Downward trend of Hand to Mouth households in South Korea and its Aggregate Implication

Abstract

This paper examines the recent trend in the share of hand to mouth households in South Korea. Using nationally representative household panel survey data, I document that the share of hand to mouth households (HtM hereafter) was about 45\% during 2001-2007 period, which persistently declined to the average of 38\% during 2008-2017 period. This downward trend is present for both wealthy and poor HtMs, and not attributable to changes in labor and demographic compositions. As a potential explanation for the decreasing share of HtMs after 2008, I consider the effect of labor income risks on household decision of consumption and savings. I explore an increase in labor income risks after 2008-2009 global financial crisis and I also estimate the marginal propensity to consume of HtM and Non-HtM households, and discuss the implication of the decreasing share of HtMs for the effect of fiscal policy.