Towards Dynamic Social Security in South Korea

Abstract

Since the 1997 economic crisis, the Republic of Korea has seen considerable progress in its social security system along with relatively high economic growth. The social security system has been reformed to become more redistributive and comprehensive. Nevertheless, the country has experienced growing income inequality and poverty, raising future concerns about the sustainable growth of the national economy. The deterioration in welfare outcomes can be explained as a result of socioeconomic structural changes, including globalization, post-industrialization and an ageing society. Another important reason is that the social security system has not effectively addressed increasing income inequality reflecting the dualism of the labour market: there are many irregular and self-employed workers who are not covered by social security programmes. With the social security system faced with institutional difficulties in coping with increasing social risks driven by the impacts of socioeconomic and structural changes, reform is necessary to enhance social cohesion against growing labour market inequality. There is a need for "Dynamic Social Security" to provide an institutional foundation which supports the virtuous circular relationship between economic growth and distribution.

Examining the effects of the Durunuri programme on low‐wage workers' social insurance coverage in South Korea

“…Specifically, following the Asian financial crisis in 1997, Korea experienced unprecedented high unemployment climbing up to 7–8% which, despite falling quite rapidly, never returned to its previously very low levels of 2–3% (Kwon & Holliday, ). Measures taken to increase employment flexibility in the labour market, which was a condition for the financial bailout programme of the International Monetary Fund, resulted in a dramatic increase in the share of non‐standard workers who were generally not covered by social security programmes (Shin, ). The Korean government responded to such problems by expanding the coverage of social insurance programmes (Kwon & Holliday, ; Shin, ).…”

“…Measures taken to increase employment flexibility in the labour market, which was a condition for the financial bailout programme of the International Monetary Fund, resulted in a dramatic increase in the share of non‐standard workers who were generally not covered by social security programmes (Shin, ). The Korean government responded to such problems by expanding the coverage of social insurance programmes (Kwon & Holliday, ; Shin, ). The direction of such extensions moved from limited coverage of civil servants and employees in large firms to all firms with fewer employees (Cho et al ).…”

“…Only 69.4% of eligible workers in firms with fewer than five employees were covered by the employment insurance (as opposed to 96.8% in firms with 300 employees or more), 68.9% by the national health insurance (as opposed to 99.7% in firms with 300 employees or more) and 69.5% by the national pension (as opposed to 99.5% in firms with 300 employees or more). As Shin () argues, a large gap exists between statutory coverage and actual coverage among small firms because employers of micro‐enterprises are reluctant to pay social contributions for their employees in hopes of minimising labour costs. This implies that the working poor are rarely covered by social insurance programmes through their workplace in the Korean context (Kim & Lee, ).…”

“…The divide in working conditions between large versus small‐ and medium‐sized firms can be attributed to the segmentation of the Korean labour market. That is, since the 1997 crisis, labour market dualism has become more pronounced in Korea with regular (i.e., standard) workers in large firms coexisting with highly flexible irregular (i.e., non‐standard) workers in mostly small‐ and medium‐sized firms (Shin, ). The presence of strong union affiliation in large firms with collective agreements and weak or no union affiliation in small‐ and medium‐sized firms also contributes to this dualism.…”

“…As a way to resolve the problem of low‐skilled workers' exclusion from social insurance programmes, the Korean government launched the Durunuri programme in July 2012 which subsidised up to 50% of both the employer and employee contribution fees for the membership of the national pension and employment insurance programmes. Providing incentives for low‐skilled workers and their employers to enrol in the national pension and employment insurance programmes was seen as a necessary policy measure since it would allow the working poor to maintain a minimum level of old‐age security and access unemployment benefits which could keep them from falling into absolute poverty (Shin, ). Given that social insurance subscription rates showed huge variations with regard to wage level and workplace size, the government restricted the eligibility of the Durunuri programme to low‐wage workers employed in small businesses with fewer than 10 employees.…”