Hankyung Research Institute "Employment Retention Subsidy Period Should Be Extended to a Maximum of 1 Year"

[Asia Economy Reporter Suyeon Woo] The Korea Economic Research Institute submitted a proposal to the Ministry of Employment and Labor on the 1st, urging that the current 180-day limit on the Employment Retention Subsidy support period be extended to a maximum of 12 months.

As the support period for many companies struggling due to COVID-19 is set to end at the end of June, the institute argues that the period should be extended up to 12 months so that support can continue until the end of this year.

Although there has been an economic recovery recently centered on exports, face-to-face service industries such as tourism and distribution are still experiencing severe business difficulties. The business community is appealing for an extension of the payment period, warning that if these companies lose the Employment Retention Subsidy, a large-scale unemployment crisis could occur.

To address the COVID-19 crisis last year, the Korean government provided Employment Retention Subsidies worth 2.3 trillion won to 773,000 people. As a result, Korea's unemployment rate increase last year was relatively small despite the pandemic.

Comparing the unemployment rates before COVID-19 (2019) and last year, Korea's unemployment rate rose slightly from 3.8% to 3.9%, an increase of only 0.1 percentage points. In contrast, other countries such as the United States (3.7→8.1%) and Germany (3.2→4.2%) experienced unemployment rate increases ranging from around 1 percentage point to over 4 percentage points.

Change in Unemployment Rates of Each Country in 2020 Compared to Pre-COVID-19 (2019) / Data Provided by Hankyung Research Institute

The Korea Economic Research Institute evaluated that Korea, which expanded the employment retention system, was able to suppress unemployment more effectively than the United States, which relied on unemployment benefits. It estimated that without last year's Employment Retention Subsidy payments, 770,000 people would have become unemployed, pushing the unemployment rate to about 6.7%.

Although economic recovery centered on exports is emerging and vaccine distribution is accelerating, leading to expectations of recovery in related industries, face-to-face service sectors such as aviation and hotel tourism are still on the brink of collapse. These companies' sales were halved last year, but employment has been steadily maintained through the Employment Retention Subsidy.

In the aviation sector, the sales of six companies decreased by 44.2% compared to the previous year, but employment reduction was limited to 3.1%. In the first quarter of this year, sales of the six companies fell by 51.8% year-on-year, continuing the difficult situation and making large-scale restructuring inevitable.

In the hotel industry, the number of tourist hotels in Seoul decreased for the first time ever last year, and this year Sheraton Seoul Palace Hotel and Le Meridien Hotel have closed. Some large duty-free shops are also considering withdrawal, and the sales of Korea's largest travel agencies, Hana Tour and Mode Tour, dropped by about 83.5% last year compared to the previous year, with employment also decreasing by 11%.

Choo Kwang-ho, Director of Economic Policy at the Korea Economic Research Institute, emphasized, "The reason we were able to avoid mass unemployment despite the unprecedented situation last year was due to the government's efforts to support employment retention, such as the Employment Retention Subsidy," adding, "Continuous government support is necessary to enhance employment stability and overcome the COVID-19 crisis."

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