KCCI: "Korean Unemployment Benefits Structure Abnormal, Fund Financial Soundness Undermined"

Source: Korea Employers Federation

[Asia Economy Reporter Changhwan Lee] An analysis has emerged that South Korea's unemployment benefits structure is abnormally skewed with a high number of recipients receiving the minimum benefit amount compared to other countries, damaging the financial soundness of the fund.

The Korea Employers Federation (KEF) released a report on the 30th titled "Problems and Improvement Measures of South Korea's Unemployment Benefit Minimum and Maximum Amounts," pointing out that "South Korea's unemployment benefit minimum amount is the highest among OECD (Organisation for Economic Co-operation and Development) countries, and more than 80% of recipients receive the minimum amount, which is an abnormal benefit structure."

KEF emphasized, "An excessively high minimum unemployment benefit amount causes moral hazard by discouraging job-seeking activities, and since the minimum amount is linked to the minimum wage, it acts as a major factor undermining the financial soundness of the fund."

According to the report, as of 2018, South Korea's minimum unemployment benefit amount as a percentage of the average wage was 42%, the highest among OECD countries. In contrast, the maximum amount ratio was relatively low.

With the minimum unemployment benefit amount linked to the minimum wage, the continuous increase in the minimum wage has led to a continuous rise in the minimum benefit amount. As a result, 81.2% of unemployment benefit recipients receive the minimum amount, while only 4.2% receive 50% of the average wage, creating an abnormal benefit structure.

Source: Korea Employers Federation

With the minimum unemployment benefit amount linked to the minimum wage, the sharp increase in the minimum wage from 2018 to 2019 caused the minimum benefit amount to rise sharply. KEF estimated that this led to a surge in unemployment benefit payments, becoming a major factor damaging the financial soundness of the employment insurance fund.

Additionally, unemployment benefit expenditures increased by 61%, from 5 trillion won in 2017 to 8.1 trillion won in 2019. This was analyzed to be due to strengthened unemployment benefit guarantees, including increases in the minimum and maximum benefit amounts, an increase in the payment rate (from 50% to 60%), and an extension of payment days (from 90~240 days to 120~270 days).

Last year, unemployment benefit expenditures reached 11.9 trillion won, a 46.5% increase from the previous year, which was attributed to the impact of COVID-19. Due to the increase in unemployment benefits, which account for over 80% of unemployment benefit account expenditures, the unemployment benefit account has recorded deficits for three consecutive years since 2018.

Lee Hyung-jun, Head of Employment and Social Policy at KEF, said, "An excessively high minimum unemployment benefit amount causes moral hazard, and the linkage of the minimum amount to the minimum wage increases the financial burden on the employment insurance fund. It is necessary to abolish the linkage of the minimum unemployment benefit amount to the minimum wage or, if linked, reduce the linkage ratio to 60%, and exclude unpaid leave days when paying unemployment benefits to improve the fund's financial soundness and encourage active job-seeking among the unemployed."

He added, "The minimum unemployment benefit amount should be determined at a reasonable level considering the fund's conditions and the insurance premium burden on labor and management. Therefore, the linkage method to the minimum wage should be abolished and a separate payment method should be established."

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