<Term Paper> South Korea’s Inequality: Wealth (Asset) Inequality

Introduction to International Development

2013 spring

Professor Wang, Shun

30 April 2013

Kim, Myung Nam

201111531

MDP

South Korea’s Inequality: Wealth (Asset) Inequality

Contents

Wealth (Asset) Inequality

Introduction

1) South Korea’s Wealth (Asset) Inequality

2) Serious Problems

(Reason for arguing why asset inequality is more important than income inequality)

- The Effect of Inequality

- Extractive Institutions

- Asset Inequality and Growth

- Bipolarization of Wealth

- Inequality and Social Justice: Inter-generational Transmission of Wealth

- Individual Welfare

3) Linkage with Economic Development

- Asset Distribution, Inequality, and Growth

- The Dynamics of Inequality in Korea: Unequal Opportunity

- Status of asset inequality of cross-countries: Similar Case Study (Japan, USA)

4) Considerations for Solution

- Purpose of Tax (Taxation)

- Tax Policy in Korea

- Inequality and Tax Wealth, and Not Income

- Tax-benefit Policy

5) Solutions

- Measuring Inequalities: Inequality Indicators (Thiel index, the Hoover index, and the

Brandeis ratio)

- The Biggest Drivers of the Wealth Gap

- Further Study: Developing Measuring Wealth (Asset) Inequality

Reference

Glossary

South Korea’s Inequality: Asset (Wealth) Inequality

Introduction

Inequality means difference of quantity or degree. We can get some idea about inequality

from antonym of inequality; it is simply equality and broadly balances. Regardless of social

inequality, when we focus in economics, its meaning has a lot of importance to countries

status.

Economic inequality (also known as the gap between rich and poor, income inequality,

wealth disparity, or wealth and income differences) is the differences in the distribution

of economic assets (wealth) and income within or between populations or individuals.

The term typically refers to inequality among individuals and groups within a society,

but can also refer to inequality among countries. The issue of economic inequality

involves equity, equality of outcome, equality of opportunity, and life expectancy.

(Wikipedia, 2013)

Economic inequality varies across countries. South Korea has set many records for economic

and social achievement.

From one of the world's poorest nation in the 1960s, it has grown to be the 12th largest

economy in GDP (about $1.1 trillion), with $30,000 of GDP per capita. It is the only

nation to go from a recipient of the Organizational for Economic CO-operation and

Development (OECD) Development Assistance Committee's aid to becoming a member of

the donor committee. South Korea, fast growing country, has to solve many problems to

maintain high growth rate due to overcome dynamic social, economic situations.

McKinsey Global Institute stated in its report ‘Beyond Korean Style: Shaping a new

growth formula’, “The progress of the national economy has begun to decouple from the

lives of many South Koreans, who have seen their fortunes wane. The current trajectory

leads to growing inequality, falling consumption growth, and -eventually- a population

that is too small to sustain GDP growth.” (McKinsey, 2013)

Many can be sources of inequality, such as the labor market, taxes, education, economic neo-

liberalism and globalization, impact of gender, development patterns, diversity of

preferences, wealth concentration, inflation, mobility, rent-seeking, and impact of finance

sectors. Growing inequality has many potential problems, because inequality can refer to

cross sectional descriptions of the income or wealth at any particular period and to the

lifetime income and wealth over longer periods of time.

Inequality matters because it has very strong impact on societies regarding many issues such

as institutions, social justice, growth and individual welfare, and so on. Existing evidence

shows that inequality matters for a variety of reasons:

• Economic growth in its own right is insufficient for reducing inequalities.

• More equal distributions of income are not antagonistic to but supportive of sustained

economic growth. High levels of inequalities can impede economic growth in several

ways:

• reducing productivity,

• lengthening the period before recovery of growth resumes after downturns,

• inhibiting the evolution of economic and political institutions of

accountability,

• undermining civic and social life that sustains effective collective decision-

making.

• Reducing inequalities can foster political stability and reduce the chances of

conflict.

