Unemployment Insurance : Case study from Korea Valerie Schmitt & Celine Felix ILO DWT Bangkok 20 December 2010

Structure of the presentation Brief description of the EI scheme Progressive development of the scheme Detailed description of the EI scheme –Job security program –Job Capacity Development Program –Unemployment benefit Crisis impact and role of the EI scheme

Brief description of the EI scheme Job Security Program Job Capacity Development Program Unemployment benefits Job Creation Program Job Adjustment Support Program Program for the Promotion of the Employment of the Disadvantaged Incentives for “on the job training” Workplace = not only to work but to develop skills, and increase performance Unemployment Benefit Incentives to find a job Incentives to undertake training Stabilization & Achieving full employment is key to counter the vicious cycle of unemployment  lower consumption & demand  recession Maintain and increase capacities & performance

Brief description of the EI scheme Employment Insurance (EI) goes one step further than Unemployment Insurance (UI). UI simply supports livelihood of the workers who have lost their jobs. It’s a passive medium as it helps people only after they have lost their jobs. EI is positive and preventive compared to UI.

Progressive development of the scheme The Korean Employment Insurance (EI) system was introduced on 1 July 1995, after a debate that began at the end of the 1960s. The coverage of Korean EI system was expanded step by step; it now includes all businesses with one or more employees theoretically. –The coverage rate of the EI scheme reaches around 56.8% of wage workers in August 2008 due to the large number of irregular workers. The coverage rate only for regular workers is approximately 80% in Contribution rates have also increased –Unemployment benefits: from 0.6% (1995) to 1.0% (1999) and then reduced to 0.9% (2003). 50/50 paid by employer and employee. –Job security program: from 0.2 to 0.3% (1999) and then reduced to 0.15% (2003) –Job capability development program: between 0.1 and 0.7% since 1999

JSP, JCDP, UI Progressive development of the scheme Job Security Program Job Capacity Develpt Program Unemployment Insurance Ordinary businesses (number of employees) Until 31 Dec 1997 Jan-Feb 1998 Mar-June 1998 Jul-Sept 1998 Oct Today Construction Business (Total Construction Price in Million Won) Until 30 June 1998 July 1998 – Dec 2003 Jan - Dec 2004 Jan Today 3400 or more 340 or more 20 or more All Workers Undertaken by Licensed Constructors

Detailed description of the scheme Job security program Purpose: secure job stability of workers and assist enterprises with their job adjustments Subsidies to assist SMEs in reducing working hours (from 50h/week to 40h and hiring a new employee) Subsidies for shift work systems (ex: from 3 shifts of 8 hours to 4 shifts of 6 hours in semi-conductor industry and hiring a new “shift” i.e. group of employees) Subsidies for improved environment in SMEs Subsidies for new market entry of SMEs (ex: enter green energy market … subsidies for the appropriate investment) Employment retention subsidy; reemployment subsidy (the government assists in reemploying laid off workers) Job creation assistance

Detailed description of the scheme Job security program Purpose: secure job stability of workers and assist enterprises with their job adjustments Subsidies for Job adjustment Subsidies for keeping jobs … restrictions on overtime, temporary closing the business unit, more holidays, training of employees, giving leaves, relocation of human resources to other working place … Subsidies to adjust the number of employees: reduce or stop employing people, do not replace workers who retire, accepting applications for early retirement Subsidies to encourage employment Subsidies for the employment of elderly; young professionals; trained middle aged workers Peak age plan (the worker receives less than their peak salary after a certain age) Childcare leave subsidy & Subsidy for post-pregnancy / childbirth female employment

Detailed description of the scheme Job security program Purpose: secure job stability of workers and assist enterprises with their job adjustments Aid to construction workers Subsidy of the contributions for the retirement allowance of construction workers Subsidy to stabilize employment of construction workers Aid to child care facilities in the workplace Support to the establishment of childcare facilities in workplaces Subsidy of the wages of teachers, …

