The government has decided to raise the rate of contribution to the mandatory employment insurance scheme from the current 0.9 percent of the total payroll to 1.1 percent starting April. What this change means is that a worker and his employer both have to pay 1,000 won more in monthly premium per 1 million won of his salary.
The 0.2 percentage point increase in the contribution rate may not sound like a big deal. However, it is a 22 percent jump in terms of increase rate, and the additional burden on workers and employers amounts to 650 billion won a year.
The Ministry of Employment and Labor said the hike, the first of its kind since 1999, was necessitated by a surge in payment of unemployment benefits following the global financial turmoil in 2008.
The number of benefit recipients jumped from 854,000 in 2007 to 990,000 in 2008 and further to 1.3 million in 2009 before declining to 1.24 million in 2010. As a result, aggregate benefit payments rose from 2.43 trillion won in 2007 to 2.87 trillion won in 2008 and 4.12 trillion won in 2009 before dropping to 3.69 trillion won in 2010.
If the current contribution rate is maintained, the unemployment benefit reserves of the Employment Insurance Fund are expected to be depleted in 2013.
But the contribution rate hike has triggered criticism from labor groups and opposition political parties. They argued that the government has accelerated the depletion of the reserves by dipping into them for other purposes.
As instances of fund diversion, they cited the construction of the Job World, a job experience and training facility being built in Bundang at a cost of 220 billion won; the establishment of employment support centers across the nation between 2004 and 2008 that cost 550 billion won; funding for projects to create jobs for youths; and paying allowances to workers on maternity or child care leave.
The ministry dismissed the criticism, saying the Job World and employment support center projects were funded not by unemployment benefit reserves but money from the other two accounts of the EIF ― employment stabilization and job skill development ― to which only employers are required to contribute.
The ministry also justified tapping into the unemployment benefit account to bankroll job projects for youths, saying that one important objective of the employment insurance scheme is to prevent youth unemployment and improve their vocational ability.
The excuse it used for paying childbirth and child care allowances with unemployment benefit reserves was that it complies with the scheme’s goal of raising the female employment ratio.
But the ministry’s explanation is hardly convincing, given that unemployment benefit reserves should be used strictly for the unemployed. For projects geared to youths, the government should have used money from its own budget.
The same holds for payment of maternity and child care allowances. Since 2002, the government has appropriated more than 2.5 trillion won to pay these allowances. It should pay back the money to the EIF’s unemployment benefit account before hiking the contribution rate.
Regarding the construction of Job World, dipping into the EIF’s two other accounts may be legitimate as asserted by the ministry. Yet the wisdom of spending so much money on the project is called into question, given that many similar facilities are already in operation. So much so that President Lee Myung-bak on Wednesday told the ministry to find out ways to use it more efficiently.
The EIF is built up entirely by contributions from workers and employers, with the government only bearing its administrative costs. But the Employment Ministry has managed the fund unilaterally without respecting the views of its contributors. The ministry should be held more accountable for the management of the fund.