• Reducing inequalities is central to promoting fairness and social justice

• Reducing inequalities enhances human dignity, self-worth, and fosters inclusive,

active citizenship. (Wikipedia, 2013)

Rogowski viewed that "equality and institutions are affected by exogenous social change;

usually occasioned by innovations in technology, trade, demographics, or some combination

of these three." In that the causal sequence is almost always has series of pattern from 1) to

4). 1) social change, which leads to 2) change in inequality, followed (usually in short order)

by 3) change in institutions; which, in turn, may occasion 4) further change in inequality.

Inequality itself is hazard to sustained growth, income inequality stood out for the strength

and robustness of its relationship with the duration of growth spells.

Source: Andrew G. Berg and Jonathan D. Ostry. 2011

1) South Korea’s Asset (Wealth) Inequality

South Korea’s asset inequality is criticized of being source of wealth concentration or

bipolarization of wealth. According to “The true extent of South Korea’s income inequality,

Hangyoreh Newspaper”, income concentrated at the top, where high earners enjoy

disproportionately low tax rates.

The top one percent of earners in South Korea are making more than nine times the

average for all paid workers, according to a National Tax Service report obtained by the

Hankyoreh. In particular, the figures showed an overall income of 26 times the national

average for the top percentile of people earning business income and asset income from

sources such as real estate rentals, interest, and dividends… This is the first time the

NTS has released income tax percentile data, showing the true extent of the country’s

income inequality. In the past, it refused to do so, citing the need to protect taxpayer

information… NTS figures indicate that despite so much income being clustered in the

top percentile, its members are actually paying little in taxes relative to the income tax

and nominal tax rates. (Hankyoreh Newspaper, 2012)

Asset inequality appears to have a negative “incentive effect” that goes beyond the traditional

channel of credit market imperfections and reduced investment.

Source: Hangyoreh Newspaper. 2012

2) Serious Problems

- The Effect of Inequality

A number of scholars have proposed that income and wealth inequality should increase the

level of corruption and have suggested a variety of mechanisms through which this might

occur. You and Khagram (2005) argued that higher inequality would lead to higher

redistributive pressures, which would in turn give the wealthy incentives to use corruption to

defend their interests and minimize redistribution. They found a significant causal effect of

inequality on corruption in a sample of 129 countries and suggested a causal mechanism of

“inequality → higher corruption → lower growth.” Easterly (2007) has also presented some

supporting cross-national evidence. Easterly found that negative effect of inequality on long-

run economic development works through institutional quality, including corruption, and

schooling.

Boix (2003) also suggested that inequality, or asset concentration, would reduce the cost of

confiscation or increase the returns on confiscation, and thereby increase corruption and

expropriation. Robinson and Verdier (2003) argued that clientelism becomes an attractive

political strategy in situations of high inequality and low productivity. Acemoglu and

Robinson (2008) proposed a model of “captured democracy,” in which de jure political

power of citizens is offset by de facto political power of the elite based on lobbying, bribery,

and use of extralegal force. Although they did not discuss the role of inequality in their

model, “captured democracy” is more likely at higher levels of inequality because of higher

stakes and greater expected returns for the elite from controlling politics. Ziblatt(2009) found

that land inequality led to capture of local institutions by landed elites, which in turn led to

electoral fraud in the late 19th-century Germany.

- Extractive Institutions

MIT professor Daron Acemoglu studied what exactly accounts for the vast differences in

global prosperity, and he explained inclusive and extractive institutions. Inclusive institutions

are those that have economic institutions that encourage innovation and investment. They

provide secure property rights and eliminate significant entry barriers. They create a level

playing field so that the majority, or ideally all, of the citizens of a given nation can take part

in economic activity. In contrast, extractive institutions do the opposite. The elite are able to

grab things from others or distort allocations and are far from creating a level playing field. A

few control political power at the expense of the rest of society. And these institutions are not

there by mistake. They are designed, as the name extractive suggests, for the interest of those

who have the political power in the society and can do the extracting at the expense of the

rest. As many feel that only a few people –the elite- possess most of nation’s fortune, we will

take that our nation is filled with one example of extractive institutions.

