Moral hazard? Well, think again

Lee Sang-ryeol
The author is an editorial writer of the JoongAng Ilbo.

Unemployment benefits can be claimed by those who lost a job against their will. To people who suddenly lost their work, it is the minimum — and indispensable — social safety net. The money comes from the insurance both employers and employees had paid during their working period. The unemployment benefits are provided for minimum 120 days or maximum 270 days — and 60 percent of the average pay of a worker’s last three months at a company is transferred into their bank account each month. If the amount is less than 80 percent of the minimum wage, 80 percent of the minimum wage is provided.

The government and the People Power Party (PPP) are moving to improve the unemployment benefit system amid concerns for depletion of the government-run employment insurance fund. The fund had a reserve of 6.3 trillion won ($4.8 billion) at the end of last year. But it is actually 3.9 trillion won in the red since it borrowed 10.3 trillion won from the Public Fund Management Fund. The losses have stretched since payouts surged in recent years due to a steep increase in the minimum wage before and after the pandemic. The rapid growth in short-term hires, an offshoot of the push for income-led growth policy under the past liberal administration, also played a part.

But the conservative Yoon Suk Yeol administration and the PPP blame employees’ moral hazard for the deficit of the fund. They think that those who have lost jobs do not eagerly look for new ones because unemployment benefits are very generous. They argue that some of the jobless even repeatedly shift their job to pick up unemployment benefits. They may not be entirely wrong. According to the Ministry of Employment and Labor, 38.1 percent of recipients of the minimum payment packed up unemployment benefits greater than their after-tax labor income during employment.

Moral hazard is an enemy to a healthy market economy. Prevalent moral hazard can empty national coffers and destabilize the market economy. But overemphasis on moral hazard often ignores some of the fundamental problems.

Amid a heated brawl over the responsibility for the depletion of the government’s employment insurance fund between the government and opposition parties, people who lost their job enter a district office for welfare in Seoul to apply for unemployment benefits, July 17. [YONHAP]

It is simply not right to put the blame on the greed of the unemployed for the surge in unemployment claims. The majority — or 73 percent of all the beneficiaries — receive the minimum amount, which means they are low-wage workers. The fact that jobless claims are bigger than their labor income implies how poor their job conditions had been. Last year, 27.6 million workers, or 12.7 percent of total working population in Korea, were not paid even the minimum wage.

The government front is neglecting the structural problems of our labor market, mostly stemming from the disproportionately large size of “non-regular” workers, who work full-time for a certain contract period but get must less pay than their regular counterparts. As many of the non-regular workers become unemployed if their contracts expire 1 or 2 years later, they must rely on unemployment benefits while looking for a new job.

According to a Statistics Korea survey in August last year, non-regular workers numbered at 8,156,000, taking up 37.5 percent of the entire salaried workers in Korea. The monthly pay of non-regular workers — excluding hires on hourly basis — averages at 2.61 million won, just 75 percent of the 3.48 million won average earned by regular workers. If you borrow the concept of “temporary workers” from the OECD, the share of irregular workers is notoriously high in Korea. For instance, they account for 28.3 percent of the entire workers, far higher than 5.6 percent in the UK and 15 percent in Japan.

Migrating to the permanent payroll is also very difficult. A survey showed that only 10.1 percent of the irregular workers could upgrade their working status to the stable one from 2020 to 2021. Young people who start a job on a contract basis may be stuck for life. The issue of non-regular workers is associated with the future of the young, labor stability, and wealth polarization.

The government and the PPP have not been able to come up with measures that can correct the structural constraints in the labor market. That’s why their argument for moral hazard can hardly earn sympathy from others. Many people without jobs wish to find a decent-paying quality job, but in reality they simply cannot. If it is a competent government, it must fix the environment that breeds what it calls moral hazard. The only — and the best — solution is to increase quality jobs for workers.