Lee Bequeaths Full Employment to South Korean Successor

South Korea's President Lee Myung Bak
Lee Myung Bak, South Korea's president. Photographer: Kim Byung Yeon/Pool via Bloomberg

South Korean President Lee Myung Bak’s legacy of full employment has failed to bolster his party’s popularity or revive consumer confidence, prompting both candidates in Dec. 19 elections to pledge more social spending.

The jobless rate was 3 percent in November, a government report showed in Gwacheon today, unchanged from October at a low reached just five times since mid-1999. A widening wealth gap on Lee’s watch, which ends in February, has accompanied the jobs strength and stoked concern that South Korea’s export success hasn’t translated into middle-class financial security.

“The economy is relatively strong in terms of job growth, but the underlying imbalances are plaguing the country,” said Lee Jae Hyung, a fixed-income analyst at Tong Yang Securities Inc. in Seoul. “The next president will likely spend more to boost economic growth and provide more welfare benefits. Inflationary pressure may creep up.”

Both ruling-party candidate Park Geun Hye and opposition nominee Moon Jae In are campaigning to increase aid to lower-income families. Extra government spending could fuel price gains just when the central bank is facing a tighter inflation target for next year of 2.5 percent to 3.5 percent, compared with the current 2 percent to 4 percent.

The seasonally unadjusted jobless rate was at 2.8 percent in November, also unchanged from October, today’s report showed.

The Kospi Index stayed higher after North Korea launched a long-range rocket in defiance of international sanctions, rising 0.6 percent as of 3:18 p.m. in Seoul.


The strength of the labor market may play only a limited role in boosting the confidence of those households grappling with elevated debt, weakness in property prices, and the challenges of self-employment or temporary work.

The ranks of the self-employed have swelled to 5.8 million as of October, from 5.5 million in December 2011, according to Statistics Korea. Consumer confidence was below 100 in November for a fourth month, a level seen during 2009, when the nation was recovering from the worst of the financial crisis.

“More people are starting businesses as baby boomers retire and the trend will only accelerate as society rapidly ages,” said Jean Lim, a Seoul-based economist at Korea Institute of Finance.

A jobless rate of about 3 percent is full employment for South Korea, a level that doesn’t fuel inflation, Lim said.

The nation’s richest 20 percent earned 7.86 times more than the bottom 20 percent last year, the biggest margin since Statistics Korea began publishing the data in 2006. That gap has contributed to Lee’s popularity falling by more than half.

Social Spending

To address the inequality, front-runner Park has said her government would spend 131.4 trillion won ($122 billion) on childcare, education and medical services over five years. Moon says his proposals that include after-school programs for children and better care for the elderly would cost 192.5 trillion won.

Park’s approval rating was at 50.6 percent while support for Moon stood at 43.8 percent, according to a poll published this week by Realmeter and JTBC, a cable television affiliate of the JoongAng Ilbo newspaper. The Dec. 8-9 survey of 2,000 people had a 2.2 percentage-point margin of error.

Challenges for Asia’s fourth-largest economy include the drag on exports from gains in the won, which touched a 15-month high today. The currency strengthened 0.2 percent to 1,074.93 per dollar in Seoul, according to data compiled by Bloomberg.

The central bank will leave borrowing costs unchanged at 2.75 percent tomorrow, according to a Bloomberg News survey of economists.

Japan, IMF

Elsewhere in Asia today, Japan’s machinery orders rose for the first time in three months, a sign that companies may expect the world’s third largest economy to return to growth in 2013. In India, industrial production recovered to grow at the fastest pace in more than a year in October after the government overhauled policies to boost expansion, and consumer prices increased to a three-month high in November.

The International Monetary Fund said in a report today that Hong Kong is at risk of an abrupt decline in house prices after they doubled to a record in the past four years. In Australia, a private survey showed that consumer confidence slumped by the most in nine months on concern about the economic outlook and unemployment.

In the U.S., the Federal Open Market Committee concludes a two-day meeting to consider whether to increase record economic stimulus. The U.S. monthly budget deficit probably widened in November from a year earlier, according to a Bloomberg survey.

In Europe, the U.K. reports jobless claims for November.

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