Korea should speed up job market and social protection reforms to strengthen inclusive growth

Korea’s economy has progressed rapidly over the past 40 years, catching up with the level of well-being in most OECD countries. It now needs to continue and speed up the reforms of its labour market in order to strengthen its social safety net, create better quality jobs and boost inclusive growth, according to a new OECD report.

Connecting people with jobs: Towards better social and employment security in Korea says that social protection institutions now provide income and employment support to millions of households in need. But many workers still struggle with jobs of poor quality and low social protection, because policies and rules are often poorly enforced. Labour regulations and agreements are also geared towards protecting permanent jobs but often fail to help people in less regular jobs.

Korea’s divided labour market makes it difficult for some measures to help the workers and jobseekers who need it most. For example, Employment Insurance effectively covers only around half of private-sector workers. Those not covered include 5.7 million self-employed people, 1.2 million workers employed by family members, and 4.0 million employees who should be enrolled under the insurance measure but are not, with many of them in small-sized enterprises or working informally.

Furthermore, Korea effectively offers no guaranteed income support for workers facing health problems, which sets it apart from virtually every other OECD country. Although sick workers can gain Employment Insurance benefits under certain circumstances, they have to terminate their job contracts to do so, creating additional difficulties for many and prolonging reintegration into work. Korea’s double lack of employers’ liability for workers’ sickness and any form of statutory social support for sickness affects millions of workers each year. This issue currently receives too little attention from policy makers.

Korea’s current government shows a strong determination to improve welfare and ensure adequate support reaches low-income jobseekers and working families. Moving forward, the OECD recommends that it continues in this direction via the following steps:

Improve and expand the coverage of Employment Insurance by:

‒ Finding effective ways to cover self-employed persons by making insurance mandatory and expand income support to workers leaving their jobs voluntarily, with a benefit sanction replacing the current disqualification penalty

‒ Enforce the existing rules more robustly to ensure all workers who should be covered are enrolled by employers. This could involve new monitoring powers for labour inspectors; strengthening the existing arbitration procedure through which wronged workers can claim entitlements retrospectively; and linking existing administrative data sources to pinpoint specific gaps in practice

Improve the situation of workers with health problems by:

‒ Introducing a statutory, employer-provided sickness pay of 2-5 weeks per year for regular employees, as most other OECD countries have

‒ Introducing a new social insurance measure to provide cash sickness benefits to workers who encounter an unforeseen medical condition. Korea could introduce this as part of the current health insurance system, as in Japan; under the Employment Insurance measure, as in Canada; or as a stand-alone social insurance measure, as several other OECD countries do

‒ Matching these new forms of income support with a strong focus on workers’ recovery and their fast return to work

The government can also significantly improve the situation of poor families and the working poor in Korea by taking the following actions:

  • Ease access to the Basic Livelihood Security Programme by gradually phasing out the “family support obligation” that currently dismisses poor people who could potentially gain support from children or parents – whether or not these relatives actually provide any support. Estimates reveal this could potentially double the number of recipients who could benefit
  • Ensure that the Earned Income Tax Credit reaches all workers entitled to it in order to improve their living standards and rewarding work.