[Takryucheongron] Actively Support Companies to Expand Nationwide Employment Insurance

Professor Song Heon-jae, Department of Economics, University of Seoul
To Expand Nationwide Employment Insurance, Companies Must Foster a Hiring-Friendly Atmosphere

Song Heon-jae, Professor, Department of Economics, University of Seoul

On the 10th, President Moon Jae-in declared in a special national address marking the third anniversary of his inauguration that the current COVID-19 crisis demands a stronger establishment of our still vulnerable employment safety net, and pledged to lay the foundation for an era of universal employment insurance where all employed individuals receive employment insurance benefits.

The universal employment insurance system means expanding the current worker-centered employment insurance system to cover all employed persons. To this end, the government first plans to promptly promote the enrollment of low-wage non-regular workers in employment insurance, then amend the employment insurance system to eliminate blind spots affecting an estimated 2.3 million special employment workers, platform workers, freelancers, and artists. Following this, through social consensus, the government intends to gradually expand employment insurance coverage to include self-employed individuals.

Employment insurance is a social insurance system introduced by the government to resolve unemployment issues. It provides unemployment benefits for a certain period to stabilize the livelihood of workers who have lost their jobs and supports reemployment through vocational skill development and active job placement services for job seekers. Currently, it applies to businesses and workplaces employing one or more workers, but universal employment insurance means expanding coverage to all employed persons, including the self-employed.

The employment insurance system has been credited with significantly helping overcome crises such as the International Monetary Fund (IMF) foreign exchange crisis and the global financial crisis, which caused many unemployment cases and social turmoil. Despite the unprecedented COVID-19 pandemic severely impacting the economy, the government’s policy intention to extend coverage to all employed persons, including special employment workers and the self-employed who have not benefited from the system, is commendable.

However, since this involves completely redesigning the employment insurance system, it is unlikely to be easily resolved. Currently, self-employed individuals can voluntarily enroll in employment insurance, but the burden of paying 2.25% of their basic salary as insurance premiums and the stringent conditions for receiving unemployment benefits have resulted in a mere 0.2% enrollment rate as of December 2019. If universal employment insurance mandates enrollment for the self-employed, they may become more vulnerable during economic downturns.

Moreover, in situations like the COVID-19 pandemic where multiple sectors are simultaneously affected, insurance premium rates would likely need to be raised to cover unemployment benefits, which would immediately face opposition from the self-employed.

In fact, the core issue does not lie in the design of the employment insurance system. The problem is the employment structure, where too many employed persons are concentrated in the blind spots of the current employment insurance system. As of 2018, the proportion of self-employed individuals in Korea was 25.1%, about 10 percentage points higher than the OECD average of 15.3%. If self-employed individuals are converted into workers and the self-employed ratio is reduced to the U.S. level of around 6%, the expansion of universal employment insurance can be naturally achieved even while maintaining the current system.

To achieve this, an environment must be created that encourages companies to expand employment. It is difficult to expect Korean companies that have moved overseas to return domestically while corporate tax rates remain high and various regulations persist.

Various government support measures focused on small and medium-sized enterprises hinder companies striving to grow into mid-sized enterprises. The inheritance tax system, which makes business succession very difficult, also obstructs long-term corporate investment. The current government’s anti-business sentiment is also an obstacle to corporate investment and growth. If the government drastically shifts its policy direction to actively support corporate activities, the application of universal employment insurance may become a reality rather than just a dream.

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