September 14, 2004.

Kil-Sang YOO Vice President Korea Labor Institute The Republic of Korea

Challenges in Implementing Korean

Employment Insurance System

Challenges in Implementing Korean

Employment Insurance System

Contents

Ⅰ. Characteristics of Korean EISⅡ. Structure of Korean EISⅢ. Challenges in Implementing Korean EISⅣ. Dr. Wayne Vroman’s Two Factors (Income and Geographic Location) and Korean EIS

Ⅰ. Characteristics of Korean EISⅡ. Structure of Korean EISⅢ. Challenges in Implementing Korean EISⅣ. Dr. Wayne Vroman’s Two Factors (Income and Geographic Location) and Korean EIS

■ Combination of Active Labor Market Programs and Unemployment Compensation (UC) Scheme

- Institutionalizing preventive measures against unemployment : Employment Stabilizing Program, Job Skill Development Program

“Employment Insurance System (EIS)”

- Tight requirements for UC : No UC for the voluntarily unemployed, etc.

- Relatively low replacement rate (50%)

- Relatively short period of UC (90~240 days)

Ⅰ. Characteristics of Korean EISⅠ. Characteristics of Korean EIS

■ Preventing Abuse of UC

Ⅰ. Characteristics of Korean EIS

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■ Incentives for Early Reemployment Efforts and Sanctions on Lazy Job Search

▶ Incentives for active job search

- Early Reemployment Allowance - Nationwide Job-seeking Allowance - Moving Allowance

▶ Incentives for Active Participation in Training Programs for the unemployed - Assistance for Training the Unemployed - Extended Training Allowance - Vocational Training Promotion Allowance

▶Sanctions on Lazy Job Search - Fixed-term duration of UC - Suspension of UC on refusal of job placement service, vocational training order, etc.

Ⅰ. Characteristics of Korean EIS

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Ⅱ. Structure of Korean EISⅡ. Structure of Korean EIS

EmploymentStabilization

Program

Job skillDevelopment

Program

UnemploymentBenefits

Maternity andParental Leave

Benefits

■ Employment Adjustment Assistance■ Employment Facilitation Assistance

■ Assistance to Employers■ Assistance to Employees■ Assistance for Training the Unemployed

■ Job Seeking Allowance■ Employment Promotion Allowance

■ Parental Leave Benefit■ Maternity Leave Benefit

Ⅱ. Structure of Korean EIS

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Ⅲ. Challenges in Implementing Korean EISⅢ. Challenges in Implementing Korean EIS

■ Covering Employees in Very Small Enterprises and

Informal Sectors (daily workers, part-time workers, etc.)

- Little records of employment and wages- Restricted number of staffs for collecting contributions

Standard wage system,

the Employment Insurance Administration Associations,

Employee-initiated reporting system,

Stimulating the role of trade unions,

Transparent business administration, etc.

Ⅲ. Challenges in Implementing Korean EIS

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■ Developing Efficient Public Employment Service (PES)

- Deficiency of staffs- Deficiency of professionalism- Conflict among staff members - Deficiency of LMI and target specific programs- Historical bad image on employment service- Government’s low investment in PES- Low partnership with local partners and private sectors

Developing target-specific services,Restructuring PES organization, Recruiting more staffs,Improving professionalism, Supplying sufficient LMI,Improving local partnership, etc. are important

Ⅲ. Challenges in Implementing Korean EIS

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■ Improving the Role of Social Safety Net (SSN) for the Unemployed v.s. Preventing Moral Hazard Problems

- To enhance the role of SSN of Korean EIS, some people urge that following measures are urgent.

■ Allowing UC to the voluntary unemployed■ Introducing unemployment assistance system for the poor unemployed■ Expanding the duration of UC■ Increasing the replacement rate, etc.

- Some people worry about possible moral hazard problems and high burden of EIS

Balancing the role of the SSN andencouraging active job search efforts is important

Ⅲ. Challenges in Implementing Korean EIS

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■ Optimal Level of EI Fund and Contribution Rates

- Ministry of Labor wants to cumulate sufficient EI fund

- Employers ask to lower contribution rates

- Some programs show low effectiveness, but similar programs are frequently added considering political purposes

■ Political Pressure v.s. Economic Efficiency

Improving economic efficiency

Building a social consensus on optimal level of EI fund and

contribution rates of EI programs

Ⅲ. Challenges in Implementing Korean EIS

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Ⅳ. Dr. Wayne Vroman’s Two Factors (Income and Geographic Location) and Korean EIS

Ⅳ. Dr. Wayne Vroman’s Two Factors (Income and Geographic Location) and Korean EIS

■ Income was most important factor in introducing Korean EIS

- Confucianism in East Asia stresses self-sustaining spirit

■ Geographic location affects contents of EIS as well

■ relatively strict UC■ stressing active measures for reemployment (“Teaching how to catch fish is more important than giving fish”)

Ⅳ. Dr. Wayne Vroman’s Two Factors(Income and Geographic Location) and Korean EIS

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