- Asset Inequality and Growth

There is some micro level evidence that the distribution of assets may matter more than the

distribution of income. Even in industrialized countries where credit market constraints

should be less severe, initial distribution of assets (as measured by inherited wealth) may be a

key variable for individuals’ ability to start up enterprises and climb up the income

distribution (Blanchflower and Oswald 1997; Bardhan et al. 1999).

Throughout previous research, the literature has long recognized that it may be the

distribution of assets, rather than income, that underlies a systematic effect of inequality on

growth, for example by restricting access to credit markets and thus the ability to finance

productive but indivisible investments. According to Deininger, it is found “while the link

between income inequality and lower subsequent growth may indeed be tenuous (or even

opposite of what has been traditionally assumed), asset inequality appears to remain as a

major causal determinant of countries’ growth performance even if panel data techniques are

used.” (Klaus Deininger and Pedro Olinto, 2000)

- Bipolarization of Wealth

Inheritance assets reflect widening inequality. Among many factors, inheritance assets reflect

widening inequality in Korea, and it is correlated with tax system. According to Korea Times

(Newspaper), there is close relationship between inheritance tax and asset inequality. Main

composition of inheritance is real estate which is 67% of all in total.

In Korea, money or assets inherited by the richest 1.5 percent accounted for more than

half of the country’s total inheritance, providing a fresh indicator of the widening

income gap here, according to figures from the National Tax Service. Of 288,503 people

who inherited assets from their parents or spouses in 2009, inheritance tax was imposed

on 4,340 or 1.5 percent of them. Assets inherited by these 4,340 amounted to 10.1

trillion won (about $9.4 billion), or 51 percent of the overall amount. Of this super-rich

group, 105 people inherited more than 10 billion won each that year and paid an

aggregated 1.5 trillion won in inheritance tax, accounting for more than half of the total.

The country’s tax laws state that those inheriting assets worth more than 3 billion won

should pay half of their value in inheritance tax… Land accounted for around 41 percent

of the inherited assets in 2009, followed by buildings (27 percent), financial assets such

as bank deposits and insurance holdings (16 percent) and securities and bonds (11

percent). Particularly notable was the rising value of buildings, which accounted for just

14 percent of inherited assets in 2005. (Korea Times, 2011)

- Inequality and Social Justice: Inter-generational Transmission of Wealth

National Statistical Office’s Household Financial Research revealed some of 20s of Korea

invested in real estate while showing decline in saving rate overall in their 20s. They are

considered as having inherited real estate from their parents, and they are only generation that

has more asset portfolio of real estate in some period. Its total share is 46.1% in their asset

and it is 8.9% more real estate asset is added during a year in 2010 to 2011. What the

different point from previous 20s is that they invested in housing not for living purpose.

Generally speaking, inequality can be a signal of income mobility and opportunity as much as

it is a signal of injustice.

Source: Hankyoreh. Survey: inheritance of wealth is causing Korea’s rising inequality,

- Individual Welfare

Inequality strongly affects individual welfare. For example, life expectancy can be heavily

affected by economic inequality. Life expectancy in Seoul is different among regions,

wealthy regions reveals more life expectancy according to survey done by Prof. Cho in 2011.

According to Kookmin Newspaper, ‘Varying life expectancies among Seoul residents reveal

economic disparities’, “South Koreans living in the more affluent central southern part of

Seoul tend to live longer than those in the north, a study said Thursday, a reflection of

widening disparities in the quality of life among the residents of the 10-million-strong

capital.” It also showed that education level is closely tied to life expectancy. This means that

inequality affects a lot of individual welfare. The ratio for who died in 40-44 years old

educated only in elementary school level is 11 to 13 times greater than that of university

graduated people. It can be explained that low-level of education labor force’s environment is

harsher than ever, and is escalating through 1997 Asia economic crisis and 2008 World

financial crisis. Prof. Cho strongly recommended investment in human capital not in medical

industry and financial support to overcome differences in life expectancy among various

regions.

3) Linkage with Economic Development

- Asset Distribution, Inequality, and Growth

Deninger argued "Policymakers addressing the impact of inequality on growth should be

more concerned about households' access to assets - and to them - than about the distribution

of income. Asset inequality but not income inequality - has a relatively great negative impact

on growth and also reduces the effectiveness of educational interventions." in the paper

“Asset Distribution, Inequality, and Growth (2000)”.

