The Korea Herald


[Editorial] Safety net for all

Government must expand unemployment insurance gradually while keeping fiscal stability

By Korea Herald

Published : May 6, 2020 - 10:06

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The presidential office has brought up a topic of expanding unemployment insurance to all of the economically active population, including the self-employed.

Kang Gi-jung, senior presidential secretary for political affairs, said Friday that “it is a post-COVID 19 task to insure everyone against unemployment like the national health insurance that covers all of the people.”

On the same day, Lee In-young, floor leader of the ruling Democratic Party of Korea, said that the party would try its best to establish laws and systems to protect people from unemployment.

Kim Yong-beom, first vice minister at the Ministry of Economy and Finance, said Saturday that “now is the time to repair the unemployment insurance system quickly in preparation for the upcoming unemployment shock from the coronavirus pandemic.”

Unemployment insurance is a major social safety net. The system gives unemployment benefits to those who have lost jobs and are seeking new ones.

The outline of the “national” unemployment insurance is expected to be disclosed on May 10, the third anniversary of Moon’s presidential inauguration. This issue is also expected to be taken up as a major agenda during a tripartite meeting of labor, management and the government.

With massive layoffs looming in the wake of the economic shock from COVID-19, few would oppose the argument for the expansion of unemployment insurance.

The problem is how to fund the surge in benefit payments if the insurance covers all of the economically active population.

Currently, salaried regular employees split insurance premiums half and half with their employers.

On the other hand, the self-employed have no employers. “Special types of workers” work for employers, but the employers are either hard to specify or often change. Independent insurance agents, motorcycle couriers and drivers who step in for customers too drunk to take the wheel are among these special workers.

So if these people are required to be insured for unemployment benefits, they should pay premiums by themselves.

A considerable number of them, however, shun the insurance scheme because their incomes would decrease if they paid the premiums. The self-employed were allowed to buy unemployment insurance from 2012. As of late last year, only 0.38 percent of them were insured.

Compulsory unemployment insurance will inevitably increase the burden on small-scale businesspeople, and it may lead to job losses due to the economic burden.

From the beginning, the unemployment insurance program was designed for regular employees.

Employers are obliged to insure full-time employees if they hire them. But when it comes to the self-employed, particularly those on low incomes, there are worrisome issues.

They sometimes underreport sales, making it hard to grasp their incomes precisely. Mandatory insurance may induce them to close their businesses and claim benefits instead.

In the end, if the government expands unemployment insurance, it may have to shoulder premiums particularly for the economically vulnerable.

This will raise the issue of fairness. Currently, 13.78 million workers are insured against unemployment. The figure is less than half of the economically active population of 27.79 million.

The unemployment insurance fund ran a deficit for the past two years, including 2.2 trillion won ($1.7 billion) last year. This is a consequence of those insured decreasing with claims for benefits increasing amid an economic slowdown.

If the unemployment insurance program is expanded to the whole of the economically active population, including those who can’t afford to keep paying premiums, a surge in fiscal deficits will be inevitable.

The state of Korea’ public finances has been weakening. The financial aggravation of the government will invite a strong backlash, such as the downgrade of the sovereign credit rating.

Rather than rushing to insure the entire labor force all at once, the government may do well to take a gradual approach while maintaining fiscal soundness.