Social Effects of Regional Income Disparities

Since late 2000s, economic growth has gained increasing attention, while economic development became the ultimate objective of the national policies. Recently regional income disparities rose as a critical factor of regional development policies, as people started to recognize relative poverty from the drastic national economic growth with huge income gap between social classes. Wilkinson and Pickett (2011) illustrated the very strong positive relationship between income disparities and social problems in 29 OECD countries and explained the expanded income gap could cause social conflicts and/or problems. The purposes of this paper are to identify the level of inter-city wage differentials across Korean Metropolitan Statistical Areas (MSAs) and figure out the relationship between regional wage differentials and social problems such as divorce rate, health insurance holding rate, and suicide rate. To do so, it is first necessary to delineate the Korean Metropolitan Statistical Areas. As there have not been many studies on both wage differentials across cities and economically-defined geographic areas, the regional differences in the standard of living have barely been analyzed. Therefore, wage analysis could be a substitute for Gross Regional Domestic Products (GRDP). There are several meaningful findings from the wage differential analysis. First of all, there is significant difference between GRDP and wage, which means that residents may not recognize the regional economic growth. Second, according to the Roback model, individuals in an open economy maximize their utility by choosing their location of residence with consideration of the regional average wage, cost of living, and amenities. Roback’s theory is also valid in Korea, but it seems that the regional characteristics are not reflected on the wage adequately. Finally, regional wage differentials are big in the relatively lagged areas, which is quite different from the Wilkinson and Pickett’s results. It may be interpreted that enhancing regional economies is still of effective policies for not only economic development but also social stability in Korea.