Policy response to the crisis in Korea

1
Policy response to the crisis in Korea

• Na, Yeong-Don
• Director for Employment policy
• Ministry of Labor, Korea

2
Contents
3
The world economy has been faced a unprecedented
global crisis

• The economic recession has brought a huge
  decline in employment and income for the lower
  middle class and vulnerable groups, deteriorating
  peoples livelihood.
• The recessions is making life harder for
  self-employed people and small business with
  bankruptcy growing, especially, among export
  companies and small medium-sized
  enterprises(SMEs).

The employment situation has deteriorated
drastically due to the economic crisis
4
The government is implementing active fiscal
policy to overcome the economic crisis

• A supplementary budget of 28.4 trillion won has
  be spent in 2009 to overcome the economic crisis
  sooner and prepare for post-crisis opportunity.
• 60 of the 2009 budget was executed in the first
  half of this year to ensure timely response to
  the crisis.

• to expand support and strengthen the social
  safety net for vulnerable groups who experience
  difficulties due to the worsening of the economic
  situation
• to prevent further economic contraction by making
  up for dwindling tax revenue and thus carrying
  out projects as planned
• to help to active local economy by making up for
  a fall in local grants caused by a fall in
  internal tax revenue and
• to complement the shrinkage of spending capacity,
  which is expected in the second half of this year
  since 60 of this years budget was executed in
  the first half.

• The IMF recommended that countries should
  increase their discretionary spending to 2 of
  GDP in order to overcome the current economic
  crisis.

5

• Jobs are retained and created by promoting
  economic recovery and expanding growth potential.
• The stabilization of the peoples livelihood is
  pursued by reinforcing the social safety in
  response to the economic crisis.

1. Livelihood stabilization for low-income
families The government strengthens support for
the stabilization of the livelihood of low-income
families by expanding unemployment benefits and
emergency welfare, and complements education and
housing welfare. 2. Employment retention and
expansion of employment opportunities The
government supports job retention and job sharing
and creates new jobs. 3. Support for SMEs, export
firms and the self-employed The government
greatly increases liquidity support and finds a
way out for companies by supporting exports and
business stat-up. 4. Activation of local
economy The government increases local finances,
improves local infrastructure and expands
environmental, welfare and culture facilities
sooner 5. Investment for the future The
government enhances growth potential by
implementing Green New Deal, investing in new
growth-engine industries and advancing education.
Timely
The government strengthens support for the
stabilization of the livelihood of low-income
families by expanding unemployment benefits and
emergency welfare, and complements education and
housing welfare. Efforts are concentrated on
projects which can promote economic recovery and
increase growth potential and have the great
effect of creating jobs. The focus is placed on
completing long-standing projects rather than
starting new projects. Support is provided for a
temporary period.
Targeted
Temporary
6
Strategy for maximizing the effects of the
supplementary budget
Selecting projects which can be implemented
within this year and starting them soon after
sufficient preparations.
Timely
Targeted
Targeting projects which are likely to help
stabilize the peoples livelihood and jobs and to
boost consumption and projects, such as Green
New Deal, which are expected to spur domestic
demands and help to prepare for the future
Temporary
Completing long-standing projects and focusing on
temporary projects while at the same time making
instructional reforms, such as improving the
welfare delivery system
7
The government is removing the blind spot of
livelihood protection by taking tailored
livelihood support measures

• The government is protecting additionally the
  livelihoods of 1 million low-income poor
  households (2.22 million persons)
• Basic livelihood security benefits are being
  provided to additional 50,000 households(90,000
  persons) given the fall in actual income for
  low-income families.
• Additional 50,000 households(130,000 persons)
  benefit from the emergency welfare program
  designed to provide assistance to those who are
  experiencing temporary difficulties due to
  temporary shutdown, business closure, job losses,
  etc.

• For 900,000 households (2 million persons) which
  face similar livelihood problems to basic
  livelihood security benefit recipients but are
  stuck in the blind spot of national assistance,
  new tailored assistance programs are provided
  temporarily in consideration of their ability to
  work and property levels.

8
Hope Work Project

• Hope Work Project is a temporary project which
  provides low income families with livelihood
  support linked to work, thereby boosting their
  actual spending which leads to stimulating local
  economy.

• 250,000 people who are capable of working with
  the family income of less than 120 of the
  minimum cost of living and with an asset of less
  than 1.33 million won.
• Beneficiaries of existing employment support
  measures, such as social service works and basic
  livelihood security benefits, are excluded to
  prevent overlapping.

• The monthly benefit amount is 830,000 won and 50
  of the benefit is paid in the form of traditional
  market coupon.
• (The ratio of coupon amount is decided by the
  head of a local government within the range of
  30 to 50 depending on local economies
  conditions.)

• Unlike public work program of the past, jobs
  under the Hope Work Project are the ones with
  lasting impacts, such as demolishing school
  fences, creating a Eco Experience Zone and
  repairing and maintaining public facilities.
• 25 of the project budget is allocated for
  material costs.

