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Can Government Policy Lower Unemployment?

Following the inauguration of the Moon Jae-in Administration,  the 52 hour work system has become a topic of conversation. On March 15, the government announced " extraordinary temporary measures " to help young people find jobs. This is because it believes that the current youth unemployment situation is a national disaster. However, can policies, such as the 52 hour work system, actually serve to lower unemployment?

 

 

A Government Roadmap

The government plans to increase the mandatory ratio of youth employment by public institutions from the current 3% to 5%. In response to this, private companies are considering providing incentives for youth recruitment. The government has decided to create additional employment incentives in the form of wage subsidies in the event that a small company hires three young people permanently. The government expects the new policy drive to result in an additional 7,000 recruited in 2017 to 20,000 every year from 2018 to 2020.

 

Current Unemployment Rate

In 2017, unemployment and the youth unemployment rate, in particular, hit a record high. The rise in the minimum wage has been seen to have slowed employment growth in the service sector. As of January 2018, the number of people employed in educational services and the wholesale and retail sectors fell by 67,000 and 32,000, respectively. The number of people employed in lodging and restaurants fell by 31,000. According to the 2017 employment trends released by the National Statistical Office, the unemployment figure stood at 1.02 million (3.7%), up 16,000 (1.6%) from 2016. This figure is the highest since 2000, when the relevant statistics were first determined. According to a survey conducted in March 2018, the unemployment rate among young people (ages 15 to 24) rose 1.2% from the previous month to 11.1%. The unemployment rate for those aged 25 and over stood at 3.5 %, up 0.3% from the previous month. The number of unemployed young people aged 15 to 29 numbered 435,000 in 2017, the highest ever. This was due to the frozen youth employment market.

 

On March 15, 2018, the government announced a plan to lower the youth unemployment rate due to the highest unemployment rate ever in 2017. The government intends to increase support for young people who are employed by small businesses.

 

Increase ‘Youth Supply Deduction for Tomorrow’

One of the major support measures announced by the government, on March 15, 2018, was the expansion of the 'youth supply deduction for tomorrow' initiative. This system proposes the raising of wages by seeking monetary contributions from three parties. To reduce the wage gap between large companies and small businesses, the system guarantees a real income (35 million won) in the first year of a large corporation. The government has created a new three-year system to increase the amount of aid and lower the conditions of application. It has been extended to collect 30 million won worth of assets upon maturity for three years. The young man pays 6 million won.

 

An Income Tax Exemption Policy

Among the measures announced on March 15, 2018, various forms of support, including tax breaks and financial support for young people, were announced. Young people under the age of 34, who work in small businesses can be exempted from all income taxes for five years. The government supports low interest rate loans of 1.2% for up to 35 million won. In addition, corporate tax and income tax will be reduced by 100% for five years for new start-ups. Under the revised tax law, young founders aged 15 to 34 will be eligible for exemption, and under the revised tax law, businesses in Seoul and the metropolitan area will be  eligible for exemption.

Youth Assistance Policy

The government has expanded the pool of skilled young adults by providing tuition to young workers who want to continue their education. According to the government, young job seekers, who had been paid 300,000 won a month for three months, will be paid 500,000 won a month for six months next year. The target is young people who have graduated or dropped out of school and can be supported by submitting a job activity plan and monthly job activity report to the institution.

 

The government aims to create up to 220,000 jobs through financial aid for youth unemployment to prevent further unemployment and lower the unemployment rate by 1 to 2%. If 390,000 of the eco-generation (born between 1991 and 1996) enter the job market, an additional 140,000 people will be unemployed by 2021.

 

The Intentions of the Government

The government has simplified the registration process so that young people can conveniently apply for full credit tomorrow. "So far, if there has been a registration process, such as going through several stages to join, this year we should completely abolish it and see it as a completely different system from last year," said an official of the Ministry of Employment and Labor. In addition, an official from the Ministry of Strategy and Finance, said, "We are working to expand the national budget, expand the course of the university and improve corporate culture through separate efforts, such as the instigating a law to reduce working hours." The government predicts that by increasing assistance to small businesses, it will prevent social waste arising from adjusting the job demand and supply chain. The policy seeks to encourage graduates to reduce their employment preparation period and choose to work for small businesses over large ones by considering the unique incentives offered.

