[The Editors' Verdict] How Can We Prevent an Unprecedented Employment Crisis?

Published 09 Apr.2020 14:22(KST)

The novel coronavirus disease (COVID-19) crisis continues. In South Korea, the spread of infection began in earnest on February 20, when 58 confirmed cases were reported. As of April 7, the number of new confirmed cases has dropped to the 50s, but it is not yet a stage to be complacent. COVID-19 is affecting both the real economy and financial markets.

The industrial activity trends in February clearly show this impact. Due to COVID-19 over the 10 days starting February 20, total industrial production decreased by 3.5% compared to the previous month, manufacturing by 4.1%, and services by 3.5%. Not only manufacturing sectors such as automobiles (-27.8%), machinery equipment (-5.9%), and electrical equipment (-9.0%), but also service sectors including accommodation and restaurants (-18.1%), transportation and warehousing (-9.1%), wholesale and retail (-3.6%), arts, sports, and leisure (-27.2%), and education (-3.0%) were affected. Based on this, a decrease in employment numbers can be predicted, considering that unemployment typically lags 3 to 6 months after the shock ends.

During the 1998 International Monetary Fund (IMF) foreign exchange crisis, the number of employed persons decreased by an average of 1,276,000 per month compared to the previous year. Significant reductions occurred in manufacturing (620,000), construction (450,000), food and accommodation (160,000), wholesale and retail (140,000), and other public, social, and personal services (70,000). During the 2009 financial crisis, the monthly average decrease in employment was 87,000. The sectors affected included manufacturing (130,000), food and accommodation (110,000), other personal services (80,000), finance and insurance (60,000), and wholesale and retail (40,000).

What about COVID-19? Considering the 10 days of activity, the decrease could reach up to 1.1 million per month. This number could grow much larger depending on the duration of COVID-19. By sector, the largest decreases are estimated in transportation and warehousing (237,000), food and accommodation (157,000), business facilities including travel agencies and rental businesses (around 153,000), manufacturing (137,000), leisure-related services (127,000), health and welfare (93,000), construction (90,000), wholesale and retail (57,000), and professional services (43,000).

Similar predictions arise when using the February business labor survey and employment statistics. Considering senior employment, a maximum decrease of about 1.1 million employed persons is expected. In particular, wage workers are expected to decrease by about 790,000, non-wage workers by 310,000, with reductions among non-regular workers, part-time workers, and atypical workers (such as dispatched, service, and special types of employment) within wage workers. Especially, young people and workers in their 40s, who were already vulnerable in the labor market, are expected to see significant decreases in employment.

In this situation, what should the government do?

It is necessary to consider those who have lost income and those whose income has decreased due to COVID-19. First, support is needed to help employers maintain employment. Currently, some subsidies are provided for employment retention, but the budget only covers about one month of support. For example, if 500,000 people earning slightly above the median income (around 2 million KRW per month) receive 1.26 million KRW in support, the current budget of 500 billion KRW would be exceeded.

The issues of vulnerable groups still remain. There is no guarantee that the COVID-19 period will last only two months. For part-time and atypical workers who do not receive unemployment benefits, the difference between current unemployment period benefits and last year's unemployment period benefits should be compensated, and the benefit period should be extended.

Finally, unemployment benefits should be expanded for workers who have lost income due to unemployment. Currently, unemployment benefits provide about three months of financial cushion, but if the number of unemployed increases, this reserve could be depleted much faster.