"Youth Losing the Ladder": Easing Compound Polarization Requires Policies to Shift Household Assets from Real Estate to Productive Sectors

BOK Issue Note - The Reality and Impact of Household Polarization in the Korean Economy

An analysis has found that the South Korean economy, which is currently facing a situation of 'compound polarization'—where the widening gap in household assets is intertwined with a renewed expansion of income inequality—cannot address these issues with traditional income compensation-focused redistribution policies alone. The study diagnoses that new policy responses encompassing both assets and income as a whole are required.

According to the "BOK Issue Note—The Reality and Impact of Household Polarization in the Korean Economy" (by Lee Jaeho, Kim Minjeong, and Kwak Beopjun), published by the Bank of Korea on June 11, the gap in household assets has widened due to rising real estate prices, while real estate assets have become increasingly concentrated among older generations, structurally entrenching intergenerational asset polarization. Lee Jaeho, Deputy Director of the Research Coordination Team at the Bank of Korea's Research Bureau, noted, "The net asset Gini coefficient dropped from 0.617 in 2012 to 0.584 in 2017, but then quickly rose to 0.625 in 2025." He pointed out, "As a result, there has been a significant increase in the number of young people who are unable to climb the asset ladder based solely on income accumulation."

In this context, there are signs that the income gap, which had been narrowing thanks to redistribution policies, is beginning to widen again, with the income Gini coefficient (based on disposable income) rebounding from a decline that lasted from 0.353 in 2016 to 0.323 in 2023, to 0.325 in 2024. The potential for labor substitution due to the spread of artificial intelligence (AI) has also been cited as a factor that could exacerbate income polarization in the future.

There is particular concern that the renewed expansion of income inequality could further entrench existing asset polarization. This kind of compound polarization has led to a decline in the economic status of households without real estate and the younger generation. The proportion of young people (in their 20s and 30s) among households in the lowest quintile for both net assets and income increased substantially, from 7.9% in 2020 to 15.2% last year.

Apartment complexes in the Seocho and Yongsan areas as seen from Namsan in Seoul. Photo by Yonhap News

Compound polarization of assets and income reduces overall economic productivity and dampens consumption vitality. Lee stated, "As asset inequality grows, resource allocation becomes less efficient. Panel analysis showed that if the share of assets held by the top 10% rises by 1 percentage point, total factor productivity falls by 0.16%." He also noted that the phenomenon of "old-to-old" inheritance and asset lock-up caused by population aging in Korea exacerbates these inefficiencies.

Polarization weakens the economic base for low-income and young households—who have higher consumption propensity—thus acting as a drag on domestic demand. Lee said, "Increases in housing expenses and the burden of home purchases are limiting the consumption capacity of young people." He also pointed out that deepening polarization restricts the possibility of upward mobility through effort, undermines work incentives, and erodes social trust, thereby structurally increasing social costs.

The analysis concluded that new policy responses encompassing both assets and income are needed to alleviate the problems caused by compound polarization. Lee said, "We need to improve the household asset structure, which is overly focused on real estate, and expand opportunities for productive asset formation to enhance capital efficiency across the economy." He added, "It is essential to secure the stability of the tax base in line with economic structural changes brought about by technological advancement, and to ensure that the pathway to asset building through earned income is not weakened." He stressed, "We must also strengthen the ecosystem for new growth industries to build a foundation for growth whose benefits can spread throughout the economy."

This content was produced with the assistance of AI translation services.