Subsidies for employers Detailed description of the scheme Job Capacity Development Program Purpose: assist businesses and the workers to develop workers skills and employability Subsidy for skills development training Subsidies for paid training leave Loan for training facilities and equipment Assistance to the employed workers: allowance for education fee, student loan for workers, loan for training fee, subsidy for qualification test fee Aid to the unemployed: training for those who are changing jobs, training for priority occupational areas Over 210,000 workplaces assisted in 2008 through the JCDP Over 3,6 million workers or unemployed receiving assistance in 2008 Subsidies for workers: employed & unemployed Main results

Detailed description of the scheme Unemployment insurance Unemployment benefit helps workers who lost their job by providing them with a benefit + by helping them to find a job The UB also supports the job matching system by providing information on supply and demand of jobs UB includes: Unemployment Benefit (UB) Job Seeking Benefit (JSB) Allowance to Promote Employment (APE) to assist UB beneficiaries to find a new job quickly Sickness Benefit (SB) for those who cannot be employed because of sickness or injury Extended Benefit (EB) Early Re-Employment Allowance (ERA) Job Capacity Developt Allowance (JCDA) Allowance for Seeking Job in remote Place (ASJRP) Moving Allowance (MA)

Detailed description of the scheme Unemployment insurance Amount of Job Seeking Benefit Job Seeking Benefit (JSB) Requirements Having worked for more than 180 days in a work place where the EI applies Must actively seek for a job Exclusion: voluntary resignation or dismissal for serious misconduct Payment amount 50% of average wage he/she had received before leaving the job Max/Day= 40,000 Won (i.e. 35 US $) Min/Day= 90% of minimum hourly rate Duration Between 90 days and 240 days depending on the insured period and age of insured person

Detailed description of the scheme Unemployment insurance Duration of Job Seeking Benefit = function of age & insured period Job Seeking Benefit (JSB) Age Under 30 years years 50 years and over, disabled person Insured period Less than 1 year 1 year - 3 years 3 years – 5 years 5 years – 10 years 10 years and over

 Early Re- Employment Allowance (ERA) Detailed description of the scheme Unemployment insurance Allowance to Promote Employment (APE) A person who gets a job before the prescribed duration of UB 1/3 to 2/3 of unpaid Job Seeking Benefit. Min/Day= 90% of minimum hourly rate RequirementsPayment amount  Job Capacity Development Allowance A person who attends a Job Capacity Development Training (within Job Center) Travel and food expenses during the training period 5,000 Won / day (4.3 US $)  Allowance for seeking job in remote place A person who is seeking a job more than 50km away from his/her residence Accommodation cost (up to 40,000 Won / day), actual travel costs  Moving allowance A person who needs to move his/her home to get a job Actual costs ; 80% of actual costs exceeding 2.5 tons

More information on Korean EI Scheme

Crisis impact and role of the EI scheme Asian Financial Crisis struck in 1997 Series of bankruptcy Massive layoffs Unfortunately the Unemployment Benefit system of Korea was not well constructed at that time, even though the Korean government introduced the Employment Insurance system in Therefore the government tried to overcome the catastrophic situation by setting out temporary welfare programs and active labour market policies like public works for the unemployed. The steep reduction of unemployment rate (from 7.0% in 1998 to 3.8% in 2001) shows that the policy mix of Korean government successfully overcame the mass unemployment situation whether the contribution was small or great. The Korean example shows that the timely investment in UI enables countries to emerge strengthened from crises.

Crisis impact and role of the EI scheme

The recent crisis led to increase in unemployment rate in 2009, while young people found it most difficult to find jobs. In the employment situation in the labour market did not go into deep crisis as in the Asian economic crisis Crisis impact and role of the EI scheme

The reasons are: –The economic impact of the economic crisis was not so great in the Korean context –The government put efforts to retain existing jobs and create new ones in the labour market and temporary jobs through public works –A range of social policy instruments were already in place to provide social protection, particularly the Minimum Living Standard Guarantee and the Employment Insurance Programme, while ten years ago the welfare state was not equipped with adequate social protection instruments Crisis impact and role of the EI scheme

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