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(News Focus) Moon takes first step toward income-led growth

All News 12:00 June 08, 2017

By Kim Deok-hyun

SEOUL, June 8 (Yonhap) -- President Moon Jae-in has taken the first step toward shifting the South Korean economy to an income-led growth system by focusing on the creation of jobs as he marks his first 30 days in office.

In the face of geopolitical tensions with North Korea and China, uncertainties surrounding U.S. trade policies, mounting household debts and higher young employment, Moon has pledged to put his economic priority on job creation.

Although the nation's economy is showing signs of a recovery on the back of exports, the pace of growth is still fragile. A mountain of debts crimps households' ability to spend and corporate restructuring weighs on investment, observers here warned.

Creating more employment opportunities is the first step being undertaken by the new administration to try to engineer a meaningful transition -- from economic policies that benefit big companies to ones that increase household income.

"Creating good jobs is the first goal of the new government's management of state affairs. By doing so, it will raise people`s incomes, which will be reflected in a rise in consumption and a revival of spending that can support our country`s economic growth," Moon told a meeting of non-regular workers May 14, according to the presidential office's website.

"I will work to create a virtuous circle, which can create good jobs, and be reflected in people's increased income," the chief executive was quoted as saying.

The transition is based on criticism that the effects of "trickle-down," a theory that wealth trickles down from big firms to mom-and-pop stores or low-income people, has for the most part not materialized.

Although big firms are clearly making more money, these gains have failed to benefit households as a whole, data showed.

Jung Sung-in, a professor of economics at Hongik University in Seoul, said that a robust gain in household income is necessary for the government to boost both exports and domestic consumption simultaneously.

President Moon Jae-in points to a bulletin board at the presidential office Cheong Wa Dae in Seoul on May 24, 2017, which offers a quick summary of current conditions in the country's employment market and highlights the emphasis the new president and his government place on creating jobs. (Yonhap)

South Korea's economy, like others, was hit hard by the 2008-09 global financial crisis.

Over the past nine years, its growth rate fell to an annual average of 3.1 percent, compared with an annual average growth rate of 4.85 percent from 1998 to 2007.

The nation's economy grew 2.8 percent last year, but is expected to slow to 2.6 percent this year, according to the Bank of Korea, the country's central bank.

Slower growth has widened income gaps and adversely affected the job market.

In April, 11.2 percent of 15-29-year-olds were unemployed, far higher than overall unemployment rate of 4.2 percent.

Unveiling an 11.2 trillion-won (US$9.94 billion) extra budget plan earlier this week, the government said it aims to create jobs, especially for young people.

Under the budget plan, 4.2 trillion won will be spent on creating 110,000 jobs, including 71,000 in the public sector. The remaining 7 trillion won will be allocated for welfare services for low-income households.

In a symbolic show of resolve, the presidential office has installed an electric bulletin board, offering a quick summary of current conditions in the country's employment market.

Placed in one of Moon's offices, the new bulletin board is designed to show rises and drops in the number of jobs and workers, officials said.

Although Moon has emphasized the greater role of the government to revive the economy, some analysts don't expect a major shift in any of the country's major economic policies.

"We do not expect that President Moon will materially change the way economic policy is formulated and implemented in Korea," the rating agency Moody's said in a recent report.

"While there might be some policy shifts in some structural reform areas, such as labor markets and social security, we expect that fiscal policies will remain anchored and guided by the principles of limiting deficits to 3 percent of GDP (excluding the social security surplus) and keeping government debt below 45 percent of GDP," the report said.

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