From Shared Growth to Polarizing Slowdown: The Causes of Rising Inequality in S. Korea

Jong-Il You(유종일), Byung You Cheon(전병유)

This is an inquiry into the causes of rising inequality in S. Korea. While we consider various hypotheses about the causes of the increase in inequality such as technology, globalization, policy shifts, financial crises, etc., our inquiry will focus on the role of the state. After examining two opposing explanations that view the neoliberal reforms and the legacies of the interventionist developmental state as the main cause of rising inequality, respectively, we put forward our main hypothesis, namely, the failures of the growth-regime transition from an input-based catching-up growth-regime to an innovation-based sustained growth-regime (유종일, 2018).

First, we test the competing hypotheses with analytic narratives, or their abilities to provide a coherent narrative on rising inequality amidst slowdown of growth. Part II will examine and how the failures of the growth-regime transition led to unfavorable developments in the distribution of labor incomes, including the labor market dualization – manifested in the gap across firms – and the labor market flexibilization – represented by the gap between regular and non-regular workers (전병유·정준호·장지연, 2017). Part III analyzes the role of capital incomes in exacerbating income inequality, with a special attention to the role of housing ownership (전병유·정준호, 2017). Part IV shed lights on the political economy aspects of the failures in the transition of the growth regime.

Second, our hypothesis will also be tested by a comparative analysis in Part V. We will compare the trajectories of the East Asian superstars - Korea, Japan, and Taiwan – in terms of growth and distribution (You, 1998), and show that our hypothesis can illuminate both the similarities and the differences among these economies.

The Korean studies literature has focused on the growth miracle (World Bank 1993) or the slowdown (Eichengreen et al., 2015) separately, without analyzing how the institutional legacies of the growth-miracle period obstructed the necessary transition in the growth regime and how they acted to worsen inequality in the context of slowdown. This study will provide a new and comprehensive framework for understanding the interactions among the political economy, the growth regime, and the relationship between growth and income distribution in Korea.

ToC: [Part I. Why is Inequality Rising?] 1. Great Leveling, Growth-mediated Distribution, Polarization: A brief history of distribution and growth from the land reform era; 2. Hypotheses on the Causes of Rising Inequality [Part II. Labor Incomes and Inequality] 3. Labor Market and Inequality; 4. Education and Inequality; 5. Demographic Changes and Inequality [Part III. Capital Incomes and Inequality] 6. Rising Capital Share and Inequality; 7. Ownership of Land and Inequality [Part IV. Political Economy of Polarizing Slowdown] 8. Redistribution: Lagging Welfare State; 9. Growth-regime Transition Failures; 10. Interactions between Slowdown and Polarization [Part V. Comparison and Conclusion] 11. Trajectories of Growth and Distribution in the East Asian Superstars: Comparison of Korea, Japan, and Taiwan; 12. Toward Economic Democracy