In the Era of Inflation, Why Are Wages Stagnant?

In recent years, rising prices have become a daily reality. Many people notice it every time they go grocery shopping or eat out, as costs continue to climb. In particular, price increases in essential areas like energy, food, and transportation are placing a direct burden on household finances. Meanwhile, wage growth has been relatively modest, and for many, it feels almost nonexistent compared to how quickly expenses are rising.

As a result, consumers feel that the real cost of living is much higher than what official inflation figures suggest. Surveys increasingly show that people feel their daily lives are becoming more difficult, with many expressing concern that their income has not grown enough to match their rising expenses. Even though governments and companies may report wage increases, these often fail to translate into a noticeable difference in everyday life.

Wage growth is not keeping pace with inflation, deepening the sense of economic insecurity. For people with fixed or modest incomes, this gap is especially pronounced and is leading to a gradual decline in overall quality of life.

The Discrepancy Between Wage Growth and Inflation

Comparison of Wage Growth vs. Inflation Rates

Recent data from Statistics Korea and the Bank of Korea shows that while the Consumer Price Index (CPI) has steadily increased, wage growth has not kept pace. Particularly since 2022, with the sharp rise in energy and food prices, inflation has surged above 5%, while wage growth has remained at an average of only 2-3%. This gap between inflation and wage growth results in a decrease in real income, increasing the financial burden on households.

Real Wage Decline and Reduced Disposable Income

Even though nominal wages have risen, if inflation outpaces wage growth, real wages decline. This means that the actual purchasing power of households decreases, leading to reduced consumer spending. Many workers feel that although their salaries have increased, their quality of life has deteriorated. This is particularly true for middle and lower-income households, where rising living costs directly impact their spending ability, which in turn negatively affects domestic consumption.

Structural Causes: Employment Instability and the Rise of Non-Regular Workers

Another key factor contributing to wage stagnation is the instability in the labor market. The increasing proportion of non-regular and part-time workers has made it difficult to drive average wage growth. Furthermore, due to economic uncertainty, companies have been more cautious about increasing labor costs, weakening workers' bargaining power. This situation disproportionately impacts young people and vulnerable groups, further exacerbating income inequality.

Public Perception of Rising Living Costs

Price Increases in Essential Items like Food, Dining, and Transportation

Recently, rising prices have significantly impacted essential items like food, dining, and transportation. Food prices have been consistently increasing due to higher raw material and logistics costs, while dining costs have risen due to increases in ingredient prices and labor costs. Additionally, transportation costs have also surged due to rising fuel prices and higher vehicle maintenance expenses, adding more financial strain on households. These changes are directly affecting daily consumption patterns, with the rising cost of basic living expenses putting a heavier burden on families.

Changes in Household Spending Structure and Decreased Consumption

As living costs rise, household spending patterns have undergone significant changes. Spending on essential items has grown considerably, while discretionary spending on leisure, hobbies, and cultural activities has been reduced. Consumers are becoming more cautious in response to economic uncertainty, increasing savings or cutting back on spending. This has resulted in a decline in sales for retailers and service providers, and the overall economy is facing reduced consumption, which is impacting various sectors.

The Vicious Cycle of Rising Living Costs and Stagnant Wages

While living costs continue to rise, wages have not increased at the same pace, leading to a vicious cycle of rising living costs and stagnant wages. While wages may gradually increase with economic growth or productivity improvements, price hikes are occurring more rapidly, causing real income to decrease. As a result, household finances are becoming increasingly difficult to manage, and in an attempt to cope with the additional costs, families are forced to reduce spending even further, repeating the cycle.

Wage Gap and Its Impact on Different Social Groups

Large Corporations vs. Small and Medium Enterprises

There is a big difference in wages between large companies and small or medium-sized businesses. Large companies can offer higher wages because they are usually more profitable and financially stable. On the other hand, small businesses often face financial difficulties and can't raise wages as much. The International Labour Organization (ILO) has noted that this wage gap between large companies and small businesses is growing globally, making economic inequality worse.

Regular Workers vs. Non-Regular Workers, and by Industry

There is also a significant wage gap between regular workers (those with stable jobs) and non-regular workers (those with temporary or contract jobs). Non-regular workers usually earn lower wages and have fewer benefits. They also face more job insecurity. Additionally, wages differ by industry. For example, workers in manufacturing may earn more than those in the service industry. According to a study by the Korea Employment Information Service, non-regular workers earn, on average, 30-40% less than regular workers.

The Impact on Young People and Vulnerable Groups

Young people and vulnerable groups are especially affected by rising prices and stagnant wages. Young people often struggle with low-paying, unstable jobs, while the cost of living continues to rise. Vulnerable groups, such as the elderly or low-income families, also suffer more from higher prices, which hurt their standard of living. The United Nations Development Programme (UNDP) has pointed out that solving income inequality, not just raising wages, is an important goal to help these groups.

The Need for Wage Policies from the Government and Businesses

To address the gap between inflation and wages, the roles of government and businesses are crucial. The government can help by raising the minimum wage and strengthening social safety nets, benefiting low-income households. Businesses, on the other hand, should increase wages and expand benefits based on workforce productivity to enhance employee motivation. Collaboration between these two sectors is an important solution to cope with rising inflation.

It is essential to consider introducing a system that automatically adjusts wages in line with inflation. This would help workers receive fair compensation in response to rising living costs during times of sharp inflation. Inflation-linked wage adjustments can stabilize the economy, especially during periods of economic uncertainty, by ensuring that workers are not left behind as prices rise.

Improving productivity is a key driver for wage increases. When businesses enhance productivity, the profits generated can be shared with employees through higher wages. This, in turn, improves employees' quality of life, leading to increased consumption. A positive cycle of this nature can boost both businesses and the economy as a whole, contributing to positive effects even in times of inflation.

In the short term, policies such as wage subsidies or cost-of-living support are necessary to cope with rising inflation. However, these measures provide only temporary relief, and long-term structural reforms are required. By enhancing education and vocational training, we can increase the competitiveness of the workforce. Additionally, promoting balanced industry development will contribute to stable economic growth. Ultimately, structural change is the key to addressing inflation and stagnant wages.

Economic experts emphasize that while short-term support is important, the focus must shift toward structural reforms for sustainable progress. 이지론 advocates for ongoing discussions and actions to create a more favorable economic environment. It is clear that the economy cannot be resolved through short-term solutions alone, and long-term strategies are essential for sustainable improvement.