Income-led Growth

Income-led Growth is a claim that the wage increase can boost economic growth by increasing overall consumption. In South Korea, the liberal candidate Moon got elected two years ago as the current president of Korea right after the impeachment of Geun-hye Park, the previous conservative
president in the year of 2017.

Ever since the liberal president Moon got elected, he and his administration have asserted that Income-led Growth will have a positive impact on the economy as a whole. Therefore, they have been advocating and pushing such policies. It has increased the minimum wage level, hired more public servants working for the federal government, and enacted policies giving supplementary living allowance out to the poor and low-income individuals through social or federal programs.

The liberal president Moon recently mentioned that he would support the self-employed business people and mom-and-pop store owners this year through the means of moderation in the wage hikes. The main reason for his position is that the self-employed are in serious financial quagmire. They account for more than 25 percent of the working population including their families. This share– much higher than the OECD average of 16 percent – spells fierce competitions in the market. Therefore, the underlying logic of the income-led growth is that if people earn more, they would spend more, and thus increases further firm investments.

The desired effect was minimal and was just an illusion. Another candidate Seong-min Yoo, Economics Ph.D. from UW-Madison (1987), asserted that the Korean government should seek growth by investing money in future technologies rather than spending money in social programs. He criticized Moon along with other candidates that Moon’s policies are populist and wasting tax dollars for basically does nothing but makes his administration efficient and persuasive. As Yoo criticized Moon of how his plans are not realistic, Moon administration has raised taxes to fund the asserted “income-led growth” programs.

Without making our economic pie bigger, you cannot share more. Innovation can only sustain income-led growth but income-led growth takes the reverse path. The poor performance of our economy and worsened employment situation clearly shows the government’s major economic systems are based on fiction – or a mere pipe dream.

by Yeeun Kwag, Tax Advisors for Champaign Society (TACS)

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Income-led Growth
Article Name
Income-led Growth
Description
Income-led Growth is a claim that the wage increase can boost economic growth by increasing overall consumption.