Deininger and Olinto use assets (land) rather than income to examine the robustness of the

relationship between inequality and growth. They find evidence that asset inequality - but not

income inequality - has a relatively large negative impact on growth. Results of study

represent that policymakers should be more concerned about households' access to assets, and

to the opportunities associated with them, than about the distribution of income. Long-term

growth might be improved by measures to prevent large jumps in asset inequality and by

policies to facilitate asset accumulation by the poor.

Nancy Birdsall also mentioned “Policies aimed at reducing inequalities in the accumulation of

assets should be at the center of a new approach for poverty eradication and the acceleration

of growth in Latin America at the start of the new century” in her writing Asset Inequality

does matter: Lesson from Latin America (1997).

- The Dynamics of Inequality in Korea: Unequal Opportunity

In Korea, it was found that an increase in transfer income reduces the income inequality most

significantly among all income sources. In order to reduce overall income inequality, more

active policy intervention to increase the transfer payment is called for. The increase of

transfer payment will inevitably require an increase in tax.

Hyun and Lim (2005) find that Korea’s income tax system can have more redistributive

effect by increasing the level of horizontal equity, leading to the equal tax treatment of equal

income group. This requires the abolishment of such tax incentives as allowance, deduction

and exemption. The nature of tax policy is also important. Despite the government’s claim

that the recent tax cuts are not for the rich, to the extent that the tax cuts are implemented

differently across income distribution in favor of the rich, the income inequality will persist.

Professor Kim stated that “The current income inequality, if left unchecked, would slow

down the social mobility and potentially create class conflicts which will hamper the

achievement of the cohesive society.”

In the long run, this will possibly perpetuate and even exacerbate income inequality and

may shake social stability. Given the importance of transfer income to reduce inequality,

some form of tax raise appears to be inevitable. The social consensus to share “the pain

and gain” will lighten the potential tax resistance from the rich and induces the poor to be

more patient. Conscientious political leadership based on reality and feasibility rather than

crowd-pleasing rhetoric is also urgently needed since the public policies based on

populism and myopic special interests only retard individual incentives and further

exacerbate the income inequality and income polarization. (Kim, 2011)

- Status of asset inequality of cross-countries: Similar Case Study (Japan and USA)

There has been much recent interest in the inter-generational transmission of economic status

these days. In Japan, there was a study “Intergenerational Transfers and Asset Inequality in

Japan (2012)” and it was done based on the estimated intergenerational asset transfer

functions. They examined the impact of intergenerational transfers on asset inequality in

Japan. Analysis shows that households with higher educational attainment are likely to

receive larger asset transfers. In addition, they find a positive correlation between the amount

of asset transfers received with households’ financial strength measured by labor earnings.

This finding suggests that households with a higher level of educational attainment, which

means that they are likely to earn more, also receive considerably larger intergenerational

asset transfers. Therefore, overall, it appears that intergenerational transfers (including

education) tend to perpetuate asset inequality across households and that greater investment

in offspring’s human capital and intergenerational asset transfers go hand in hand.

One research in USA tracked the relationship between the wealth held by parents and

children in USA using PSID (The Panel Study of Income Dynamics). According to their

research, these inter-generational relationships are large, and children of very low wealth or

very high wealth parents rarely end with wealth substantially different from their parents’.

(Charles et al., 2003)

Wolff and Gittleman found on the basis of the SCF (Survey on Consumer Finances) data that

on average over the period from 1989 to 2007 21 percent of American households at a given

point of time received a wealth transfer and these accounted for 23 percent of their net worth.