9

• If a family living in a single room or temporary
  shelter moves to a public rental house,
  interest-free loans are provided to cover 50 of
  the rental deposit(1,060 households, 1.2 billion
  won)
• Pleasant living conditions are created by
  improving decrepit welfare and subsidiary
  facilities in permanent rental housing complexes
  over 15 years old and public rental housing
  complexes over 50 years old.
• Additional 500 multi-family rental houses are
  provided to increase opportunity for families
  without their own house to rent housing cheaply.
• Welfare facilities for children, the disabled,
  and the elderly will be improved(600 facilities,
  250 billion won)

• A grant amounting to 50 of the average tuition
  fees of national public colleges is provided to
  60 of those who belong to the second lowest
  income group for 2 years starting from the 2nd
  semester of 2009(66,000 persons, 76 billion won).
• For college students who took out student loan at
  a high interest rate in the 1st semester of 2008
  and 2009, the interest rate is cut by 10 by the
  end of this year(0.30.8p, 720,000 people)
• The scope of people eligible for interest-free
  student loans is expanded to include those in
  third income quintile for 2 years starting from
  the second semester of 2009(3,7000 persons)
• Interest rate on student loans is lowered by
  removing transaction fees charged by financial
  institutions as the Korea Student Aid
  Foundation(established in May 2009) provides such
  loans directly to students(effect of lowering
  interest rate by 11.5p)
• The deadline for repayment of student loans which
  is due this year is put off for another
  year(460,000 students) and work-study programs is
  expanded (36,500?40,000 students).

10

• If a family living in a single room or temporary
  shelter moves to a public rental house,
  interest-free loans are provided to cover 50 of
  the rental deposit(1,060 households, 1.2 billion
  won)
• The budget for job seeking benefits is greatly
  increased to provide seamless support for those
  who lost job due to worsening employment
  situation(303,000 people, 865.5 billion won)
• Some budget is newly allocated to extended
  unemployment benefits to cope with massive
  layoffs(660.6 billion won)
• Support for the payment of overdue wages caused
  by business bankruptcy is strengthened(17,000
  people, 73.5 billion won)
• Amount of payment overdue wages for the last
  3 months, temporary shutdown allowances, and
  severance pay for the last 3 years.
• Loan for stabilizing the livelihood of the
  unemployed is greatly expanded(41,000 households,
  273 billion won)
• Loan condition Up to 6 million won per
  household at an annual interest rate of 3.4,
  3-year installment payments with a 1-year grace
  period

• The number of staffs have been increased to
  provide tailored comprehensive welfare services
  covering welfare, employment, housing, and
  education by local administrative unit(11.8
  billion won, 2,224 people)
• An integrated online network of social welfare
  will be established soon to get real-time
  information on income and assets and to
  comprehensively manage a record of services
  received by each individual(to be completed by
  Nov. 2009, 6 billion won)

11
Korea will overcome the employment crisis
through job creation and retention

• The employment retention subsidy is
  increased(58.3?365.3 billion won) to support
  companies efforts to retain jobs.
• Workers who do not receive allowances for
  temporary shutdown are paid up to 40 of their
  average wages(61,000 beneficiaries, 99.2 billion
  won)
• Wage cuts resulting from adopting a shift work
  system for job-sharing are borne equally by the
  employer the worker and the government(18.2
  billion won)

• When an SMEs hires youths as internship workers,
  up to 70 of their wages are provided(129,000?166,
  000 beneficiaries).
• Temporary jobs are being provided to 250,000
  people from low-income families, who are able to
  work.
• Social service jobs are expanded(129,000?166,000
  beneficiaries). Unemployed college graduates are
  hired as teaching or research assistants(7,000
  persons) and intern teachers who assist learning
  are employed(25,000 persons)

12

• The employment retention subsidy is
  increased(58.3?365.3 billion won) to support
  companies efforts to retain jobs.
• Workers who do not receive allowances for
  temporary shutdown are paid up to 40 of their
  average wages(61,000 beneficiaries, 99.2 billion
  won)
• Wage cuts resulting from adopting a shift work
  system for job-sharing are borne equally by the
  employer the worker and the government(18.2
  billion won)

• Wage cuts resulting from adopting a shift work
  system for job-sharing are borne equally by the
  employer the worker and the government(18.2
  billion won)
• Support for vocational training is expanded for
  unemployed people with and without previous job
  experience(147,000?167,000 people)
• Support is provided for stay-in-school programs
  to enhance the employability of unemployed
  college graduates(94,000 additional
  beneficiaries).
• Comprehensive services encompassing counseling,
  training and job placement, such as New Start
  Program, are expanded(10,000?15,000
  beneficiaries)
• For daily workers, including those in the
  construction industry, a specialized vocational
  training program is newly set up(100,000
  beneficiaries).

