Soaring real estate prices are deeply connected to structural issues with the South Korean economy.
Addressing why Seoul’s apartment prices have risen over 50 percent during President Moon Jae-in’s tenure will be the key policy question put before the candidates running in the 2022 presidential election. Some will argue that regulations were incorrectly calibrated, while others will promise to roll them back if they are elected to the Blue House.
However, the political discourse around the housing market skirts around the phenomenon’s underlying cause: economic insecurity. Koreans pour a greater share of their household assets into real estate (75 percent) than their international peers because they see them as a safe investment vehicle for retirement. This behavior is driven by the fact that around 40 percent of citizens over the age of 65 live in relative poverty, earning less than half of the median household income.
Meanwhile, families compete to live in Seoul because parents believe that their children’s placement in better-known school districts will serve as a hedge against the ongoing erosion of secure jobs. The proportion of unemployed or underemployed Koreans between the ages of 15 and 29 stood at 27.2 percent in January 2021, a record high.
Taming the housing market through new financial regulations or concessions, therefore, will not reach the root of this anxiety-driven market behavior. A more productive policy response lies in dismantling the structures that perpetuate occupational insecurity.
Economic insecurity in old age can be addressed by improving public pensions and/or increasing the lifetime earnings of household members. In strictly fiscal terms, the latter is a sounder response. And the main culprit holding back most traditional households from achieving their full earnings potential is easily identifiable: gender disparity.
As a consequence of many female workers quitting the labor force when they start families, the country suffers from the largest gap in total income generated between genders among member nations of the Organization for Economic Cooperation and Development. Predictably, this pernicious trend has only worsened during the COVID-19 pandemic, with women suffering a disproportionate share of the job losses.
Given this context, reversing the loss of female earning power may ameliorate economic anxieties at the household level and contribute to stabilizing the property market.
Reversing this headwind requires societal participation. Corporations in South Korea could move toward adopting a blind application process and actively demand that new fathers take paternity leave. At a familial level, men could (still) take on more household duties.
Here, the government plays an important signaling role. In 2020, the National Assembly passed an amendment requiring the director boards of large corporations to have at least one woman. Later that year, the Ministry of Education announced that national universities must increase the proportion of women professors to 25 percent by 2030. Given South Korea’s current standing of 108 out of 153 ranked countries on the World Economic Forum’s 2020 Global Gender Gap Index, these quotas ought to be expanded and raised.
The backlash against any such policy proposal is woefully predictable given the current political environment, in which catering to male chauvinism appears to be a viable platform. (This is, to be fair, a global phenomenon.) But the long-term dividends from raising female labor participation and earning in the economy are enormous. According to the International Monetary Fund, South Korea could see real GDP growth of 7 percent by 2035 if it boosted female labor force participation to the level of the country’s male population. As KEI’s Troy Stangarone has pointed out, these gains are roughly equivalent to what South Korea spends annually on health care.
But there is a second hurdle to achieving gender equity in the labor market: You cannot create well-paying jobs where there aren’t any.
Doing any harm to South Korean conglomerates will be pilloried in the domestic media as biting the hand that feeds. These global brands contribute heavily to the country’s economic growth, and some, like SK and Samsung, have genuinely made strides to advance gender equality in their offices. However, their growing control of the domestic market exacerbates the job crisis.
Korean conglomerates today control increasingly larger shares of sectors they are involved in: After merging during the 1997-98 Asian Financial Crisis, Hyundai and Kia together control more than 80 percent of South Korea’s domestic automotive industry. After buying Samsung’s chemicals subsidiary in 2014, Hanwha Group today produces nearly half of all PVCs in the country alongside other key synthetic products. And last year, Korean Airlines announced plans to purchase a majority stake in Asiana Airlines.
These mergers and acquisitions make sense in the context of exporters wanting to achieve scale that allows them to more easily remain globally competitive. But as increasingly monopsonistic actors in the domestic labor market, these behemoths are now positioned to maximize profit by paying workers less than the value they create. This helps explain why companies have become increasingly reliant on subcontractors, who are paid less than 60 percent of full-time workers’ wages and receive none of the legal protections. Over a third of workers in the country today work on a contract basis.
Antitrust measures are necessary to restore a more competitive labor market. And with the right corporate and social practices in place, this will create an environment for both women and younger workers to find opportunities that are better remunerated.
These challenges demand politically difficult solutions, but avoiding them is tantamount to wishing the issue away. And what South Koreans are grappling with today should not be so alien to American and other international observers; Seoul’s political and policy responses will be instructive to all.
Source: thediplomat
