Beyond Income: Applying the Supplemental Poverty Measure Framework to Korea

Background: South Korea has a relatively short history of officially measuring poverty rates compared to Western counterparts like the U.K. and the U.S. The official poverty measure in Korea (OPM-K) was established in the late 1990s using an absolute poverty threshold. In 2015, OPM-K transitioned to a relative poverty measure to reduce subjectivity in researcher decisions and simplify the selection of items for a basket of goods, aiming for a more accurate reflection of inequality. However, poverty researchers and policymakers have widely agreed over the past decades that OPM-K inadequately assesses Korean households' needs and resources. Despite the Korean government providing various in-kind benefits, tax refund credits, cash benefits, and social services, these forms of assistance are not considered in existing poverty measures. Additionally, regional living standard differences are overlooked. Hence, there is a pressing need to establish a comprehensive poverty measure like the SPM-K, tailored to the Korean context, to accurately assess the reduction of resource deprivation by government support in the market.

Methods: This study uses data from the Survey of Household Finances and Living Conditions in Korea, a national representative sample of Korean households, linked with administrative income data from the National Tax Service, offering an advantage over other secondary data sources in terms of the accuracy and variety of income information. I use a methodology similar to that used by the U.S. Census Bureau in producing their SPM estimates, but with adjustments made to accommodate available Korean data. So, I call the estimates as SPM-K to distinguish them from the U.S. Census Bureau’s SPM. For example, I utilize a percentage of the median of the FCSUti (food, cloth, shelter, utilities, telephone, internet), while not lagging a year of consumption because the income measures in Korea align with the consumption year, as both are based on the previous calendar year. Also, I expand estimation sample to all consumer units with children and adjusted for geographical difference in housing expenses.

Results: The official poverty rate in 2021 stood at 15.1%, as measured by disposable household income (DHI), while it was 20.8% when it was measured by market household income (MHI). When estimating poverty rates adjusted for geographical differences and home ownership status such as home owners vs renters, significant variations emerge. For example, poverty rate among the home owners was 12.0%, contrasted with 25.1% among renters, as measured by DHI. Moreover, regional differences were notable, with a poverty rate of 13.2% in metropolitan areas and 17.2% in non-metropolitan areas. The SPM-Ks revealed even higher poverty rates, standing at 20.3% for the whole population, 27.1% in Seoul metropolitan, and 16.9% in southeast areas. Additionally, SPM-Ks for subgroups like gender, age, education and others present a significant different landscape from the OPM.

Implications: This study is the first attempt to estimate poverty rates applied to supplemental poverty measure in Korea. These findings underscore the importance of considering geographical adjustments and including government transfers, such as in-kind and tax credits, to more accurately access poverty in Korea.