Polarised spending in South Korea

Date : 08 January 2020

Unintended consequence of the minimum wage increase over the last two years.

Simultaneous sales growth of cheap necessaries and luxury goods

There is an emerging trend of polarised spending in the country, which saw high-income shoppers trading up to high-end and luxury goods, whilst the low-income shoppers are seeking to save on everyday items.

Retailers like Emart and Lotte, shopping venues for the low to middle class, have seen their profit declining sharply in 2019. They are struggling to keep up with changes brought by ecommerce companies and keep price low at the same time.

By contrast, designer goods sales at department stores showed two digital year-on-year growth. According to data from Lotte Department Store, its designer brand sales in the first eight months of 2019 spiked 24.7 percent from the year before.

Unintended consequence of the "income-led" growth policy

This trend and the widening income gap are unintended consequences of the "income-led" growth policy, which calls for a 30% increase in the minimum wage over the past two years and reduced maximum working hours.

This gives high-income workers extra pay, more benefits and greater bonuses. However, those at the bottom of the economic scale are losing jobs, an inevitable result of small businesses trying to survive.

Retailers including Emart and Lotte are unable to keep the price low due to the rising cost of retaining minimum wage workers.

"Minimum wage jobs disappeared fast over the past few months as small business owners that are barely making money were not able to pay them. The income-led growth helped only those who could live without it and destroyed those who could not," an economist at the University of Seoul commented.

 

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