The average starting salary of a college graduate at a large company is 38 million won, which is different from the current 25 million won received by employees at a small company. According to the Seoul Metropolitan Government's 2017 statistics, 13.9% of large enterprises and 4.2% of small- and medium-sized businesses in Seoul sought new employees in the 13-29 age range. The government hopes that more young people will be able to work at small businesses by helping to reduce the wage gap, which is a big difference between small and large companies. The government expects that the new measures will increase real income by up to 10.35 million won based on workers in small- and medium-sized enterprises. Regarding this measure, a Ministry of Strategy and Finance official said, "We expect young people to think about small- and medium-enterprises by narrowing the gap in real income with conglomerates by more than 90%." The purpose is to solve the problem of job creation by increasing the number of young people who are considering employment at small businesses by strengthening support for small businesses.

 

Expert Opinion

Some are expressing concerns that the youth may be skeptical of this initiative due to their reticence of small businesses because of the fear of poor working conditions, welfare, and potential for self-improvement. As part of the employment support policy for small businesses, the youth have cited creating an ecosystem that benefits small businesses (45.7%, multiple responses) as a measure of improving their working environment (41.8%). There has been a general negative response as to whether state funding will actually prove to be a solution to youth unemployment. The Welfare State Youth Network said, in a commentary, "It is not a fundamental solution for temporary policies." It went on to add, "There is no way to overcome fundamental differences in working conditions, such as long-term work, parental leave, and welfare."

In addition, there is the problem of the low participation rate in the Youth Assistance Policy. Business owners must take a separate deduction to enable young people to benefit from the Youth Assistance Policy. In March, out of the approximately 3.6 million small businesses, only 26,000 small- and medium-enterprises applied for a deduction. Despite the surging growth of subscribers and companies, the report pointed out that the accessibility of young people is poor at only 0.75 of all small- and medium-enterprises.

 

Young People's Reactions

The response of the young has been encouraging. They say that they will actively consider supporting small businesses in consideration of job opportunities and that they will not turn a blind eye to small- and medium-sized enterprises as the system is a temporary system. According to a survey conducted by Real Meter, an organization specializing in public opinion polls, 71.5% of respondents in their 20s stated that they were in favor of the 3.15 job plan. 11.7% percent were against.

 

A Positive Evaluation

Those who want to work for small- and medium-sized companies can earn a lump sum thanks to the government's policies and experience practical benefits from the increase in real income through youth supply deduction.

A job seeker, Lee , said, "We should not consider making a lump sum of money by working for a small company for two to three years, gaining experience and moving to a large company." He added, "However, there should be the premise that there is no disadvantage in other areas, such as achievement." He said that he would consider getting a job at a small company because his salary being the two year deduction would now be extended to three years.

Young people seem to be quite satisfied with the government's policies to improve real income. According to data released by the 20th Institute of Science and Technology in June 2018, the survey of 900 men and women showed that among the seven major job policies, the preference for Youth Assistance Policy and effectiveness test scores were high. It appears that the effectiveness of this type of deduction or income tax reduction policy to boost quality of life is significant.

 

A Negative Reaction

On the other hand, the effectiveness of the policy is being questioned because one’s first job can have a big impact on future job prospects. To this effect, a job seeker, Lim said, "Young people do not apply to small- and medium-sized companies simply for an annual salary. I don`t want to invest my first job opportunity, which  may dominate my career, on the basis of 30 million won, even though the salary of employees at large corporations will be higher after the application ends.” Also, a man who got a job at a small company this year while preparing for a job at a large company, said, "I appealed to the Blue House to revise the policy, but The Ministry of Employment and Labor decided to apply the revised bill to new recruits in the second half of the year. Only those who joined the company between March and May were excluded from the benefits.” Through this 3.15 policy, the company was able to benefit its employees from June. A young man who is benefiting from the deduction said that the policy disadvantage was the limitation of his job transfer opportunities. He said, "I understand that if I change my job while receiving the funding, I lose the funding. It is regrettable that each person has only one chance.” No funding is provided if the applicant retires or moves to another company two or three years after starting work at the small business, which the government has established as years of service. They say that it is good to give steady support to young people who work for small- and medium-sized enterprises as typically only one young person works for such enterprises.

