Wage Inequality: How and Why it has Changed over the Decades

● Author
- Youngsun Koh, Fellow

● Go to related report
- Wage Inequality: How and Why it has Changed over the Decades.(http://bit.ly/2Kk8ccq)

● KDI Website
- http://www.kdi.re.kr/kdi_eng/main/

Wages can vary depending on the worker’s educational attainment, work experience, and other factors that affect his or her skill level.

Since the 1980s, the United States and other advanced countries have seen their wage inequality deteriorate due to the ever widening gap in wages.

It is widely believed that the problem is rooted in skill-biased technical change, or SBTC.

Specifically, the rapid pace of technological progress has demanded an increasing number of high-skilled labor.
The shortage of such workers has raised their wage levels and aggravated the wage gap between high-skilled and low-skilled workers.

During the past 40 years, Korea’s wage gap has exhibited ups and downs, following a different path from that of advanced countries. But why?

To answer this question, KDI examined how the wage gap has changed with a focus on educational attainment.

From 1980 to 1994, the wage gap continued to narrow, as
the brisk growth of the heavy and chemical industry bolstered the demand for mid-skilled high-school graduates. In comparison, the demand for high-skilled college graduates and low-skilled middle school graduates fell.

In this period, high-school education expanded rapidly, but could not meet the surging demand for high-school graduates, and the latter group’s wage levels rose relative to that ofcollege graduates. Meanwhile, middle-school graduates fell rapidly in number, helping the remaining members of this group to improve their position relative to high-school graduates’.

Under such circumstances, the wage gap was eased by the relative increase in the wages of high-school graduates and middle-school graduates.

From 1995, the development of ICT fueled the demand for college graduates.

However, supply was unable to meet demand, driving up the wages of college graduates.

Accordingly, the wage gap between college graduates and other groups began to widen.

Since 2008, the demand for college graduates has stalled, lowering their wages and serving to alleviate the wage gap.

In a sense, the easing of wage inequality lies with the downward convergence toward lower evels of wage across different educational attainments.

The downturn in the demand for college graduates seen during this period may be due to the slowing of SBTC.

Korea’s wages exhibited a sharp increase from the 1980s to the mid-1990s, after which, the upward trend tapered off. In particular, following the global financial crisis of 2008, the growths of the median wage and the top 10th percentile wage came to a virtual standstill, leading to a downward convergence toward lower levels of wages.

To ensure an overall rebound in wage growth, focus must be placed on enhancing productivity and multi-faceted efforts must bee made toward deregulation, industrial restructuring, and the dismantling of vested interests.

Unfortunately, rising productivity may be accompanied by exacerbating wage inequality. To mitigate this possibility, efforts are also needed to improve the quality of higher education and to strengthen redistribution policies.

#Wageinequality #technologyadvancement #economy #labor