These figures are comparable to previous studies of inheritances in the U.S. However, over

the lifetime, about 30 percent of households could expect to receive a wealth transfer, the

mean value of these transfers would be about $200,000 (in 2007 dollars), and these would

account for close to 40 percent of their net worth near time of death. The PSID data yield

very similar results. A related (also surprising) finding is that even though white

households receive larger wealth transfers than African-Americans, a higher fraction of the

wealth of African-Americans (about a third) comes from wealth transfers than that of

whites (about a fifth).” (Wolff and Gittleman, 2011)

According to previous research, wealth inequality is very sensitive and positively related to

the ratio of stock-prices-to-housing prices, since the former is heavily concentrated among

the rich and the latter is the chief asset of the middle class. (Wolff, 2002)

4) Considerations for Solution

- Purpose of Tax (Taxation)

During the 19th century the prevalent idea was that taxes should serve mainly to finance the

government. In earlier times, and again today, governments have utilized taxation for other

than merely fiscal purposes. Getting back to basics, the purpose of tax can be categorized as

followings (Wikipedia, 2012);

• accumulate funds for the functioning of the government machineries

• Increase in effectiveness and productivity of the nation

• Increase in the quantum of revenue collection

• Improvement in services of the government

• Improve employment at all industry verticals

• Induction of modern technology in to the system

• Rationalization of terms and condition of the economic system

• Rationalization of employment terms and conditions

Taxes can do a lot of things. They can pay for services. They can make life easier for future

generations by either reducing the nation’s debt burden, or by building bridges and tunnels

that our children will use. Taxes can transfer wealth from future generations to today by

increasing the deficit. They can change behavior like in the case of cigarette taxes, soda taxes

and the mortgage interest rate tax deduction. So it is useful to talk about what we want taxes

to do before setting where they should be.

- Tax Policy in Korea

In Korea, there is argument on that ‘tax policy was not widely used to loosen the income

inequality’. Even though the Gini coefficient of after-tax income is somewhat smaller than

those of pre-tax income, its absolute differences are not that big. Kang asserted that the tax

policy was not primarily used to loosen inequality based on the following arguments: the tax

revenue as a percent of GDP of Korea had been far less than those of other developed

countries whether the Social Security Tax is included or not.

From these arguments, we believe that the tax policy was not widely used to reduce

inequality and also was not quite effective to do so. It is not clear why the Korean

government did not actively use the tax policy as a tool for loosening inequality. It may be

the reflection of government philosophy on the economic development, that is-economic

growth is more important than economic equality, and growth will eventually mitigate

inequality. (Kang, 2001)

A study by the global tax consultancy network KPMG found that the 2011 effective tax rate

(income tax divided by earnings) for South Korean workers who made the equivalent of

US$100,000 (about 111,400,000 won) was just 26.4% - roughly half the OECD member

nation average of 50.4%. A bigger problem is just how few of the rich are taxed at a high

rate. Of the country’s 14.3 million income earners, just around 30,000 are subject to the

maximum tax rate of 38%. The small number of people paying taxes and the little that they

pay are reflected in the percentage of tax revenues out of GDP. South Korea’s rate is 19.8%,

far lower than the roughly 25% average for OECD countries. “Given how low our effective

income tax rate (tax divided by income) is relative to the OECD average, there is a lot of

room for the top earners to pay more in taxes,” the tax office said regarding tax rate of Korea.

South Korea’s income tax burden is quite low: just 3.6% of GDP, compared to 8.7% for the

average OECD member nation. One reason for this is the large number of people under the

tax exemption threshold, but another is the plethora of non-taxable income sources, tax cuts,

and deductions. And those benefits only get bigger the higher one is up the income ladder.

Source: OECD

- Inequality and Tax Wealth, and Not Income

　

There is worry about extreme wealth inequality in USA. It is believed that the real menace

for our long-term prosperity is not income inequality — it’s wealth inequality, which distorts

access to economic opportunities. Replacing the income, estate and gift taxes with a

progressive wealth tax would do much more to reduce it than any other tax plan being

considered in Washington.

When economists try to measure inequality, they typically focus on income, because the

data are most readily accessible. But income is not always a good gauge of economic

power, income data may not reveal the true economic power of people who are retired, or

who receive their pay in securities like stocks and options or use complex strategies to

avoid taxes. Trends in the distribution of wealth can look very different from trends in

incomes, because wealth is a measure of accumulated assets, not a flow over time. High

earners add much more to their wealth every year than low earners. Over time, wealth

inequality rises even as income inequality stays the same, and wealth inequality eventually

becomes much more severe. In tax system, most families that depend on their wealth for

their income would pay more, and most that depend on their earnings would pay less.

