Korea
The pandemic highlighted vulnerabilities of the dual labour market and a weak social safety net. A welfare reform needs to be coupled with policies aimed at increasing employment and job quality, especially for women and older workers, who are often in non-regular jobs and the most affected by the crisis. A more flexible labour market would allow workers to move more easily from crisis-hit sectors to growing industries.
Economy: Percentage gap with respect to the population-weighted average of the highest 18 OECD countries in terms of GDP per capita (in constant 2015 PPPs).
Inequality: The Gini coefficient for disposable income measures the extent to which the distribution of disposable income among households deviates from perfect equal distribution. A value of zero represents perfect equality and a value of 100 extreme inequality.
Environment: A high exposure to air pollution refers to above 10 μg/m3 of PM2.5.
Source: Economy: OECD, National Accounts, Productivity and Labour Force Statistics Databases; Inequality: OECD, Income Distribution Database and World Bank, World Development Indicators Database; Environment: OECD, Environment and Energy Databases.
Improving social safety net and labour market regulations to increase resilience
The social safety net needs strengthening, especially for non-regular workers. Unemployment benefits are relatively low and the coverage of non-regular workers remains insufficient, despite recent expansions (Panel A). Inadequate pensions force many older Koreans to work until an advanced age, often with a non-regular job contract. In the pandemic this exposed them to high health and economic risks. Old-age benefits should be better targeted towards the elderly with the lowest incomes to alleviate poverty. Compliance with social insurance should also be reinforced through more effective enforcement. With fast population ageing in the pipeline, financing the welfare system will require more resources. As the recovery takes hold, the structure of taxation should gradually shift towards more growth-friendly instruments, like VAT and environment-related taxes.
1. The net pension replacement rate (2018) refers to male workers at 50% of the average wage. Unemployment benefits (2019 data or latest year available for the OECD average and 2018 for Korea) are measured as average gross replacement rates across three family types at various previous earnings and unemployment durations. The coverage rate of unemployment benefits (2016, both insurance and assistance) is measured in percent of the unemployed.
2. 2019 or latest year available. The gender wage gap is unadjusted and is defined as the difference between median earnings of men and women relative to median earnings of men. Data refer to full-time employees and to self-employed.
3. Gender employment gap for working-age population.
Source: Panel A: OECD, Pensions at a Glance, Social Expenditure (SOCX) and Tax-Benefit Databases; Panel B: OECD, Gender and Labour Force Statistics Databases.
Reducing labour market duality would improve resilience of the economy further. This can be done by relaxing employment protection for regular workers. In particular, simplifying and accelerating the remedial procedures for unfair dismissal and making them more transparent should be considered. Such reforms entail potential trade-offs, at least in the short term, and should be therefore sequenced in line with improving economic and labour market situation. Policies to support employment of women and older persons should be further strengthened, all the more as both of these groups are disproportionately affected by the COVID-19 crisis and women have lower employment and salaries than men (Panel B).
To capitalise on the national development strategy for the recovery, the Korean New Deal, product market regulations need to adapt to the rapid evolution of technology. Reducing administrative guidance and phasing out entry barriers for large firms in business lines reserved for SMEs would also boost competition and productivity, particularly in services. A vast array of environmental investments in the New Deal recovery package should be complemented by stronger environmental regulations and price signals (pricing CO2 emissions evenly across sectors and fuels, and raising prices according to a predictable schedule) to facilitate the green transition.
Recent progress on structural reforms
The response to the COVID-19 crisis has added momentum to the strengthening of the social safety net. The conversion of some temporary measures, such as the introduction of sickness benefits, into permanent arrangements is being considered. The acceleration of digitalisation boosted regulatory experiments through sandboxes, which have yet to be converted into permanent regulatory reforms. The Korean New Deal, introduced in response to the crisis and running through 2025, includes digital and green investments, as well as measures to strengthen the social safety net. Successful implementation would foster inclusive and green growth.