In Order for the Policy to Stabilize

Experts attributed the youth unemployment problem to a mismatch between labor demand and supply due to a polarization of the labor market. It is widely believed that the any solutions need to encompass long-term measures to improve the working environment. Cho Young-cheol, a visiting professor at Korea University, said, "The number of job seekers is expected to decrease, and the youth unemployment problem will be eased by 2021. And it is necessary to take special measures for hiring." However, he stressed the need for a change in the approach of support in this policy. Professor Cho said, "If we give employment incentives directly to young people, this will increase their negotiating power." The idea is that young people do not have to rely on companies to directly provide support money.

Second, given that wage impact on employment is not everything, it is suggested that the government's financial support policy will not change young people's job preferences. "If the low wages of all small businesses do not rise amid the current polarization of the job market, it will be restored after large-scale financial support is completed," said Lee Jung-hee, a professor at Korea University. Professor Lee also pointed out the government's temporary policies, " We are planning to trap young people, who are seeking higher wages in the market, in  small businesses for three year periods." He added, “Attempts should be made to consolidate the diversified labor market, including allowing the experience gained in a small- to medium-sized enterprise to be parlayed into entering a large corporation.” Professor Lee Seung-yoon, Ewha Womans University, said, "Basically, we need to resolve the asymmetrical relationship between Korea's major companies and its small- and medium-sized enterprises, which includes the wage gap between them." She added, "With small- and medium-sized firms having to continue price competition, companies have been forced to focus on lower unit costs rather than increasing the utilization of skilled labor." The bottom line is that the government will revive the small- and medium-sized business vision for young people only if it pays attention to the relationship between large and small businesses, which have maintained asymmetric relations.

Third, professor Lee Sang-yoon, Ewha Womans University, said, "The government needs to make efforts to portray the youth of Korean society and what citizens should be the backbone of this society. " Professor Lee also said, "The guarantee of basic rights for the young seems to include direct consideration of the current job solution." Thus, it is more appropriate to find out what young people really want and to come up with a solution.

Fourth, employment and unemployment patterns vary by region and the local employment market itself is moving. Meanwhile, the central government's uniform employment policy will never solve the complex and diverse local labor market problems quickly and effectively. Lee Sang-yoon, Ewha Womans University, said, "The key to local employment policy is to efficiently implement customized employment policies based on a quick assessment of the local labor market. Twenty years after decentralization, the possibility of local employment policies designed on the basis of local autonomy and identity has not been fully discussed."

 

 

Employment Aids

The government is striving to implement employment systems that provide university graduates with real benefits. Not only can you know your job aptitude but you can also get support for your job preparation.

Job success packages were a system implemented by the Ministry of Employment and Labor in 2010 and can be applied at the Employment and Labor Ministry Subprefecture Center. College students can apply for the 4th grade, and the center is located in each local government and also in Inha University, so you can visit and apply for job success packages. Assessment and routing of vulnerable employment groups, according to their individual employment plan, and an integrated job support program to increase motivation and ability to find a job is provided in three stages. Participants include those between the ages of 18 and 34. Based on the results of the first level of intensive consultation and occupational psychological testing, the company has established a 'Personal Job Activity Plan'. Various job support programs are provided to increase job motivation and the ability to work in accordance with the second step of the Job Activity Plan. Job placement is implemented to encourage applicants to enter the labor market in the third phase, such as an interview with a company. At each stage, up to 200,000 won is paid in the first stage, 284,000 won in the second stage and 300,000 won per month in the third stage.

Corporate personnel managers ranked "job experience" as the most important quality of a job seeker. The youth internship program, operated by the Ministry of Employment and Labor, provides young job seekers with internship opportunities at small businesses so as to gain hands-on experience and even the opportunity for permanent employment. The policy provides incentives according to the details of each application by signing an internship contract and implementing such upon recruitment. If a young man turns into a full-time job after interning and works for more than a year, he or she will receive 3 million won for manufacturing production and 1.8 million won for other industries. To apply for the youth internship program, visit the website of the youth internship program for small businesses.

 

The government's move to ease the youth unemployment rate itself is positive. These attempts will bring stability to the nation's employment figures. In addition, continuous support for small- and medium-sized businesses requires constant attention so that the nation's industries, which are dominated by conglomerates, can operate in greater harmony with smaller businesses.

박상언  psu0825@naver.com

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