13
The Government has increased support as much as
it can to ensure that workers can continue to
work in their current companies.

• If a company facing business difficulties, such
  as a fall in sales, retains workers by means of
  temporary shutdown, temporary leave, personnel
  rearrangement, etc., without dismissing them,
  three fourths(one half in case of large
  companies) of the wage and allowances for
  temporary shutdown are provided.

Application methods payment procedure
Submitting an employment retention plan(employer
?job center)
taking employment retention measures (employer)
paying subsidy after checking facts(job center)
applying for subsidy on a monthly basis
(employer?job center)

• Necessary loans are made to SMEs at a low
  interest rate so that they can retain jobs(61.9
  billion won).
• If an employer who inevitably had to adjust
  employment has adopted a shift work system under
  labor-management agreement to implement
  job-sharing, a subsidy equivalent to 1/3 of
  resulting wage cuts is provided for 6 months(18.2
  billion won)

14
The government has drastically increased its
provision of liquidity support and assistance in
export and business start-up.

• Additional credit guarantees valued at 12.9
  trillion won was provided to SMEs suffering from
  credit squeeze.
• Emergency business stability funds worth a total
  of 800 billion won and small micro business
  operating funds worth 300 billion won have been
  given to SMEs and small micro businesses that
  were facing financial difficulties.

15

• Industrial Bank of Korea and Export Import Bank
  of Korea have expanded their lending to SMEs( to
  550 billion won).

• To support the establishment of small and medium
  venture capital firms, a start-up investment
  worth 500 billion won has been created by
  increasing government contributions.

16
As part of its effort to induce increased
participation of SMEs the government has
increased small scale SOC projects and focused
its efforts on providing environmental, welfare
and cultural facilities.
17
To seize the opportunity for growth following
the economic downturn, the government boosted
growth potential through developing new growth
engine, advancing education and investing in
green new deals.

• RD projects relevant to new growth engine with
  great business potential are subject to
  government support and manufacturers of online
  electric cars, small to medium sized nuclear
  reactors and etc can receive financing by the
  government.
• National database is established and convergence
  solutions using various IT/SW are commercialized
  as well as technologies developed through joint
  ventures.

18

• As part of the Four River Restoration Project,
  350 billion won is to be spent on improving
  nationwide streams, 180 billion won on local
  streams and 86 billion won on smaller streams.
• Through shore-protection work, bike pass is to be
  built and more eco-friendly areas are to be
  constructed.

19
Thanks to its policy, Korea has laid down the
cornerstone for overcoming the crisis. It will
continue to push ahead with this policy to
stabilize the peoples livelihood and realize
sustainable growth.

• The employment is going down but at a slower
  pace. Employment rate are jumped from the 1st
  quarter and the unemployment rate just down in
  3rd quarter.

Employment rate()
unemployment rate()
20

• Given that the global financial turmoil is
  subsiding, the implementation of expansionary
  fiscal policy and early execution of budgets, the
  OECD forecasts GDP growth for Korea of 3.5 in
  2010, the highest among its member countries.

21
Whereas the Korean economy is showing strong
signs of recovery, the labor market outlook seems
uncertain and far from looking bright which is
why the government is designing policy measures
that will invigorate the labor market.

• The government plans to offer self-support funds
  to low income poverty groups to ensure the
  stability of their basic livelihood as well as to
  recommend the shortening of the duration they
  remain as unemployment benefit recipients.
• An estimated 18,000 household families whose
  income amount to 70 of minimum living cost will
  be paid monthly subsidy worth an estimated
  300,000 won per household under the condition
  that they no longer remain as unemployment
  benefit recipients after 2-3 years time.
• The government will continue to provide support
  for jobs to disadvantaged groups including youth,
  aged and women.
• Number of youths liable for support will
  increase from 67,000 to 82,000 (in 10) number
  of aged and disabled to receive support will
  increase from 167,000 to 180,000 number of
  social service jobs will increase from 129,000 to
  140,000

22

• By devising mid- to long-term national employment
  strategy, the government intends to provide the
  basic infrastructure that will allow the virtuous
  cycle of growth, employment and welfare to be
  established.
• Based on the national mid- to long-term forecasts
  on manpower supply and demand which have been
  conducted in line with future industries
  structural changes such as green growth, the
  government plans to provide measures to resolve
  the mismatch in demand and supply of manpower.

• As part of the supplementary package to support
  the economy during the first half of 2010, the
  government plans to push for next years budget
  to be executed as early as possible by completing
  the budget allocation process before the year
  end.
• Through major national projects as the
  restoration of four rivers and construction of
  affordable housing for first time home-owners,
  the government will continue to focus on ways to
  create more jobs.
• To sustain economic growth, the government plans
  to foster the growth of industries with high job
  creation capacity such as service industries and
  SMEs.

23
Thanks
Na, Yeong-Don 82-2-2110-7164 yeongdonna_at_hanmail.ne
t