[Weekly Review] Government Accelerates Job Creation and Business Revival... But the Shadow of Deepening Polarization Looms

[Image source=Yonhap News]

[Asia Economy Reporter Kim Hyunjung] The government is accelerating efforts to create jobs and supply liquidity to companies in response to the novel coronavirus infection (COVID-19). However, exports are still declining, and income and consumption polarization due to COVID-19 is intensifying.

◆ Launch of a 10 trillion won SPV... expandable up to 20 trillion won if necessary = On the 20th, the Bank of Korea, the Korea Development Bank, and the government announced the establishment of a special purpose vehicle (SPV) with a scale of 10 trillion won to purchase non-investment grade corporate bonds and commercial papers (CP) in response to financial market instability caused by COVID-19. Through this SPV, the Bank of Korea, Korea Development Bank, and the government will purchase corporate bonds rated BBB and above, supplying liquidity to companies facing crises due to COVID-19. Additionally, 3.5 trillion won will be invested to directly create 550,000+α jobs in the public sector.

The SPV will purchase not only BBB-rated corporate bonds and A2~A3-rated CP but also corporate bonds that were once BBB-rated but have fallen to speculative grade (BB) due to the COVID-19 shock. The SPV will operate temporarily for six months after the National Assembly passes the third supplementary budget bill to be announced early next month. The government has left open the possibility of extending the operation period or expanding the scale up to 20 trillion won if necessary. To prevent support from concentrating on specific companies or industries, the purchase limit for the same company or corporate group is capped at 2~3% of the total SPV support amount.

To allow necessary restructuring to occur naturally, corporate bonds or CPs of companies with an interest coverage ratio below 100% for two consecutive years are excluded from purchase targets. Since the SPV is a for-profit corporation and to minimize the risk of losses to the government and the Bank of Korea, the purchase interest rate is determined by adding a certain fee to the market interest rate.

On the same day, the government designated the aviation and shipping industries as the support sectors for the Industrial Stabilization Fund, whose operational plan was finalized. The support targets are aviation and shipping companies with total borrowings of 500 billion won or more and 300 or more employees. Since the fund is raised with taxpayers' money, companies receiving support must maintain at least 90% of their workforce as of the 1st of this month for the next six months. To share profits from supported companies and prevent moral hazard, at least 10% of the support amount must be acquired as equity-linked securities, and dividends to shareholders and share buybacks are prohibited during the funding period.

◆ Detailed plan to supply 550,000 jobs = A plan to supply 550,000+α jobs mainly focused on simple quarantine, maintenance, and computerization tasks was also announced. Specifically, the plan involves investing a total of 3.5 trillion won in five areas: ▲ public jobs for vulnerable groups (300,000 jobs, 1.5 trillion won) ▲ non-face-to-face jobs (100,000 jobs, 1 trillion won) ▲ youth digital jobs (50,000 jobs, 500 billion won) ▲ youth work experience jobs (50,000 jobs, 240 billion won) ▲ employment subsidy support (50,000 people, 300 billion won).

Most of the announced job types are concentrated on simple quarantine, maintenance, and computerization tasks. The largest portion, accounting for more than half in scale, is welfare-oriented public jobs for vulnerable groups, requiring 15 to 30 hours per week and up to five months of work. Among single job types, the largest scale is quarantine activities (78,200 people) such as cleaning public bicycles, transportation facilities, daycare centers, government offices, and senior centers to prevent infectious diseases. The government will provide 393 billion won in national funds for this. Jobs improving public rest areas, such as maintaining walking trails and village rest spaces, will employ 40,700 people (204.5 billion won), and local government specialized projects like making cloth masks or creating ecological gardens will employ 56,500 people (284 billion won). Public jobs are further categorized into 10 types: ▲ support for local small businesses (3,900 people, 19.6 billion won) ▲ support for agricultural and fishing village economic activities (18,200 people, 91.5 billion won) ▲ cultural and artistic environment improvement (14,600 people, 73.4 billion won) ▲ emergency support for public tasks (45,200 people, 227.1 billion won) ▲ industrial area environmental maintenance (19,300 people, 97 billion won) ▲ disaster prevention (6,000 people, 30.1 billion won) ▲ youth support (17,400 people, 87.4 billion won), among others.

