"COVID-19 Raises Concerns Over 330,000 New Unemployed... Worst Since the Foreign Exchange Crisis"

Hankyung Research Institute Proposes 10 Major Employment Policy Tasks to Ministry of Employment to Prevent Mass Unemployment
"Up to 330,000 New Unemployed Due to COVID-19 Possible, Second Highest After Foreign Exchange Crisis"

[Asia Economy Reporter Kim Hyewon] An analysis has emerged that the number of new unemployed people in South Korea due to the impact of the novel coronavirus infection (COVID-19) could reach up to 330,000. It is a diagnosis that our economy may face the second largest mass unemployment crisis in history since the 1998 foreign exchange crisis.

Accordingly, the Korea Economic Research Institute (KERI) announced on the 20th that it proposed the "Top 10 Employment Policy Tasks to Prevent Mass Unemployment" to the Ministry of Employment and Labor on the 17th.

According to the report "Estimation of COVID-19's Damage to the Employment Market," commissioned by KERI to Professor Kim Hyunseok of the Department of Economics at Pusan National University, up to 333,000 new unemployed people are expected to be generated in the domestic employment market due to COVID-19. Professor Kim examined the relationship between South Korea's economic growth rate and unemployment rate from 2001 to 2009 through "Okun's Law," and linked it with domestic economic growth forecasts from 14 major domestic and international research institutions announced since the end of March this year to estimate the number of unemployed under different scenarios.

Considering the global economic simultaneous recession, the special characteristics of the Korean economy as a small open economy, and the fact that the real economy downturn began before COVID-19, Professor Kim judged that economic contraction is inevitable and that the number of new unemployed will range from 182,000 to 333,000.

Choo Kwangho, Director of Economic Policy at KERI, explained, "While a structural decline phenomenon was progressing across industries, the sudden appearance of COVID-19 has brought the economy face to face with the possibility of a mass unemployment crisis." He added, "The 333,000 new unemployed represent a significant scale, accounting for 28.2% of the total 1.18 million unemployed as of March, and is the largest number since the foreign exchange crisis." During the 1998 foreign exchange crisis, the number of new unemployed reached 922,000.

KERI proposed ten measures for employment stability, including ▲allowing job-seeking benefits for unpaid leave workers ▲government-guaranteed loans for small and medium-sized enterprise employees' salaries ▲additional designation of special employment support industries ▲raising the limit on corporate tax loss carryforwards and allowing retroactive deductions for large corporations ▲exclusion of minimum tax application for employment increase tax credits ▲freezing the minimum wage, among others.

First, under the current Employment Insurance Act, unpaid leave workers are excluded from eligibility for job-seeking benefits, which may threaten their livelihoods, and there is even a possibility of voluntary resignation applications aimed at receiving job-seeking benefits. The United States also supports unemployment benefits for workers affected by unpaid leave and reduced working hours, and it is necessary for South Korea to provide job-seeking benefits for about three months from the occurrence of unpaid leave.

Additionally, since there is a high possibility of employment reduction due to the closure of small and medium-sized enterprises caused by COVID-19, KERI argues that when small and medium-sized enterprises, excluding marginal companies, apply for loans from their main banks to pay employee salaries, the government should guarantee low-interest loans at around 1%. There were also calls to add duty-free shops, event agencies, school cafeterias, and manpower dispatch industries, which were hit hard by COVID-19, to the list of special employment support industries.

For large corporations, the limit on corporate tax loss carryforwards is restricted to 60% of income for each fiscal year, and retroactive deduction of losses is not applicable. It is worth considering abolishing the limit on loss carryforwards for large corporations on the condition of maintaining or creating employment, or allowing retroactive deductions so that tax paid in the previous 3 to 5 years can be refunded corresponding to the losses of the current year. Furthermore, in a situation where a mass unemployment crisis due to COVID-19 is feared, it is suggested that the minimum tax application for employment increase tax credits be excluded temporarily to support employment.

KERI added, "The minimum wage has surged by 32.8% over the past three years, but since COVID-19 threatens the very survival of small businesses and self-employed individuals, next year's minimum wage should be frozen."

This content was produced with the assistance of AI translation services.