Government and PPP agree to reform Korea's unemployment benefits, slam current system as unfair

After-tax monthly labor income of workers who were paid the lowest was 1.79 million won ($1,400) but the minimum monthly unemployment benefit was 1.84 million won.

Discussions between the government and the People Power Party on unemployment benefits are held at the National Assembly on Wednesday. [YONHAP]

The government and the People Power Party (PPP) agreed to overhaul unemployment benefits.

The Labor Ministry and the PPP said Wednesday that significant minimum wage hikes — upon which unemployment benefits are based — have so distorted the system that working people make less than the unemployed.

PPP Rep. Park Dae-chul said that people "repeatedly quit and get rehired while business owners struggle to retain employees."

He called for changes to the labor market to compensate people who work hard and protect people seeking reemployment.

“Last year, the after-tax monthly labor income of workers who were paid the lowest was 1.79 million won ($1,400),” said PPP Rep. Lim Lee-ja, head of the party’s labor reform committee. “But the minimum monthly unemployment benefit was 1.84 million won. Adding the costs of commuting and meals at work, you are better paid for remaining unemployed than working.”

Lim also said that the number of people who have received unemployment benefits three or more times over the last five years has increased 24.4 percent.

"Few of the recipients actually found jobs in between," said Lim.

According to the Ministry of Employment and Labor on Monday, the government paid over 1 trillion won in unemployment benefits in June. That’s a 7.2 percent year-on-year increase or 68.8 billion won more than a year ago.

This is the biggest on-year increase in more than two years when it surged 16.6 percent in April 2021.

A total of 87,000 people applied for unemployment benefits last month, 2,000 more than a year earlier.

Unemployment recipients receive 60 percent of the average paycheck from their previous job. If that number falls short of 80 percent of the minimum wage, they receive 1.84 million won.

The minimum wage this year was 9,620 won per hour. This means the monthly wage was 2.01 million won based on 209 working hours per month.

However, after taxes, a person on minimum wage brought home only 1.79 million won a month.

According to the Labor Ministry, 73 percent of the 1.6 million people who received unemployment benefits last year receive the 1.84 million won minimum. Over 500,000 recipients even received more than they were bringing home while they were employed.

“Eased conditions for receiving unemployment benefits, which were supposed to be temporary during the Asian financial crisis of 1997, remained for 25 years before the minimum wage was incorporated in 2017,” said Vice Minister of Labor and Employment Lee Sung-hee. “The minimum unemployment benefit has risen at an unprecedented speed and is relatively generous in terms of who can get them.

“There are concerns over changes in the role of unemployment benefits, which are supposed to help people who lost their jobs to return to work, and there are doubts as to whether the current system can be sustained without increasing deficits.”

The vice minister stressed that hardworking people won’t accept the current system and called for changes to make it fair.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]