Wealth Concentration Erodes Productivity, Bank of Korea Finds

Widening wealth inequality in South Korea is directly linked to a decline in economic vitality, according to a recent empirical analysis by the Bank of Korea.

The study, titled 'The State and Ripple Effects of Household Polarization in Our Economy,' utilized panel data from 120 countries between 1980 and 2023. Its findings indicate that for every 1 percentage point increase in the asset share held by the top 10% of the population, total factor productivity decreases by 0.16%.

South Korea's situation is particularly concerning, with the top 10% wealth share expected to grow from 43.0% in 2022 to 46.1% by 2025. Based on the Bank of Korea's analysis, this trend alone could lead to a productivity drop of approximately 0.5% over three years. Total factor productivity, a measure of qualitative efficiency, reflects the portion of output growth not attributable to increases in labor and capital inputs.

The report further points to "old-old inheritance" (inheritance received by individuals aged 55 and above) and "asset lock-in" phenomena, exacerbated by an aging population, as factors intensifying these inefficiencies. The combined polarization of assets and income weakens the economic foundation for low-income and young households, dampening domestic demand and eroding work motivation and social trust.

The widening wealth gap, largely driven by rising real estate prices, is evident in the net worth Gini coefficient, which is projected to increase from 0.584 in 2017 to 0.625 by 2025. This trend, coupled with the concentration of real estate assets among older generations, is solidifying intergenerational wealth disparities. The report suggests that policies should focus on improving the household asset structure, which is heavily reliant on real estate, and increasing opportunities for productive asset formation to enhance overall capital efficiency.