Spent First Disaster Relief Fund at Mart... Self-Employed Miss Out on Benefits

KDI Announces 'Analysis of the Effects of the 1st Emergency Disaster Relief Fund'
Direct Support Needed for Face-to-Face Service Industries like Travel and Sauna

A notice informing the use of disaster relief funds is posted at a store located in Namdaemun Market, Jung-gu, Seoul.

[Asia Economy Reporter Kwangho Lee] Since the outbreak of the novel coronavirus disease (COVID-19), it has been revealed that the emergency disaster relief funds provided by the government were mainly spent on essential consumer items such as groceries and clothing. Sales increases in restaurants, where many self-employed individuals operate, were relatively low, indicating that they did not significantly benefit from the 14 trillion won in support funds.

According to the report "The Effects and Implications of the First Emergency Disaster Relief Fund Policy" released on the 23rd by the Korea Development Institute (KDI), the government distributed 14.2 trillion won in emergency disaster relief funds to all citizens last May to absorb the economic shock caused by COVID-19. It was found that sales of essential consumer goods such as groceries and convenience stores increased significantly.

Comparing the average year-on-year growth rates before and after the distribution of the relief funds, grocery sales growth rose from 2.5% before the payment to 12.3% after, while convenience store sales growth expanded from 0.8% to 5.6%.

On the other hand, sales in sectors requiring face-to-face contact, such as travel and sauna businesses, sharply declined. This trend did not change even after the relief funds were distributed. The travel industry's sales growth rate was -61.1% before the payment and -55.6% after, while saunas, jjimjilbangs (Korean spas), and bathhouses also saw a 20.9% decrease.

This trend was also confirmed when categorizing by consumer goods. Essential goods such as furniture, bookstores, stationery, eyeglasses, clothing, and accessories (semi-durable goods), as well as marts, supermarkets, groceries, and convenience stores, increased by 10.8 percentage points and 8.0 percentage points respectively. In contrast, face-to-face service industries such as beauty services, saunas, and jjimjilbangs, along with the food service industry, saw sales increases of only 3.6 percentage points and 3.0 percentage points.

KDI analyzed in the report that "consumers are reluctant to spend on face-to-face services due to concerns about infection amid the ongoing spread of COVID-19."

Despite the variations by industry, KDI evaluated the overall effect of the disaster relief funds as contributing to consumption recovery. It estimated that the increase in card sales due to the relief fund distribution reached 4 trillion won, which corresponds to up to 36.1% of the input resources. Households receiving cash support also consumed 93.7% of the support funds.

Researcher Taeseok Lee of KDI’s Public Economics Research Department stated, "More than 90% of the emergency disaster relief funds were consumed in May and June, and sales in sectors where the funds could be used increased, indicating a contribution to the recovery of private consumption."

However, KDI advised that to more actively achieve the purpose of the support funds, direct assistance to face-to-face service industries, which have been severely affected, is necessary. Since quarantine measures remain an obstacle to consumption, there is still a possibility that consumption will be skewed if the same approach as the first round of support is used.

Researcher Yoonhae Oh of KDI said, "Looking at the consumption amounts related to dining out and travel among high-income households, consumption significantly decreased during the spread of COVID-19 and the decline eased when the spread was controlled," adding, "Quarantine plays a decisive role in restoring consumer sentiment." She further advised, "It is necessary to focus income support based on the direct extent of COVID-19 damage rather than indirect criteria such as income brackets."

Researcher Miru Kim of KDI emphasized, "In preparation for the possibility of distributing emergency disaster relief funds again due to a resurgence of COVID-19, data on the scale of damage by economic agents should be collected and analyzed in advance," and stressed, "A system must be established to quickly and precisely identify and support the affected groups."

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