More consumption by high incomers will create more jobs

If top 20 percent incomers spend 240,000 won (223 U.S. dollars) more a month, 168,000 jobs can be created a year and 7.2 trillion won (6.69 billion dollars) can be added to the GDP on average.

The Hyundai Research Institute estimated this on its report “Consumption Power by Income Bracket and Its Implications” released on Sunday.

The institute analyzed the data based on the assumption that high incomers increase their consumption by about 10 percent. Households in the high-income bracket earn over 50 percent more than those in the middle-income bracket. And about 18~20 percent of the total households belong to this group.

Consumption power refers to the “spare money,” which is left after subtracting consumption spending from the real disposable income.

The monthly consumption power of high incomers increased from 2.28 million won (2,120 dollars) in 2006 to 2.64 million won (2,455 dollars) in 2012. On the other hand, the consumption power of the middle class (50-150 percent of the middle-income bracket) in 2012 stood at 730,000 won (679 dollars) and that of the low incomers at minus 240,000 won (223 dollars).

Choi Seong-geun, a senior researcher of the institute, said, “To boost the domestic consumption, people in the high-income bracket with sufficient consumption power should expand spending.”

The effect of addition consumption was estimated based on the concept of additional value and job creation coefficients suggested by the Bank of Korea. According to the institute, one-billion won (929,800 dollars) more consumption will generate 817 million won (821,199 dollars) in added value and 19 jobs. Thus, if the high incomers spend 241,000 won (223 dollars) more per month, which takes up only 10 percent of their consumption power, consumption will increase about 8.83 trillion won (8.21 billion dollars) and added value about 7.22 trillion won (6.71 billion dollars). In addition, it will add 167,800 jobs to the market.

Choi also said, “Increases in private consumption will boost the manufacturing and service industries, resulting in the expansion of employment,” adding, “More jobs will lead to an increase in household income and that will also lead to an increase in consumption, creating a virtuous circle.”