IT wages up 23% while non-IT gains just 6.5%

Income gains concentrated in select sectors, high earners

Funds flowing into real estate instead of consumption raise housing, debt risks

Semiconductors post lowest job-creation and industrial-linkage coefficients

A DDR5 DRAM module for laptops, photographed against the backdrop of Samsung Electronics' Seocho-gu headquarters in Seoul. [Herald DB]
A DDR5 DRAM module for laptops, photographed against the backdrop of Samsung Electronics' Seocho-gu headquarters in Seoul. [Herald DB]

South Korea's semiconductor boom has powered the country's economic growth, but the income gains it has generated are increasingly concentrated in IT manufacturing and among high earners — a trend that analysts warn could deepen inequality and create broader economic headwinds.

According to the Bank of Korea and the Ministry of Statistics, total wages for workers in IT manufacturing, including semiconductors, rose 23.1 percent over the two years from the first quarter of 2024 through the first quarter of this year. Non-IT manufacturing wages were limited to a 6.5 percent gain over the same period — roughly one-third the IT sector's pace. Construction fared even worse, with wages rising just 2.8 percent, about one-eighth the rate of IT manufacturing.

The gap between income groups has also widened. Real earned and business income for upper-income households — the top 40 percent by income, measured among urban households of two or more — grew 5.5 percent over the six years from the first quarter of 2020 through the first quarter of this year. Lower-income households, the bottom 40 percent, saw gains of just 2.6 percent over the same period, roughly half the rate. Given the existing income gap between the two groups, the absolute difference in their earnings has grown considerably wider. With income rising fastest at large export-oriented IT companies led by chipmakers, polarization between sectors and income brackets appears to be intensifying. If performance bonuses and other compensation at major IT firms accelerate further starting next year, that gap could widen still more.

Rising semiconductor export prices have also sharply inflated nominal GDP. South Korea's nominal GDP expanded 26.4 percent in the second quarter compared with the same period last year — the largest year-on-year increase in roughly 47 years.

The central question going forward is where the sharply higher incomes generated by the semiconductor sector will flow. In its monetary policy report released Thursday, the Bank of Korea warned that "if the favorable conditions in semiconductors and other manufacturing remain concentrated in a handful of leading large companies, and if the improved income conditions of households in those sectors do not translate into broader consumption, the positive spillover effects could be constrained." It added that "if improvements in wage and other income conditions remain confined to the export and large-company sectors, consumption recovery in other parts of the economy could also be limited."

If the additional income bypasses domestic consumption, the side effects could outweigh the growth benefits — and real estate is the most prominent risk. The Bank of Korea has flagged concerns that income gains from semiconductor bonuses and similar windfalls could flow into asset accumulation, particularly real estate, rather than spending. Housing prices in areas closely tied to chipmakers surged in the first half of this year, driven in part by expectations of performance bonuses and in-house loan programs at semiconductor companies. Should income gains fail to stimulate domestic demand and instead pour into property, they could become a drag on economic growth. The resulting pressure on home prices and household debt poses an additional threat to financial stability.

The limited broader economic impact of the semiconductor industry compounds these concerns. According to the Bank of Korea, the sector's employment-inducement coefficient — the number of jobs created per 1 billion won ($747,000) of production — stood at just two as of 2023, the lowest of any industry tracked. That figure is far below social welfare services (22.4), education (10) and healthcare (8.6), and also trails other manufacturing sectors such as shipbuilding (4.9), automobiles (4.3) and chemical fibers (4.2).

The semiconductor industry's ability to spread its prosperity across the broader economy is similarly weak. As of 2023, its backward linkage effect — the degree to which production stimulates upstream suppliers of raw materials and components — stood at 0.79, while its forward linkage effect, which measures how much the industry's output drives growth in downstream industries that use its products, was 0.78. Both figures fall below the all-industry average of 1.0 and are the lowest among major sectors.

The Bank of Korea said in its report that "given the expected broad macroeconomic impact of the surge in nominal growth, an effective policy mix is needed — one that mitigates potential negative spillovers across the economy while strengthening growth potential."


kimstar@heraldcorp.com