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KLI Employment & Labor Brief No. 99 (2020-06): Reform of the Employment Retention Subsidy against COVID-19
KLI Employment & Labor Brief No. 99 (2020-06): Reform of the Employment Retention Subsidy against COVID-19
  • Table of Contents

    Table of Contents

    . Introduction

    II. Reform of Korea’s Employment Retention Subsidy

    . Revision of Employment Retention Programs in Other Countries

     

    Summary

    The negative impact of COVID-19 that is manifesting across all industries, will inevitably have an adverse impact on the labor market. Among the three main policy responses that are usually implemented, this paper will focus on the employment retention subsidy. The government has taken a number of actions such as easing application requirements, increased support to employers and expanding support for those in special employment in order to encourage employment retention. However whether current measures increase incentives of the employer to retain employees remains questionable. Countries like Germany, France, UK, and the U.S. have taken unprecedented actions since COVID-19, to essentially reduce employer's burden of employee retention to 0. In the case of Korea however, employers still bear some of the cost, such as part of the business shutdown allowance and social insurance contributions. Even though employers' share of shutdown allowance was reduced, the daily maximum was kept the same, which resulted in increasing employers' burden of the allowance in excess to the maximum subsidy. Therefore, negating the effectiveness of reducing employers’ share. In order to further incentivize employers to retain their employment, the following measures are suggested. First, the government subsidy for leave allowance should be increased to 100% (at least for the Priority Support businesses). Second, social insurance contributions, which take up about 10% of leave allowance, should be refunded in full. Third, the daily maximum subsidy should be increased to at least equal the amount of the maximum coverage of wage loss (if the subsidy is 90%, then 88,000 won).