A cram school instructor surnamed Jang is increasingly worried that she might not be able to hold onto her job for even a few more months, as the COVID-19 pandemic is taking a turn for the worse, indicated by a ban on gatherings of five or more people.
“I was put on unpaid leave shortly after the metropolitan office of education recommended that cram schools shut down. I thought I could get by with unemployment benefits, only to find out I was ineligible because I had not subscribed to the state-run social welfare program,” she said.
A restaurant owner surnamed Jeong said temporary shutdowns of his business in Myeongdong, Seoul, in August following the second wave of the virus spread was nothing compared to how he is likely to do over the next couple of weeks.
“My business has no hope of recovery. The only thing certain is that I will have no customers for days, weeks and even months, and that I am saddled with snowballing debt.”
The plight experienced by the two workers in businesses that traditionally rely on in-person transactions, the hardest-hit businesses amid the pandemic, will only get worse, a concern shared by many countries around the world.
In its report released Dec. 21, the Bank of Korea suggested that the recent crisis could permanently impact in-person services providers and low-income earners, a reason why the central bank views the imbalance is expected to continue for a considerable period of time.
“This may not only be a temporary decoupling phenomenon, and last for a while,” the report said.
The only upside for Korea, alongside China and Taiwan, is the explosive demand for information technology products driven by intensive use of parts and equipment needed for online activities, a reason the export-driven economies have seen less of a shock than initially feared.
But otherwise, the country is weighed down by a variety of pandemic-induced woes.
Dependence on certain industries for growth will be pronounced, in drastic comparison to others falling behind following a slowdown, which in turn will limit growth in consumption and spike unemployment. This will delay recovery, exacerbate economic polarization and undermine growth potential.
Of particular concern is a plunge in many industries whose vibrancy usually leads to the downstream creation of other jobs, the services industry included.
“The recovery in the job market is feared to be far slower compared to previous crises, advancing the view that a jobless recovery will materialize,” the report said.
Also gaining traction is a possible delay in the recovery of consumption, given the broad and sharp employment and economic shocks to low-income earners that have high consumption tendency; something the central bank has identified as a major threat to the real economy.
“The recovery of the real economy will be delayed due to tightening in consumption and poor re-allocation of resources, which will exacerbated by funds rapidly flowing into the financial market with the gap between the real economy and the financial market further widened,” the report said.
The bleak scenario is highly probable, as indicated by the income polarization of households and corporate entities.
Data from Statistics Korea showed the production of small- and medium-sized enterprises (SMEs) fell twice as fast as their larger counterparts.
The year-on-year decline rate in the April-June period was between 4.6 percent and 10.2 percent for SMEs, whereas the comparable figure was 1.9 percent to 3.7 percent for large firms.
Household income for the top 40 percent in the October-December period declined between 3.6 percent and 4.4 percent, significantly lower compared to a 17.2 percent drop for the bottom 20 percent.
Seoul National University economist Kim So-young said the “pandemic divide” will worsen in the months or even years to come.
“Low-income earners that experienced a job loss or pay cut barely get by with relief money given by the government. Strengthening of social safety nets is crucial to help reduce the pace and the scope of inequality which otherwise could irreversibly cement the divide-generated economic polarization, which can benefit only the rich and businesses built on contact-free and digital services,” he said.
