Announcement on Employment Insurance Rate Increase in Early September... Discussions on Business Restructuring Also Planned

Precedent of 0.3%P Increase in 2019 to Strengthen Coverage
Effect Sharply Declined in 2020 Due to COVID-19

"Various Proposals Including Rate Increase Between Labor and Management Under Review"

Minister of Employment and Labor Ahn Kyung-duk. / Photo by Moon Ho-nam munonam@

[Sejong=Asia Economy Reporter Moon Chaeseok] The Ministry of Employment and Labor announced on the 23rd that it plans to announce measures to revitalize the employment insurance finances by early next month at the latest. They are reviewing various options, including raising the current 1.6% insurance premium rate, but nothing has been finalized yet.

On the 23rd, the Ministry held an "Employment Insurance Fund Financial Status Briefing" at the Government Complex Sejong to explain the fund status and the discussion on financial revitalization measures.

Employment Insurance Fund Reserves Depleted by Year-End Excluding Public Fund Borrowings

The Ministry acknowledged that the employment insurance fund will be depleted by the end of the year if the public fund management fund (Gongja Fund) deposits (borrowings) are excluded.

According to the Ministry, the combined reserves of the unemployment benefits account and the employment and vocational accounts, including the second supplementary budget this year, amount to 4.6566 trillion KRW. A Ministry official explained, "It is true that the reserves are less than the deposits."

Although repayment can be made through the Gongja Fund, the rising interest rates are a burden. The official said, "When we borrowed last year, the interest rate was about 1.34%, but this year it rose to about 1.5%. This is because the principal and interest are operated based on the interest rate at the time of deposit."

The unemployment benefit payments have exceeded 1 trillion KRW for six consecutive months, and due to the impact of the fourth wave of the COVID-19 Delta variant, this trend is unlikely to subside soon, raising ongoing concerns about financial soundness.

The Ministry official said, "The revitalization plan will include a repayment plan for the Gongja Fund," adding, "Since the maximum deposit period is 10 years, rather than presenting a repayment plan immediately, we can disclose the broad principles."

Raising Insurance Premium Rates Is One Option, But... "Nothing Decided"

The Ministry official stated that various options, including raising the insurance premium rate, are being coordinated for the employment insurance financial revitalization plan to be announced early next month, shortly after the 2022 budget announcement. They did not categorically deny the possibility of a premium rate increase.

Although the current situation differs somewhat from the COVID-19 economic crisis, they cited the 2019 case when the employment insurance premium rate was raised by 0.3 percentage points from 1.3% to 1.6% to strengthen coverage. While decision-making is not based solely on this "0.3%P," scenarios such as a 0.2%P increase proposed by some are also under review.

However, even if the premium rate is raised, a large-scale adjustment is expected to be difficult. The official explained, "When the rate was raised by 0.4%P from 0.6% in 1995 to 1% in 1999, it was during the IMF foreign exchange crisis, and the employment insurance coverage was rapidly expanded from companies with 30 or more employees to those with one or more employees. Also, the two 0.4%P increases (0.9%→1.3%) in 2011 and 2013 were heavily influenced by the global financial crisis. The 0.3%P increase in 2019 was the first actual case considering both coverage enhancement and financial expansion, and even then, the government did not decide unilaterally but went through deliberations between labor and management in the Employment Insurance Committee."

He added, "We are discussing fundamental financial revitalization measures and are almost at the final stage. The review started in April, and the framework will be set by the time the government budget is formulated."

When asked if the fundamental plan is a bigger measure (such as raising the insurance premium rate) than other alternatives like business restructuring, he refrained from commenting, saying, "Nothing has been decided."

Besides raising the insurance premium rate, options may include ▲structuring expenditures (adjusting youth projects funded by employment and vocational accounts), ▲business restructuring, and ▲expanding government financial support.

The principle of maintaining 1.5 times the annual unemployment benefit expenditure under the Employment Insurance Act will be upheld. The Ministry official said, "We believe it is desirable to maintain the current 1.5 times in the long term," adding, "However, if 1.5 times is set as a target, labor and management must reach a consensus on the government's financial support capacity and the burden on labor and management, and it is difficult to say that the government has unilaterally set a specific target."

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