Korea wrestles with rising unemployment payouts, fraud

People check job listings at a fair in Daegu, Wednesday. Yonhap

Many countries are facing mounting challenges in maintaining a robust labor force, particularly for workers who have faced multiple layoffs or other employment issues.

Korea is no exception. Since 1995, the country has operated an unemployment benefits system that provides up to 60 percent of a worker's average wages from their final three months of employment. The system offers temporary financial support and facilitates the transition back into the workforce.

For 33-year-old Choi, the benefits came at a critical time. After his employer delayed paying wages for months, he quit and began looking for other opportunities. During that period, unemployment benefits proved to be essential, providing roughly 2 million won ($1,378) per month for six months.

"The benefits allowed me to take my time and prepare carefully for my next move," he said.

But the cost of that safety net is swelling. Payouts are reaching record levels as Korea contends with a sluggish job market, exacerbated by a prolonged economic downturn and a rapidly aging population.

Unemployment benefits disbursed in September totaled about 1.1 trillion won, up 10.9 percent from a year earlier, according to the Ministry of Employment and Labor.

This is the eighth straight month that monthly payments have topped 1 trillion won — the longest run on record. The previous peak was a seven-month streak during the COVID-19 pandemic in 2021.

A shrinking pool of quality jobs and a polarized labor market are weighing heavily on employment dynamics, the Korea Development Institute said in a report released Thursday.

System under scrutiny

The government is boosting welfare spending to spur employment. But critics say the system is unintentionally fueling dependency and widening inequality — concerns that have drawn increased attention in recent months.

"Generous unemployment benefits provide financial stability for job seekers, but they also carry the risk of encouraging moral hazard," the Pi-Touch Institute said in a March report.

A job seeker fills out a resume at a job fair in Daejeon, Tuesday. Yonhap

The think tank noted that this year's minimum monthly unemployment benefit of 1.89 million won outpaces the take-home pay of a full-time minimum wage worker earning 1.84 million won for 209 hours per month.

"This income reversal, where the unemployed receive more than full-time minimum wage earners, is both unusual and alarming. Korea is the only OECD country where this kind of distortion exists," it added.

There's also no limit on repeat claims, as long as the applicant has at least 180 days of employment insurance coverage within the previous 18 months.

Repeat recipients — those who claimed benefits three or more times in five years — rose from 100,491 in 2021 to 112,823 in 2024.

That imbalance is fueling public criticism — and fraud.

In September, recipients from Daejeon were caught vacationing abroad while falsely claiming benefits by reporting active job searches in Korea. Online platforms like YouTube openly share tips on how to quit quickly and still qualify.

As of August, fraudulent claims totaled 23 billion won across 17,246 cases, with only 66.3 percent of funds recovered. The total value of such claims has trended upward, from 28.2 billion won in 2021 to 32.2 billion this year.

Other advanced economies enforce stricter rules to prevent such incidents, with longer work requirements and harsher penalties for fraud, experts say. Korea may need to consider similar mechanisms as it balances labor protections with fiscal sustainability.

"With the unemployment benefit approval rate reaching as high as 99.7 percent, the system is effectively structured so that nearly anyone who applies is deemed eligible," said Korea Enterprises Federation.

"Reforms are needed, such as lowering the excessively high minimum benefit level and reducing payouts for repeat recipients, to establish a more rational and incentive-based framework," it added, suggesting extending the reference period from 18 to 24 months, and the required contribution period from 180 days to 12 months.