If 'Corona Unemployment' Continues Until Year-End... Employment Insurance Fund Will Run Out

Unemployment Benefits Financial Demand Forecast Report... Expected Payment Amount 12.6 Trillion Won

On the 2nd, various places on the streets of Myeongdong, Seoul, displayed notices of temporary closure related to the novel coronavirus disease (COVID-19), creating a quiet atmosphere. Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Lim Chun-han] An analysis has revealed that if the employment situation from last April, impacted by the novel coronavirus infection (COVID-19) shock, continues until the end of the year, the employment insurance fund will be completely depleted. Compared to a year ago, April's unemployment benefits (KRW 993.3 billion) surged by KRW 255.1 billion (34.6%), and the number of new unemployment benefit applicants (129,000 people) increased by 32,000 (33.0%). Unemployment benefits account for the majority of unemployment insurance payments.

According to the report titled "Unemployment Benefit Financial Demand Forecast Due to the COVID-19 Crisis," commissioned by Rep. Choo Kyung-ho of the United Future Party to the National Assembly Budget Office on the 4th, the expected number of unemployment benefit recipients this year was 1.33 million without reflecting the COVID-19 economic crisis. However, if the employment status from last April due to COVID-19 continues until June, the expected number of recipients this year rises by 310,000 to 1.64 million. If it continues until December, the number of recipients is projected to increase by 510,000, reaching 1.84 million.

In the three scenarios, unemployment benefit payments are estimated at KRW 9.1 trillion, KRW 11.2 trillion, and KRW 12.6 trillion, respectively. Compared to the situation without the COVID-19 crisis, if the April employment status continues until June, an additional KRW 2.1 trillion will be paid, and if it continues until the end of the year, an additional KRW 3.5 trillion will be paid. Consequently, the employment insurance fund reserve, initially estimated to have KRW 3.5 trillion remaining at year-end, would decrease to KRW 1.4 trillion if the April employment status persists until June, and is expected to be fully depleted if it continues throughout the year.

The Budget Office incorporated the April employment trend statistics into the projection model from the "2019?2028 Eight Major Social Insurance Financial Forecast" published last October. However, the supplementary budget for unemployment benefit funding (KRW 3.4 trillion) included in the third supplementary budget bill was not reflected. Given the possibility of further economic deterioration in the second half of the year, the fund balance could worsen further.

The rapid decline in the reserve ratio (reserves relative to expenditures) is also a concern. Since this administration took office, the reserve ratio has sharply dropped from 0.9 in 2017 to 0.7 in 2018 and 0.4 in 2019. The fund balance deficit of KRW 275 billion in 2018 reduced the reserves from KRW 5.8 trillion at the end of the previous year to KRW 5.5 trillion. The deficit widened to KRW 1.4 trillion in 2019, further reducing the reserves to KRW 4.1374 trillion.

Rep. Choo said, "Due to the government's policy failures, including the employment disaster caused by the rapid minimum wage increase, the employment insurance reserves to prepare for mass unemployment sharply declined. Now, with mass unemployment caused by COVID-19 leading to a fund depletion crisis, we have reached a situation where borrowing is the only option to prevent collapse. Since we never know when or how such a crisis will come, the government must always use finances efficiently and responsibly."

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