Household income’s share of gross domestic product, a gauge on how GDP growth actually “trickles down” to household income, plunged in South Korea from 1995-2014 to one of the lowest levels among member states of the Organization for Economic Cooperation and Development, an OECD report showed Sunday.

Household income dropped to 64.3 percent of GDP in 2013 from 69.6 percent in 1995, according to the interim report of Going for Growth 2016 by the OECD.

It was the fourth-lowest percentage in the OECD report, after Norway with 59.4 percent, Ireland with 62.2 percent and the Czech Republic with 63.9 percent. The measure is defined as the ratio of nominal household disposable income over nominal GDP.

 

A decline in household income’s share of GDP indicates that the benefits of economic activity have gone more to the corporate sector instead of being redistributed to households, the OECD said.

During the 1995-2014 period, Austria showed the steepest decline, with a 5.8 percentage-point drop, followed by Korea with 5.3 percentage points, Belgium with a drop of 4.7 percent points and Norway with a decline of 4.6 percentage points.

Korea’s labor income share of GDP also fell to 50.7 percent in 2014 from 52.7 percent in 1995.

“Declines in the labor and household capital income shares of GDP could suggest that a rising share of profits has been retained by the corporate sector instead of being redistributed to the household sector,” the OECD said.

The fall in the share of GDP going to household income also implies that “the corporate sector has been reducing the use of dividends in favor of alternative profit redistribution mechanisms to shareholders, such as share buybacks,” it said.

The U.S. had the highest household income share of GDP, climbing up from the high 70 percent range in 1995 to about 82 percent.
.

By Kim Yoon-mi
(yoonmi@heraldcorp.com)