Semiconductor boom lifts Korean income, not household spending

By Sophie Lindqvist

South Korea’s real gross domestic income grew at its fastest rate since the fourth quarter of 1977 in the third quarter, according to the Bank of Korea (BOK). The 48-year, nine-month high reflects the semiconductor cycle’s strength. Real gross domestic income measures purchasing power.

Private consumption fell from the previous quarter. That decline was the worst since the first quarter of 2022, during the COVID-19 period.

Experts cited semiconductor-skewed growth, unequal performance bonuses and household debt as the main brakes. The gains have not spread evenly across households. For chip suppliers, strong income data do not guarantee equally broad consumer demand.

Why has stronger income not lifted consumption?

The employment channel is unusually weak. In data released on the 28th, the BOK put the employment inducement coefficient for IT manufacturing, including semiconductors, at 3.6 as of 2023.

• A 1 billion won increase in IT product demand creates 3.6 direct and indirect jobs.
• The all-industry average is 8.2 jobs for the same demand increase.
• The manufacturing average is 5.1 jobs.

The IT figure is less than half the economy-wide average. The source says corporate hiring has not risen in step with profits, so many households have not received a matching income boost.

Korea Development Institute said in August: “As economic growth concentrates in semiconductor-related institutional sector with low job creation effects, the strong growth has not led to a clear improvement in employment conditions.”

The institute said private consumption improved only modestly despite the surge in real gross income. That limited employment response separates chip-led growth from household demand.

Who receives next year’s bonuses?

The BOK estimates that special performance bonuses due next year from semiconductor, auto and shipbuilding companies will reach as much as 70 trillion won. Most of that estimate goes to two large employers.

• Samsung Electronics and SK hynix: an estimated 60 trillion won in bonuses.
• Employees at both companies: an estimated 85% of major corporate bonuses in Korea.
• Overall sector estimate: up to 70 trillion won next year.

The concentration limits the immediate consumption effect because recipients already rank among the country’s highest-income households. The BOK said: “Bonuses are mainly paid to households of high-income large-company employees.”

The money still supports demand, but it passes through a narrower set of households. The bank said the effect takes time to spread through production and consumption channels.

The BOK projects that the roughly 50 trillion won increase in next year’s bonuses will add 0.1 to 0.15 percentage point to private-consumption growth. An increase in government transfer spending of around 20 trillion won carries an estimated effect of 0.2 to 0.25 percentage point.

Thus, the larger bonus increase produces only about half the projected consumption effect. These are estimates, not observed household spending.

How heavy is the household debt burden?

Household liabilities exceeded 2,000 trillion won at the end of June. Two consecutive BOK moves raised the base rate by 0.25 percentage point in July and again in August. A BOK official described household debt as a constraint on private consumption and pointed to principal and interest repayments.

• Debt-service ratio for all borrowers: 36% at the end of the second quarter.
• Equivalent burden: 36 million won from annual income of 100 million won.
• Quarterly increase: 0.2 percentage point from the first quarter.

The ratio posted its first increase in nine quarters, with the comparison dating to the first quarter of 2024. Those figures predate the two rate hikes, so the source does not yet show the full repayment effect.

Higher rates should add to that pressure, according to the report. Any income gain from bonuses therefore competes with a rising debt-service burden.

What does the next spending test show?

The key uncertainty is whether rising chip income reaches households with more spending capacity and less debt pressure. Next year’s bonus increase can support consumption, but BOK figures imply a modest effect while employees at Samsung Electronics and SK hynix receive an estimated 85%.

Debt service may absorb part of that benefit after the July and August increases. The source does not quantify post-hike household debt service or provide a new employment forecast. The available figures concern Korean income and consumption, not semiconductor pricing or capacity.

For chipmakers, next year’s demand signal depends on whether chip-sector bonus income broadens consumption rather than remaining concentrated at two employers; the source offers no pricing or capacity forecast.