The Economist has a special report on Korea this week, touching on the social issues it faces. Here‘s the concluding article. It cited a report by McKinsey Global Institute and also a highly readable book “The Impossible Country“. Both are good reads to understand Korea better. The former focuses more on structural economic issues, while the latter provides good information on politics, culture, and the economy.
Korea is a highly stressful country to live in. It has one of the highest suicide rates, very long working hours, and alcohol consumption well above Japan’s. This all stems from a very competitive society, starting when one is a child all the way up. Beside needing to spend a lot on children’s education (private + extracurricular) to get ahead, parents also spend a lot to live in a good district, on branded accessories, expensive alcohol for guests, and plastic surgery, all to look good among peers (luxury sales growth in Korea is among the highest in world). Hence a lot of middle income households are feeling stressed and running high household debt. There seems to be a shift in sentiment in recent years toward improving living standards, but I don’t think much has changed yet. Korea will probably need to change its growth model going forward.
I read the McKinsey report a while back. Below are some stylized facts I saved. There are also many interesting charts in the report.
PS: Going to Seoul next month and looking forward to try the ideal bibimbap.
Korea has gone from a nation where divorce was almost unheard of to having one of the highest divorce rates among OECD. It has the highest suicide rate in the world (31.7 per 100,000 people in 2011).
Only about 44% of Korean households have two incomes (vs 57% across OECD). Koreans also shoulder high monthly payments for housing loans and spend more on private education than almost any society on earth. More than 60% of respondents cited burden of education and child care as the reason not to have children.
Korea’s household saving rate has fallen from around 19% in 1988 to 4% in 2012, among the lowest in OECD, and the proportion of middle-income households operating in deficit (paying out more in expenses every month than they take in) has jumped from 15% to 25%. If monthly principal payments for mortgages were counted, nearly 55% of middle income households could be considered in deficit.
Wealth of Korean families is nearly 3 times as concentrated in real estate as wealth of US families. Real estate makes up about 74% of household assets. About 90% of loans have floating interest rates. Monthly debt service averages 25% of income, more than twice the debt service ratio of US households. The average mortgage is for 51% of home price, and many purchasers take out additional higher cost loans from 2nd tier banks. The spread on a loan to cover 80-90% of a purchase price is 4pp over a 50% LTV loan, or twice the premium charged in the US.
Overall, service sector productivity (valued added per employee), is 30-57% below levels in the US, UK, and Germany. Service wages are 55% of manufacturing wages, larger gap than in Germany, Japan, UK, and US.
Korean economy is dominated by SMEs. In SMEs, which account for 88% of employment, pay is about 62% of large-company rates. The productivity of Korea SMEs is only 35% of that of large companies. SMEs account for 99.9% of estimated 3 million plus companies in Korea, and 96% are small companies with fewer than 50 employees.
Manufacturers shifted 17% of their production to overseas plants in 2010.
According to Hyundai Research Institute, unemployment rate would be closer to 11% if full accounting were made of the unemployed and underemployed. It estimates that about 803,000 Koreans are involuntary part-timers. Part-timers make only about 65% of full-time pay. Some 30% of labor force is self-employed, compared with 10% in other advanced economies. More than 80% of self-employed work in local services, including a large number of older workers who launch their own business after retirement.
Korea’s college entrance was the highest in OECD in 2011, but graduates are having more trouble find good jobs than graduate from vocational high schools. McKinsey estimates that the net present value of the lifetime earnings of a Korean who goes through private school and university is less than the NPV of the earnings of a high school graduate.
Nation ranks highest on internet accessibility, airport one of the best, and highest smartphone penetration in the world. -Tourism revenue accounts for only 2.4% of GDP compared with OECD average of 3.8% (ranges as high as 10.2% in Spain). Employment in tourism accounts for 2.2% of jobs compared with 5% across OECD.
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