The Reality of Welfare in the '100 Trillion Won Welfare Era'

[Seoul Sinmun · Open World · March 26, 2013]

Yun Suk-myung, Director of the Pension Research Center at the Korea Institute for Health and Social Affairs (KIHASA)

According to a survey by the Korea Institute for Health and Social Affairs (KIHASA), more than 60% of the public responded that they are "socioeconomically unstable." As reasons for this instability, they cited insufficient income, job instability, and distrust in society. In a situation where the proportion of non-regular workers is high, the widening wage gap between regular and non-regular workers, concerns over the intergenerational transmission of poverty caused by severe educational disparities between income classes, and an absolute poverty population of 4.8 million people living below the minimum cost of living could become triggers for social conflict. Such social and economic environments are likely the cause of the recent surge in the public's demand for welfare.

Given these circumstances, there is much criticism that welfare expenditure is too low compared to Organisation for Economic Co-operation and Development (OECD) countries. This is because, as of 2009, public welfare expenditure relative to gross domestic product (GDP) was 9.4%, which is only 43% of the OECD average of 22.1%. If private expenditures such as severance pay are included, our welfare expenditure increases to 49% of the OECD average. There are also many counterarguments that to objectively evaluate a specific country's welfare expenditure, one must simultaneously consider the national burden ratio (taxes plus social insurance contributions as a share of GDP), the level of national income, the proportion of the older population, and the maturity of the pension schemes, which account for a large share of expenditures. Our national burden ratio is 76% of the OECD average, the proportion of the older population is 72% of it, and pension expenditure is only 27% of the OECD average. It is also a factor for consideration that while currently low, pension expenditure will increase rapidly as the number of beneficiaries grows in the future. These are the arguments supporting the claim that welfare expenditure at about 70% of the OECD average is appropriate.

Considering our reality, where welfare expenditure is increasing the fastest among OECD countries, indicators from international organizations with a time lag of four to five years lack realism. The National Assembly Budget Office's 2013 estimate for the central government's welfare budget already reaches 9% of GDP. If the 5.5 trillion won in financial loans for the housing sector is added to the 97.4 trillion won welfare budget based on government financial statistics, the welfare budget increases to 103 trillion won (30% of the central government's total expenditures). If the National Health Insurance and Long-Term Care Insurance for the Elderly are included and the housing sector is excluded according to OECD standards, the welfare budget increases up to 121 trillion won.

Why is the public's perceived level of welfare low despite the surge in the welfare budget? The polarization of welfare benefits is likely the main culprit. Due to public assistance concentrated on beneficiaries of the National Basic Living Security System and social insurance schemes centered on stable workplaces, many vulnerable groups in an ambiguous position are receiving no benefits. Regarding employment insurance, approximately 14 million people—56% of the 25 million total employed persons—are unable to receive benefits for various reasons. In the case of the National Pension, a significant number of day laborers, low-income self-employed individuals, and special-type workers are not paying contributions. An irony is occurring where the groups that most need social insurance to prepare for risks such as unemployment and loss of income are actually excluded from the system.

Despite the surge in welfare expenditure, the Gini coefficient, which indicates income inequality among members of society, is rising, and the fact that our poverty problem is the most severe among OECD countries is likely because social security expenditure is not equitable. In this situation, the Ministry of Health and Welfare's work plan for this year to significantly eliminate coverage gaps through "customized welfare by target group" is highly meaningful. This is because it seeks to expand the target population of poverty policies to 4.14 million people through an overhaul of the National Basic Living Security System (NBLSS), at a time when there are many poor and potentially poor people who cannot receive welfare benefits due to strict support obligor criteria. The work plan to expand the eligibility of "Durunuri Social Insurance," a social insurance contribution support project for low-income groups, to include low-income self-employed individuals so that the vulnerable groups who most need social insurance can benefit must also be put into practice.

Despite these efforts, it is a cause for concern that 70% of all welfare resources are concentrated on a few projects such as childcare and the Basic Old-Age Pension. A representative example is that during the 2013 budget formulation process, 280 billion won in medical expenses for the poorest population—representing 3% of the population—was cut to provide childcare support for infants and toddlers in the top 30% income bracket. The excessive workload that has driven some frontline welfare officials to suicide—namely, the "funnel" phenomenon of the welfare delivery system—is also a problem that must be resolved as soon as possible. These are the reasons why mature system operation commensurate with the increased welfare expenditure is urgent in the "100 trillion won welfare era."

Source: Seoul Sinmun (original article)