Income Distribution and Public Transfers as Social Safety Nets in Korea

Using 5-year balanced household panel data, this paper shows that the inequality of per capita income in Korea aggravated during the financial crisis in 1998. The decomposition analysis of income inequality by factor component shows that the dominant positive effect on the income inequality is by the asset income. Next is the wage income, followed by the other income. Furthermore, this paper shows that social safety net programs were not yet in place during the initial period of the crisis. Public transfers were not effective social safety net devices and did not contribute in decreasing income inequality. Private transfers, on the other hand, were effective devices and narrowed the disparity in household income.