Additionally, 100,000 non-face-to-face and digital public jobs will be provided to vulnerable employment groups such as youth, women, and the unemployed. These jobs are divided into data and content construction for laying the foundation of the digital economy (64,000 people, 790 billion won) and non-face-to-face administrative services for early recovery from COVID-19 damage (36,000 people, 240 billion won), supplied across 17 ministries. Some of these jobs involve simple data entry tasks such as converting research data (2,000 people), building databases (DB) of facility safety inspection results (2,300 people), constructing big data for safety and health (2,250 people), and creating a DB for hazardous materials handled in university and research institute laboratories (660 people). Quarantine work at tourist sites (12,229 people) and recycling of disposable products (10,840 people) are also classified as non-face-to-face and digital jobs.

[Image source=Yonhap News]

◆ Export value from 1st to 20th down more than 20% year-on-year = Export value from May 1 to 20 dropped by more than 20% compared to the same period last year. On the 21st, the Korea Customs Service announced that the export value (customs clearance basis, provisional) from May 1 to 20 was $20.318 billion, down 20.3% ($5.18 billion) from the same period last year. The number of working days during this period was 13.5, the same as last year. Considering the number of working days, the average daily export value was $1.51 billion, down 20.3% from $1.89 billion in the same period last year.

Imports during this period decreased by 16.9% ($4.66 billion) year-on-year to $22.998 billion. The trade balance recorded a deficit of $2.68 billion.

Due to the impact of COVID-19 reducing global demand, export performance inevitably deteriorated. The decline was significant in passenger cars (-58.6%) and petroleum products (-68.6%), and wireless communication devices (-11.2%) also decreased. Ship exports increased by 31.4%. Semiconductor exports rose 13.4% year-on-year, showing recovery compared to last month's -14.9% and the 1st to 10th's -17.8%.

Looking at export performance by country, most countries including China (-1.7%), the United States (-27.9%), the European Union (EU, -18.4%), Vietnam (-26.5%), Japan (-22.4%), and the Middle East (-1.2%) remained in decline. However, exports to China, which accounts for 25.1% of Korea's exports, decreased by only 1.7%, a smaller decline compared to -29.4% from the 1st to 10th.

◆ Income and consumption polarization worsens due to COVID-19 = This week, statistics were also released on how COVID-19 affected household income and consumption. According to the '2020 Q1 Household Trends Survey Results' announced by Statistics Korea on the 21st, the equivalized disposable income quintile ratio was 5.41 times, up 0.23 points from 5.18 times in Q1 last year. The income quintile ratio is the value obtained by dividing the equivalized disposable income of the top 20% (5th quintile) by that of the bottom 20% (1st quintile). A higher value indicates greater income inequality.

The Q1 2020 quintile ratio cannot be directly compared with previous figures because Statistics Korea has been conducting integrated surveys on income and expenditure on about 7,200 sample households nationwide since January last year. However, in 2019, both the existing survey results and integrated results were published, and the 2019 Q1 income quintile ratio based on the existing survey was 5.8 times. This means income inequality had eased compared to 5.95 times in Q1 2018 but worsened again this year.

In fact, the income of the 1st quintile decreased by 1,000 won from 1,499,000 won in Q1 last year to 1,498,000 won. Earned income (salary, bonuses, etc.) was 513,000 won, down 3.3% year-on-year, and property income (interest, dividends, etc.) dropped 52.9%. On the other hand, income of the 5th quintile increased by 6.3% to 11,158,000 won from 10,491,000 won in Q1 last year. This was due to increases in earned income (+2.6%), property income (+44.8%), and transfer income (pensions, etc., +18.2%), except for business income (-1.3%).

The increase in equivalized disposable income, which is income minus non-consumption expenditures and available for consumption and savings, was also steeper for the 5th quintile. The 1st quintile's disposable income was 1,234,000 won, up 3.9% year-on-year, while the 5th quintile's was 8,768,000 won, surging 8.3%.

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