korea Data Agency said.
The gap was even wider in the recreation and culture category. The bottom quintile's spending on recreation and culture averaged just 62,000 won per month, only 15% of the top quintile's 411,000 won. Their spending on culture and leisure does not even reach one-sixth of that of the top quintile.
Behind the deepening polarization of consumption despite economic growth lies a widening income gap.
Gross domestic product (GDP) grew 1.7% in the first quarter of this year on the back of a recovery in the semiconductor sector, but low-income households have faced greater financial strain as their income gains have failed to keep pace with inflation.
◇ "Earning 100 Won, Spending 155 Won" = Largest Deficit on Record for Low-Income Households = Income for households in the bottom quintile rose only 2.7%, while their consumption expenditure increased 7.3%. Spending grew faster than income.
As a result, the average propensity to consume for bottom-quintile households reached 155.3%, up 7.7 percentage points from a year earlier. The structure means that for every 100 won earned, 155 won is spent.
Bottom-quintile households recorded an average monthly deficit of 519,000 won, the largest on record since the statistic began being compiled.
By contrast, top-quintile households saw their consumption growth (6.9%) outpace their income growth (4.2%), but their absolute income level is large enough that their surplus actually widened. The average monthly surplus stood at 4.08 million won, up 2.6% from a year earlier.
As a result, the surplus gap between the bottom and top quintiles widened to 4.599 million won, the largest since the statistic began being compiled in 2019. In particular, the surplus declined in the second through fourth quintiles, while only the top quintile saw an increase, making the concentration of wealth at the top even more pronounced.
◇ Samsung, Hynix Bonuses Could Widen the Gap Further = The income quintile share ratio of equivalized disposable income, a measure of income inequality, deteriorated to 6.59 times from 5.98 times a year earlier. This means disposable income for the top 20% of households is 6.59 times that of the bottom 20%.
"It is hard to ignore the trend of wage increases and bonus payments concentrated at large companies with 300 or more employees," an official from the Korea Data Agency said.
Experts are concerned that polarization could deepen further. With bonus payments expanding across industries, analysts say that once bonuses from major companies such as Samsung Electronics and SK hynix are reflected, the income gap could widen further.
"The growth indicators look good, but the benefits are flowing only to certain groups through stocks and bonuses," said Woo Suk-jin, a professor of economics at Myongji University. "Households whose income has not risen and who have not benefited from asset markets are under double pressure, as both interest rates and prices are rising at the same time, reducing their disposable income."
