Due to the impact of COVID-19, the Employment Insurance Fund is obviously in deficit... 'Financial Leakage' Occurs in Various Areas

365 Billion Won Increase in Work-Life Balance Job Incentive Supplementary Budget
Only 7.5 Billion Won Spent by End of June... Surplus Expected
Employment Incentives Paid to Excluded Groups Such as Relatives and Contract Workers
Fraudulent Claims Lead to Additional Collections of 6.784 Billion Won

On the 12th, an unemployment benefits briefing session was held for the unemployed at the Seoul Employment Welfare Plus Center in Jung-gu, Seoul. Due to the economic downturn caused by the novel coronavirus disease (COVID-19) pandemic, the employment shock has intensified, and the amount of unemployment benefits paid in April reached 993.3 billion won, setting a record high. The number of new applicants for job-seeking benefits increased by 32.9% (32,000 people) compared to the same month last year, reaching 129,000. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Kim Bo-kyung] A hole has been found in the financial resources of the Employment Insurance Fund, which is financed by employment insurance premiums paid monthly by workers and employers. While more than 1 trillion won is spent monthly on unemployment benefits, the budget for projects with low execution rates has been increased by over 30 billion won, and the amount to be collected due to fraudulent receipt of employment incentives over the past three years has reached 6.9 billion won. Additionally, even when vocational training graduates find employment in fields unrelated to their training, the employment rate performance of the training institution is still being evaluated based on those placements.

According to the Ministry of Employment and Labor on the 9th, the budget for the "Work-Life Balance Job Incentive" project, operated with the Employment Insurance Fund, was confirmed at 50.9 billion won after an increase of 36.5 billion won during the supplementary budget review process in the National Assembly last March. It is unusual for the project budget to increase without the Ministry of Employment and Labor's request, and it is reported that this was decided during the budget and accounts special committee's subcommittee discussions, which involved secret negotiations between ruling and opposition parties. However, as of the end of June, the execution rate of the Work-Life Balance Job Incentive was only 14% (7.5 billion won). Due to the spread of the novel coronavirus infection (COVID-19), the monthly payment amount for unemployment benefits exceeded 1 trillion won, and the execution amount for employment retention subsidies approached 900 billion won, resulting in an increase in project budgets that may not even be fully spent within this year.

The Ministry of Employment and Labor is also reportedly embarrassed by the sudden budget burden. A ministry official said, "As the number of daycare centers and schools closing or suspending operations increased, the budget was suddenly increased with the intention of supporting half-day work for childcare," adding, "We hurriedly prepared from that time, but promotion is difficult due to cost issues." The Work-Life Balance Job Incentive is a system that supports employers who allow reduced working hours by compensating for workers' wage reductions, but one of the reasons for the low execution rate is that employers must adopt electronic or mechanical attendance management systems.

[Image source=Yonhap News]

The Employment Insurance Fund projects are not the only ones being managed in a haphazard manner. According to the "2019 National Settlement Audit Report," serious financial leakage occurred due to fraudulent receipt of employment incentives. Reviewing the employment incentive disbursements from 2016 to 2018 revealed that incentives were mistakenly paid to ineligible recipients such as employers' relatives, spouses, contract workers, and university students, with additional collections amounting to 6.784 billion won.

It was also found that even if vocational training graduates find employment in fields unrelated to their training, the employment rate performance of the training institution is still evaluated based on those placements. An analysis of the difference between the average employment rate of unemployed trainees by training occupation and the employment rate in related occupations from 2013 to 2017 showed that 274 occupations (65.2%) had a difference of 20 percentage points or more. Among these, 97 occupations (23.1%) had a difference exceeding 40 percentage points. Furthermore, the proportion of institutions where the difference between simple employment rates and related occupation employment rates exceeded 20 percentage points increased from 35% in 2013 to 53.1% in 2017. The Board of Audit and Inspection pointed out, "Even if employment is in occupations unrelated to the training field, it is all included in the training institution's employment rate performance, leading to an overestimation of results, and there is a concern that training courses for occupations that do not practically help employment may be operated excessively compared to actual labor demand."

Meanwhile, the Employment Insurance Fund currently fails to maintain the legally mandated appropriate reserve fund size. According to the Employment Insurance Act, the government must accumulate an appropriate scale of reserve funds in preparation for mass unemployment or employment instability. The unemployment benefits account is regulated to maintain a reserve ratio of at least 1.5 times but less than 2 times the annual expenditure, and the employment stabilization and vocational competency development project account is regulated to maintain a reserve ratio of at least 1 time but less than 1.5 times. However, last year, the reserve ratio for the unemployment benefits account was 0.4, and for the employment stabilization and vocational competency development project account, it was 0.8, failing to meet the legal reserve ratios. Last year, the Employment Insurance Fund's income was 11.9 trillion won, and expenditures were 13.9 trillion won, resulting in a deficit of about 2 trillion won.

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