(Altman, 2013)

- Tax-benefit Policy

According to OECD, it is found that “Overall, tax-benefit policies offset some of the large

increases in inequality attributable to growing market-income disparities, the main driver of

inequality trends between the mid-1980s and the mid-1990s. It is believed that reforming tax

and benefit policies is the most direct and powerful instrument for redistribution

However, from the mid-1990s to 2005, the reduced redistributive capacity of tax-benefit

systems was sometimes the main source of widening household-income gaps. Currently,

these systems reduce inequality among the working age population by about one-quarter

on average across OECD countries, with higher redistribution in most Nordic countries

and Belgium, and levels well below average in Chile, Iceland, Korea, Switzerland and the

United States. The main reason for less effective redistribution over the past 15 years was

on the benefit side: levels were cut and eligibility rules tightened to contain expenditures

for social protection. (OECD, 2011)

5) Solutions

- Measuring Inequalities: Inequality Indicators (Thiel index, the Hoover index, and the

Brandeis ratio)

There are various numerical indices for measuring economic inequality. A prominent one is

the Gini coefficient, but there are also many other methods. It has been long to use income

indicators to express inequality. This approach is no longer sufficient for practical and

theoretical reasons. Income inequality indicators will require greater sophistication in their

design and in their use to ensure their continued importance, and income inequality indicators

fail to measure wealth. Wealth distributions are even more unequal than those of income. In

addition to Gini coefficient (Thiel Index), there are two more measurements. The Hoover

index, or Robin Hood index, is simply the proportion of all income that would have to be

distributed to reach perfect equality and is a value between 0 and 100%. The Brandeis ratio is

the ratio of the average income of a nation’s richest 1% to the median household income. In

USA, in 1980, the Brandeis ratio was 12.5 compared to the 2006 Brandeis ratio of 36.012.

Each of these measurements of income inequality conveys useful information about the

distribution of income and are complimentary to one another. However, for measuring wealth

inequality, it needs to probe and connects the meaning of drivers of wealth gap.

- The Biggest Drivers of the Wealth Gap

In ‘The Roots of the Widening Racial Wealth Gap’, Brandeis University's Institute on Assets

and Social Policy studied the reason of racial wealth gap in USA. Tracing the same

households over 25 years, the total wealth gap between white and African-American families

nearly triples, increasing from $85,000 in 1984 to $236,500 in 2009. In conclusion, they

found the biggest drivers of the growing racial wealth gap are:

• Homeownership (Housing)

• Household income

• Unemployment

• A college education

• Inheritance, financial support by families or friends, and preexisting family wealth

In similarity, in the paper "Health and Wealth Inequalities in the UK (2006)", they named the

main sources of wealth inequality in UK as follows:

• Pension inequality

• Property Prices

• Ability to Save

• Increased income inequality

- Further Study: Developing Measuring Wealth (Asset) Inequality

To measure wealth inequality, I listed many factors that affect wealth inequality. From that

stance, I believe that some following factors should be monitored and included for wealth

inequality index, and it is believed which has strong plus transfer factor to flatten wealth

inequality:

• Housing Price/Ownership Status

• Land Price/Ownership Status

• Household Income

• Employment Rate

• A College Education

• Pension (Public, Private) Status

• Saving Rate

• Security Stocks Price/Ownership Status

• Inheritance and Gift Tax/ Inheritance and Gift Status

• Inter-generational Wealth Transfer

• The income of the top 1%

The use of wealth inequality index or purpose of wealth inequality index will need to be

discussed further. Most of all, it should be used to point out and handle wealth inequality as

touchstone in the nation. As I mentioned earlier in the purpose of taxation, it should be used

for developing tax policy for developing better wealth distribution that is believed to be help

for wealth (asset) equality.

