The Korean economy is assessed to be continuing its steady recovery albeit the modest pace and extent. Growth in exports and manufacturing slowed largely due to a base effect from the first half of last year when both exports and manufacturing were robust.
Private consumption, which has been the major cause of economic slump, is gradually reviving at last as improved economic sentiment is beginning to materialize leading to a turnaround in consumer confidence. facility investment is maintaining its modest gain whereas construction investment continues slowing down although leading indicators including construction orders are improving by a large measure. Overall prices are seen to remain stable with consumer price staying in the low 3percent range and core inflation rate less than 3 percent. The government will step up monitoring and management of downward risks to cope with growing external uncertainties, including global economic trends, international oil prices and foreign exchange rates. While maintaining its accommodative line on macroeconomic policies, from the macroeconomic perspective the government will also take preventive steps to resolve difficulties or uncertainties faced by each sector, such as spending, investments and exports, so as to materialize economic recovery as early as possible. Employment, despite modest growth, is on a steady rise with growing number of employees in seasonally adjusted terms, which is more useful for trend analysis. The real economy is expected to sustain the current improving atmosphere; however, it would take some time before the effects of better real economic indicators become tangible. However, the rate of unemployment for youth is significantly high. Especially, educated young men and women are employed as an irregular worker. Cyclical unemployment occurs when the economy operates above the natural rate of unemployment. In the long-run, the economy should return to the natural rate. Unfortunately, the natural rate does not seem to save educated young men and women in the labor market.
In addition, more than 5 million Koreans are living in poverty, with one in every 10 people surviving on an income below basic living expenses. According to a survey by the Ministry of Health and Welfare, the number of people below the poverty line was estimated to surpass the 5-million mark this year. The Survey also shows that the poor include those who earn less than the minimum living costs and those who make less than 1.36 million won per month. The minimum living expenses were determined to be 908,000 won per month for a three-member household and 1.14 million won for a four-member household. The increase is attributable to the widening gap between the rich and the poor amid the prolonged economic slump.
As soon as the study is concluded, the government will take measures to help those in need. The government also plans to expand subsidies to low-income households, and to citizens aged 65 and older and to children under 18. So far, people, who makes less than the minimum living costs, have benefited from government support. Children under 12 years old and people suffering incurable or rare diseases in poor families have benefited from the aid program. According to the Ministry of Health and Welfare, the national health insurance program covered at least 85 percent of medical costs for a low-income patient.
One solution to poverty is to raise the incomes of the poor. The two mechanism used to accomplish this effect-voluntary charitable contributions and government cash-assistance programs-require a transfer of income from those above the poverty line to those below it. The redistribution of income can affect the efficiency of society's resource utilization. The redistribution from the rich and poor may discourage work effort on the part of rich and, thus, reduce the size of income pie available for redistribution. In addition, if the assistance to the poor discourages their work effort, the size of the income pie will be further reduced.
The long-run solution to the poverty requires an attack on the fundamental sources of poverty-limited human capital and discrimination-that are responsive to government action. Income-maintenance programs may assist the children of the poor by providing the money resources to maintain health by funding the acquisition of training and education. Income-maintenance programs may perpetuate the poverty problem if they discourage work effort.
To provide long-run solution to the problem of poverty, government policy should aim at eliminating job-market discrimination and discrimination in the delivery of education to individuals according to a social class and gender. Moreover, government policy should encourage the children if the poor to invest in human capital. The problem is how to devise a policy that does not defeat itself by reverse discrimination or by making the trade-off between equity and efficiency too costly. The intended effects of legislation can often differ dramatically from the actual effects.