Korea moving forward to mature welfare state
By Florence Lowe-Lee
Director of the Korea Economic Institute in America
Korea's welfare system has developed over the past 40 years from a bare structure to a relatively comprehensive social welfare program. After the Korean War ended in 1953, the government and the general public were focused on rebuilding the nation and pursued economic development.
At that time, the nation's GDP was a mere $80, and most Koreans lived in absolute poverty. People worked hard without any social protection. The topic of social welfare was never on the government's policy agenda.
It became a political issue when the military government took office in the 1960s. The government tried to gain public support by promising a series of social reforms to improve the lives of ordinary citizens. Many of the social welfare programs were adopted as a basic principle of the country's constitution, but only a few were implemented.
The nation failed to make any significant improvement, as policymakers continued to be preoccupied with economic growth. In the wake of the Asian financial crisis in 1997 the country was forced to restructure and strengthen its existing social welfare programs.
The demand for welfare increased significantly. This in turn changed the welfare structure, together with expansion in welfare expenditure. Social welfare issues became a critical and urgent policy agenda for the first time in Korea's history.
Social insurance policy
Social insurance is a welfare program which secures financial support for a time of little or no income, the disabled, old age, and death. Korea's insurance programs are financed by contributions from employers, employees, and the government. The framework of the Korean welfare system was completed through a series of welfare reforms under President Kim Dae-jung, who took office in 1998 in the midst of the financial crisis of 1997. The government has extended the existing four social insurance programs to the entire nation and/or to all of the working population: worker's compensation, health insurance, pension program and unemployment insurance.
(1) The first significant social welfare program in Korea was the Industrial Accident Insurance program introduced in 1963. During the time of industrialization, this program provided social protection for industrial workers in companies with 500 or more employees. The law gradually expanded to cover companies with 200 or more workers by 1965 and more than 50 in 1969. At present, firms with more than one regular employee can join the program.
(2) The National Health Insurance law was passed in 1963. This program started as a pilot project. Its content and the form later became the pillars of Korea's health care system. By 1977, coverage became compulsory, protecting employees of large industrial companies, public employees and private school teachers. In 1981, the coverage was extended to companies with more than 100 employees, and three years later firms with 16 or more workers were able to join the program. But the cost of health insurance was shared equally by employees and employers, so people without employers were not able to participate in the system. When the first democratically elected government came into power in 1988, it offered the National Health Insurance benefits to the entire population, including farmers and the self-employed. By 1989, nearly all Koreans had extended medical insurance coverage.
(3) The National Pension Scheme was introduced to provide all members of the general public with a guaranteed income upon retirement so that they could maintain a basic standard of living. The nation's first pension program was introduced in 1960, providing coverage for government employees. This was followed by coverage for military personnel in 1963 and for private school teachers in 1975. The system became compulsory in 1988, covering workplaces with 10 or more employees. The coverage was extended to workplaces with 5 or more employees by 1992 and subsequently to all full-time employees. In addition, there is a mandatory severance payment that is completely financed by employers. The minimum benefit is a single, lump sum payment equivalent to one month's salary per year of service. This payment is required to be paid out within 14 days of termination or retirement.
(4) The Unemployment Insurance System was adopted in 1995 when unemployment was relatively low. It has three main programs, including the Employment Stabilization Program, the Vocational Competency Development Program, and the Unemployment Benefit Programs. The main object was to provide financial support to workers during a time of unemployment and to promote employment through job training. All workers, except part-time employees, were covered under this benefit. This program was categorized into three main parts.
Social safety net and public assistance programs
Public Assistance is another form of welfare program that guarantees the basic livelihood of people. Korea's first public assistance program, "Livelihood Protection" was introduced in 1961 to primarily protect children, the elderly and the disabled. But it was severely criticized for the low-benefit level, unreasonable selection process, and other structural problems.
After the nation was hit hard by the financial crisis of 1997-98, the demand for public assistance escalated. The social impact of the crisis was most prominent in unemployment.
The unemployment rate skyrocketed from 2 percent in 1996 to 8 percent in the first quarter of 1999, and the nation's poverty rate doubled from the pre-crisis level.
The existing public assistance program was only able to cover 60 percent of the people in desperate need. The inadequate social safety net program in Korea could not handle the rising number of poor people.
At that time, the human rights movement became widespread in Korean society, shifting the emphasis from individual responsibility for welfare support to state responsibility.
The government extended the public assistance program by replacing the "Livelihood Protection" program with the "National Basic Livelihood Security Program" in 1999 and it was implemented from October 2000. This program guarantees, for the first time in Korea, the right to social security of its citizens and provides a minimum standard of living for every Korean.
Rising life expectancy and falling fertility rate
Korea's graying population is fast becoming the nation's number one social problem. With the advancement of medical technology, the average life expectancy has increased dramatically since 1950 (see Table 1). Aging was first noticed as a social problem in the 1970s, but it was not seriously considered until 2000 when the nation became an "aging society" when 7 percent of the total population was aged 65 or over. Korea is expected to become an "aged society" in 2018 when 14 percent of its population will be 65 or older and "super-aged" in 2026 when 20 percent of the total population will be elderly.