Reference

http://en.wikipedia.org/wiki/Economic_inequality

http://en.wikipedia.org/wiki/Income_inequality_metrics

http://global.britannica.com/EBchecked/topic/584578/taxation/72001/Purposes-of-taxation

Deininger, Klaus and Olinto, Pedro. 2000. “Asset Distribution, Inequality, and Growth”

Birdsall, Nancy and Londoño, Juan L. 1997. "ASSET INEQUALITY DOES MATTER:

LESSONS FROM LATIN AMERICA"

Berg, Andrew G. and Ostry, Jonathan D. 2011. “Equality and Efficiency”, Finance and

Development, September 2011

Lintelo, Dolf te. 2011. "Inequality and Social Justice Roundtable Consultation"

Kim, Jongsung. 2011. "The Dynamics of Income Inequality in Korea"

You, Jong-Sung. 2005. "Inequality and Corruption: The Role of Land Reform in Korea,

Taiwan, and the Philippines"

Rogowski, Ronald and MacRae, Duncan C.. 2004. "Inequality and Institutions: What Theory,

History, and (Some) Data Tell Us"

Kookmin Newspaper. 2011. “Varying life expectancies among Seoul residents reveal

economic disparities”

The Korea Times. 2011. “Inheritance assets reflect widening inequality”

Donga Newspaper. 2011. “Bipolarization of wealth from 20s according to National Statistics

Office, 2011 Household Financial Research”

ECONOMICS and POLITICAL ECONOMY http://www.henrygeorge.org/def2.htm

Charles, Kerwin K. and Hurst, Erik. 2003. “The Correlation of Wealth across Generations,”

Journal of Political Economy, 2003, vol. 111, no. 6

Smith, James D. 1975. “The Personal Distribution of Income and Wealth”

Instiute on Assets and Social Policy. 2013. “The Roots of the Widening Racial Wealth Gap:

Explaining the Black-White Economic Divide,” RESEARCH AND POLICY BRIEF

FEBRUARY 2013

Kang, Seoghoon. 2001. “Globalization and Income Inequality in Korea : An Overview”

Leipziger et al. 1992. “The Distribution of Income and Wealth in Korea”

Easterly W. 2007. “Inequality does cause underdevelopment: insights from a new

instrument”

Junya Hamaaki, Masahiro Hori, and Keiko Murata. 2012. “Intergenerational Transfers and

Asset Inequality in Japan: Empirical Evidence from New Survey Data”

The OECD. 2011. “Divided we stand”

Altman, Daniel. 2012. “To Reduce Inequality, Tax Wealth, Not Income”

Clarke, George. 2006. “Social Issues: Health and Wealth Inequalities in the UK”

Chakravarty, Satya R. 2009. Inequality, Polarization and Poverty: Advances in Distributional

Analysis. Springer, New York, NY.

Villaseñor, Adrián. 2012. "Asset Inequality Conceptual Framework and Measurement

Methodology"

Bonci, et al. 2005. "Defining Household Wealth in Business"

Saez, Emmanuel. 2004. "Income and Wealth Concentration in a Historical and International

Perspective"

Saez, Emmanuel. 2013. "The Evolution of Top Incomes in the United States”

Lopez, Humberto J. and Perry, Guillermo. 2008. "Inequality in Latin America: Determinants

and Consequences"

Graham, Carol and Felton, Andrew. 2005. "Does Inequality matter to Individual Welfare? An

Initial Exploration Based on Happiness Surveys from Latin America”

Cowell, Frank A. 2009. "Measuring Inequality"

McKinsey Global Institute. 2013. "Beyond Korean Style: Shaping a new growth formula"

Wolff, Edward N. 2010. "Recent Trends in Household Wealth in the United States: Rising

Debt and the Middle-Class Squeeze—an Update to 2007"

Korea Institute of Public Finance. 2004. "Tax Policy and Tax System in Korea"

The OECD. 2012. "OECD Economic Surveys KOREA"

Glossary

Wealth

All material things produced by labor for the satisfaction of human desires and having

exchange value. This means that wealth must have all of these characteristics: Wealth is

material. Human qualities such as skill and mental acumen are not material, hence cannot be

classified as wealth. Wealth is produced by labor. Land possesses all the essentials of wealth

but one it is not a product of labor, therefore it is not wealth. Wealth is capable of satisfying

human desire. Money is not wealth; it is a medium of exchange whereby wealth can be

acquired. Nor are shares of stock, bonds or other securities classifiable as wealth. They are

but the evidences of ownership. None of these satisfy desire directly; if they are destroyed,

the sum total of wealth is not decreased. Wealth has exchange value. (More on this in a

moment.)

