Importance of the labour market: Trends in wage distribution

Wage dispersion in Korea has developed somewhat differently from income inequality. Comparable data on wages for full-time workers have been collected since almost 30 years, allowing a longer time perspective. In comparison to other OECD countries, the Korean wage distribution displays a unique U-shaped development over time, with rapidly falling wage dispersion between the mid-1980s and mid-1990s and a strong and continuous increase since then that was the largest in the OECD area (Figure 2.4).

Figure 2.4. Trends in wage dispersion among full-time workers in selected OECD countries

Note: Wage dispersion is measured by the D9/D1 earnings percentile ratio, i.e. the ratio of the wages of the 10% best-paid workers to those of the 10% least-paid workers, calculated as the ratio of the upper bound value of the 9th decile to the upper bound value of the 1st decile.

Source: Calculations based on OECD Database on Income Distribution and Poverty, www.oecd.org/els/social/inequality, Data.

There are a number of reasons for this particular pattern. Kang and Yun (2008) concluded that factors related to human capital played an important role in moulding the U-shaped changes in wage dispersion in Korea. They suggest that the rapid growth in wage inequality since the mid-1990s may be related to skill-biased technological change as the Korean economy became more knowledge-intensive and high-tech. They also suggest that an increase in outsourcing to China and other low-wage countries may explain the surge in wage dispersion in recent years. For the OECD area as a whole, however, recent analyses concluded that increasing trade intensity played less of a role in explaining growing wage dispersion than skill-biased technological change and changes in policies and institutions (OECD, 2011a).

Moreover, in contrast to the pattern of household income inequality, rising wage dispersion since 1994 has been primarily at the upper rather than the lower half of the distribution. The ratio of the wages of the 10% best-paid workers to the median wage (D9/D5 ratio) increased by one-fifth while the ratio of the median wage to the wages of the 10% least-paid workers (D5/D1 ratio) rose by less than one-tenth. Such a pattern can be found in a majority of OECD countries.

 
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