Gov’t spends big to reduce rate of youth unemployment

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Gov’t spends big to reduce rate of youth unemployment


President Moon Jae-in, third from left, stands with young people who listened to the government’s report on job measures at the Blue House on Thursday. [YONHAP]

The government Thursday unveiled a grand plan to combat youth unemployment that includes a 4 trillion won ($3.7 billion) supplementary budget and financial aid equivalent to 10 million won a year to help young people get jobs at small and medium-sized enterprises (SMEs).

Finance Minister Kim Dong-yeon said the government is planning to fund the supplementary budget with the 2.6 trillion won budget surplus on top of a 1 trillion won special government fund.

“Roughly it would be around 4 trillion won,” Finance Minister Kim said at a press briefing. “The size of the supplementary budget is important, and the context is equally important. We will find businesses that would be most effective in the field.”

Kim said the government increased its total spending last year to a level that didn’t hurt the fiscal soundness of the country.

“As with last year, this year’s regular budget was largely focused on job measures,” Kim said. “But it focused on creating jobs in the public sector. [The supplementary budget] will be focused not on the public sector but creating jobs in the private sector including start-ups.”

The government said it wants to pass the extra budget at the National Assembly next month.

If it passes, this would be the fourth consecutive year that the Korean government created a supplementary budget.

The youth unemployment rate has been hovering in the 9 percent range and SMEs struggle to find talent. The government also wants to try to narrow the wage gap between big companies and SMEs. Big companies pay their employees considerably more.

The government aid will come in the form of tax breaks to young people working at SMEs.

It will exempt people under 35 from paying income tax for five years if they are hired at an SME by 2021. An annual starting salary of 25 million won, with the tax exemption, will be equivalent to a salary of 38 million won.

Previously, 70 percent of the income of workers under 30 was exempt from tax, with the tax benefit capped at 1.5 million won.

The government is also offering loan guarantees of up to 35 million won for apartment deposits at an annual interest rate of 1.2 percent for four years. For people working in industrial complexes, the government will subsidize commuting costs of 100,000 won every month.

In a modified savings program, young employees can build a 30 million won nest egg by saving 6 million won over three years.

The government will contribute 18 million won to the nest egg and the company the remaining 6 million won.

The earlier program led to a nest egg of 16 million over two years with the government contributing 9 million won and the employer 4 million won.

When adding up all of the benefits, a young employee will be getting benefits equivalent to 10.35 million won a year.

For people who didn’t go to college, the benefits are higher.

The government is also expanding its support for SMEs that hire young people. Previously companies that hired three new recruits were given government subsidies of 20 million won a year, which is equivalent to 6.67 million won per new employee. That financial subsidy will be raised to 27 million won, making 9 million for each employees, when hiring three new recruits.

Previously the company had to hire three people in order to receive the annual 20 million won.

But under the new scheme, a company with fewer than 30 employees can still get 9 million won a year when hiring only one new recruit.

The goal is to lower the unemployment rate to 8 percent while creating 180,000 to 220,000 new jobs through 2021, when a large number of people between the ages of 25 and 29 will enter the job market.

“Most of the job openings are at SMEs but that’s not much of a preference due to the wage gap against conglomerates,” said Vice Finance Minister Ko Hyoung-kwon. “Our goal is to change the decision pattern by leveling the treatments that employees at conglomerates receive.”

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