Asset

In financial accounting, assets are economic resources. Anything tangible or intangible that is

capable of being owned or controlled to produce value and that is held to have positive

economic value is considered an asset. Simply stated, assets represent value of ownership that

can be converted into cash (although cash itself is also considered an asset).

Similarly, in economics an asset is any form in which wealth can be held.

Household Asset

Wealth is commonly measured in terms of net worth, which is the sum of all assets, including

home equity, minus all liabilities. The wealth—more specifically, the median net worth—of

households in a country is varied with relation to race, education, geographic location and

gender. As one would expect, households with greater income feature the highest net worth,

though high income cannot be taken as an always accurate indicator of net worth. In USA,

overall the number of wealthier households is on the rise, with baby boomers hitting the highs

of their careers. In addition, wealth is unevenly distributed, with the wealthiest 25% of US

households owning 87% of the wealth in the United States, which was $54.2 trillion in 2009.

Income vs. wealth

While income is often seen as a type of wealth in colloquial language use, wealth and income

are two substantially different measures of economic prosperity. While there may be a high

correlation between income and wealth, the relationship cannot be described as causal.

Income

Income is the consumption and savings opportunity gained by an entity within a specified

timeframe, which is generally expressed in monetary terms. However, for households and

individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents

and other forms of earnings received... in a given period of time."

In the field of public economics, the term may refer to the accumulation of both monetary

and non-monetary consumption ability, with the former (monetary) being used as a proxy for

total income.

The distribution of wealth

The distribution of wealth is a comparison of the wealth of various members or groups in a

society. It differs from the distribution of income in that it looks at the distribution of

ownership of the assets in a society, rather than the current income of members of that

society.

Household Wealth

Sum of property wealth (net), financial wealth (net), physical wealth and private pension

wealth.

Financial Wealth

Net financial wealth = gross financial wealth – financial liabilities.

Gross financial wealth is the sum of formal financial assets (not including current accounts in

overdraft) + informal financial assets held by adults + children’s assets + endowments for the

purpose of mortgage repayment. Financial liabilities are the sum of arrears on consumer

credit and household bills + personal loans and other non-mortgage borrowing + informal

borrowing + overdrafts on current accounts.

KLIPS

The Korea Labor Institute began to collect detailed data for households and individuals

starting in 1998. KLIPS is a longitudinal survey of the labor market and income activities of

households and individuals residing in urban areas. This data collection is modeled after and

is similar to the Panel Study of Income Dynamics (PSID) in the United States. For household

income, KLIPS includes the following six categories: earned income, financial income, real

estate income, social insurance income, transfer income, and income from other sources.

Each income category includes various relevant items. For example, the earned income

includes wages and compensations received from the workplaces and the self-employment

income.

Survey of Consumer Finances (SCF)

The Survey of Consumer Finances (SCF) is normally a triennial cross-sectional survey of

U.S. families, but over the 1983–1989 and 2007–2009 periods, the survey collected panel

data. The survey data include information on families’ balance sheets, pensions, income, and

demographic characteristics. Information is also included from related surveys of pension

providers and the earlier such surveys conducted by the Federal Reserve Board. By selecting

a given survey in the drop-down box below, users may obtain summary results, codebooks

and other documentation, and the publicly available data for that survey. Additional

information about the survey, recent changes, answers to frequently asked questions and

working papers on the surveys are available through the links above.

The Panel Study of Income Dynamics (PSID)

PSID is the longest running longitudinal household survey in the world. The study began in

1968 with a nationally representative sample of over 18,000 individuals living in 5,000

families in the United States. Information on these individuals and their descendants has been

collected continuously, including data covering employment, income, wealth, expenditures,

health, marriage, childbearing, child development, philanthropy, education, and numerous

other topics. The PSID is directed by faculty at the University of Michigan, and the data are

available on this website without cost to researchers and analysts.