According to the Ministry of Health, Welfare and Family, the population in the 30-40 age bracket has been declining since 2006. By 2030, the average age in Korea will be 43 years old, up from 33 in 2000. Caring for the elderly is no longer a family issue but has become a social problem.
The government has been offering various incentives to employers to maintain older employees. It also tried to abolish barriers in the work places which hinder the hiring of elderly workers.
A range of programs and services were introduced to protect the safety of senior citizens.
The welfare budget to help aged Koreans has increased steadily. Since 1983, the government has been providing free health examinations for the disadvantaged older population, and the service was expanded to cover various geriatric diseases in 1992.
The program was further expanded in 1996 to include blood tests and x-ray examinations to screen for specific aged-related diseases, such as cancer.
Furthermore, the government has introduced long-term health care for the elderly, especially those suffering from chronic illness and age related ailments such as Alzheimer's disease.
Those who qualify can receive services such as in-home nursing care and admission to a long-term care facility at around 20 percent of the normal cost. Moreover, the country has launched a basic old-age pension program to help the elderly obtain pension benefits. The program is to offer up to 84,000 won in monthly payments to seniors aged 65 or over.
In addition, there are various senior discount programs available to provide the elderly with discounts on public transportation and admission to public facilities. Also, they receive a transportation allowance of around 10,000 won per month.
The declining birth rate is another serious problem. The National Statistical Office reported that Korea's birth rate has plummeted from 5.6 in 1960 to 1.7 in 1995 and to 1.2 in 2009, far below the replacement rate of 2.1 and the lowest rate among OECD nations (see Table 2). If this rate continues to remain at 1.2, the nation's total population will decline rapidly from 2018.
This means that the nation will face a serious worker shortage as there will be fewer people in the labor market. Such a declining rate, combined with a rapidly aging population, is creating a new problem in Korean society, posing a threat to sustainable growth.
The Korean government has been introducing various policies to promote childbirth, such as offering financial incentives.
Companies have been offering birth bonuses and child rearing support to join in with the government to help boost the nation's worryingly low birth rate.
Most women said that the low rate is fundamentally caused by unfavorable working conditions, especially for married women. Despite the increase in women's economic participation, a return to work after giving birth is not guaranteed.
Women therefore have difficulties in deciding whether to have a baby. A survey by the Korea Institute for Health and Social Affairs in March 2006 revealed that more than half of pregnant working women experienced difficulties in securing their career.
The government is working together with private companies to extend maternity leave benefits and provide flexible hours to working mothers. Previously, many women were reluctant to take advantage of these benefits in fear of being fired or forced to retire from work.
Despite the increase in the total number of childcare facilities from 9,085 to 28,367 during the period from 1995-2005, a shortage in childcare facilities that parents can trust still inhibits married couples from having children.
The Ministry of Gender Equality and Family has announced that its top priority is to strengthen the existing child care policy. At a time when the low fertility rate is becoming a serious social issue, child care policies must be addressed. Recent data indicated that only 15 percent of families with a child aged 1 year or younger has access to child care facilities.
First rate welfare system
Social welfare programs are designed to seek social integration. As Korea achieved economic success, people started to pay more attention to their quality of life and to help the disadvantaged. Since the 1990s, the Korean welfare system has undergone significant changes.
Social welfare expenditure has increased significantly due to the introduction of many new programs and the expansion of the coverage of existing ones.
Social welfare spending has increased by an average of 10.8 percent over the last five years, 2.2 times higher than the OECD average of 4.9 percent. The welfare budget as a percentage of total government spending increased from 14.3 percent in 1987 to 27.9 percent in 2006. This year so far the government has allocated 81 trillion won for social welfare, up 8.9 percent from 2009.
The current administration has made the social welfare program a national priority and laid out a foundation for the lifetime well-being of all citizens.
Policymakers have been tasked to stabilize the financial soundness of the National Health Insurance System while establishing a dependable basic social safety net program.
They will prioritize the policy agenda to guarantee a comfortable life after retirement for the elderly, as well as disabled individuals.
It is true that Korea's welfare budget is still low compared to that of other developed nations. But the nation has come a long way from the ashes of the Korean War to become the 15th largest economy in the world.
Along the way, policymakers recognized the need to implement various social programs to guarantee the welfare of the people. The nation's four significant insurance systems ― workmen's compensation, health insurance, the pension program and unemployment insurance ― currently covers its entire population.
Some of these programs are more advanced than other developed countries, for example, the universal health care system. Furthermore, the country guarantees the basic livelihood of all Koreans.
The policymakers have introduced laws to protect the disadvantaged. Korea has made a major improvement in the nation's welfare programs following the financial crisis. If the past is any indication, there is no doubt that the nation will continue to progress to a mature welfare state.