THE GOVERNMENT and the People Power Party (PPP) buckled down on cutting off unemployment benefits for those working less than three hours a day, starting from  Nov. 1, 2023. The amendment to lower the limit of daily contractual working hours was approved by the Ministry of Employment and Labor (MOEL) on September 1. Before, contracted working hours per day were set at 4 hours; those working less than 3 hours also received the same benefits. The revision was made to provide benefits for these part-time workers according to their actual working hours[1]. President Yoon Seok-yeol’s prioritized policy normalizing unemployment insurance leads to the anticipation for more extensive changes in the current system. Yet, the failure to provide economic security and sufficient employment services, resulted in criticisms of the government’s roles.

Justifications of the reform

   The primary impetus for the unemployment insurance reform lies on budgetary issues. The Employment Insurance Fund balance recorded a ₩3.9 trillion deficit in 2022, including a ₩10.3 trillion deposit from the Public Finance Management Fund[2]. It is a response to the soaring debt which is attributed to the former government’s rampant public spending, hikes in minimum wages, and increase in unemployment. The distortion of the insurance system itself is another factor in pushing the reform. As of 2022, unemployment benefits were valued at a minimum of ₩1,847,040 per month, which was greater than the real income of a full-time minimum-wage worker who received ₩2,015,580, after tax and four major insurance payments. Hong Seok-jun, a representative of the PPP, argued that among 1.63 million recipients, approximately 400,000 received more than the income level of full-time minimum-wage workers[3]. The government stressed the need for barring benefit fraudsters who misuse the system by taking advantage of benefits only to go on overseas trips or buy luxury goods instead[4]. The issue of moral hazard—or failures to motivate reemployment—led some to question the necessity of unemployment insurance, provoking further contractions in eligibility criteria and regulations on repetitive recipients. 

Failure to account for basic facts

   Though the overall deductions in unemployment benefits are justifiable, the core of the issue remains overlooked—that these cuts can lead to economic insecurity and hardship for those in need. Unemployment insurance has been a cornerstone for economic and social insecurity. The current reformation plan to simply cut off the funds hurts employees with low-income levels, as they were the main beneficiaries of the system. The government’s narrative of viewing repetitive unemployment as benefit fraud and solely problematizing overpayment issues generalize the recipient’s financial necessities during their unemployment period. The plan to limit unemployment benefits inevitably harms the most vulnerable parties in the labor market–those with more frequent unemployment, less labor income, and shorter employment durations. Providing a social and economic safety net through welfare policies is a crucial part of the government’s duties to financially support those in need.

The emergence of moral hazard

   Moreover, outlining the moral hazard issue—the tendency of workers to lose their motivation to seek new jobs while being paid unemployment benefits—as the sole cause of the balance deficit is problematic. Shifting the responsibilities of fund balance deficit to the beneficiaries instead of accounting for different economic circumstances leads to another questionable point. Rather, the Employment Insurance Fund moves along with various economic forces. In economic downturns, expenditures increase in response to high unemployment. Though long-term debt might be a warning sign, it might also indicate that for the last few years of economic recession with high unemployment rates, the system has operated rather to benefit those in need. The rigid eligibility standard, which includes involuntary unemployment, also reduces the possibility of benefit fraud, at least to some extent. Thus, closer analysis of the gray areas of the unemployment insurance system is required.

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   In addition to protecting the less advantaged social class and understanding the relevance of different economic phenomena, the government should focus on creating fundamental solutions to curb the exploitation of the unemployment system. Thorough examinations of beneficiaries as well as companies would not only effectively punish the fraudsters, but also serve as a preventive measure against any loopholes. On top of reinforcing individual management, the government should also seek new financing resources to cope with the remaining budget problems.

[1] The Hankyoreh

[2] The Chosun Ilbo

[3] The Dong-a Ilbo

[4] KBS