John Burton is freelancer writer. He was Korea correspondent of the Financial Times, business editor of Korea JoongAng Daily.
Solution to youth unemployment
By John Burton
.jpg?w=728)
The Moon Jae-in administration last week signaled the importance it places on job creation by proposing a $10 billion supplementary budget aimed at improving work prospects and fighting record youth unemployment.
Korea finds itself in the enviable position of having the financial clout to address the problem. Its government debt is among the lowest for OECD economies and its 2017 fiscal deficit is expected to amount to only 1.7 percent of gross domestic product.
The goal of the new spending program will be on creating 100,000 more jobs, including 66,000 in the public sector, while providing subsidies for start-ups and support for small businesses.
Whether this will make a dent in youth unemployment, which stood at 11.2% in April, is another matter. The young are finding it difficult to get jobs because of structural problems with the economy, including a rigid labor market and a seniority-based wage system.
In addition, the unemployment problem is likely to get worse, particularly in declining manufacturing industries, as Korea faces increased foreign competition. More than 35,000 jobs are expected to be lost this year in the shipbuilding industry as the sector undergoes restructuring due to weaker global demand.
In the long-term, Korea will face the same challenges as other advanced economies in dealing with the impact of automation, known as the Fourth Industrial Revolution, on future job growth.
Within the next decade, for example, self-driving cars and drone deliveries could eliminate jobs for couriers and taxi and truck drivers. 3-D printing will cause job losses in companies manufacturing components. Car plants will become fully automated, with smart robots performing most of the duties due to the use of the Internet of Things technology. Big data will result in the disappearance of many jobs in the service sector, from financial analysts to middle managers.
This disruptive trend will undermine the modern industrial economy, which is built on the premise that mass demand supports mass production. How can companies survive if only a few are paid a decent wage to afford to buy goods and services?
Korea is already seeing the first signs of this trend. While workers with valued skills are still richly rewarded, many companies have found that they can either outsource jobs at lower costs or convert what were once salaried positions into temporary contract jobs with few benefits. Other workers are being forced to take part-time “gig” jobs, which do not offer the security of a full wage. The result is stagnant pay and rising inequality.
If Korea fails to address the issue of the continued well-being of its workers, the country is likely to confront the same populist backlash that has shaken the U.S. and Europe. The orthodox response to this problem has been investing in education and research, creating more public-sector jobs or providing wage subsidies. This is the approach that the Moon administration is taking.
But another idea that is gaining global popularity is that of a universal basic income (UBI), which is described as a “citizen dividend” that is paid to every adult, whether they are working or not.
The goal of the UBI is that it would offer a guaranteed income for everyone and replace many government benefit programs. Proponents argue that it enshrines the concept that all should benefit from economic growth no matter what their status. It also directly promotes aggregate demand that keeps an economy humming.
Although it strikes many as a left-wing proposal, it has received support across the political spectrum. Some free-market conservatives like the idea because it would reduce means-tested welfare programs that require large bureaucracies to administer.
Mark Zuckerberg, the founder of Facebook, recently endorsed UBI at his commencement address at Harvard in May. “We should explore ideas like universal basic income to make sure that everyone has a cushion to try new ideas,” he said.
A version of the program has already been tested by Seongnam Mayor Lee Jae-myoung with his Youth Dividend program, where 500,000 won is distributed a year to those between the ages of 19 and 24. Canada and Finland are also experimenting with limited versions of basic income.
Critics say that such programs reward those who do not want to work. But supporters argue that current means-tested welfare programs also discourage working, particularly among those close to the income threshold who do not want to lose their benefits. With the introduction of a basic income, recipients do not have to worry that additional wages would end government support.
UBI is an idea that is ahead of its time, but one that may be perfectly acceptable a hundred years from now. It is the reason why Zuckerberg and others in Silicon Valley are already seriously considering the concept.
If President Moon wants to make a bold initiative in solving the youth unemployment problem, he should at least raise the idea of a universal basic income.
John Burton, a former Korea correspondent for the Financial Times, is now a Washington,. D.C.-based journalist and consultant. He can be reached at johnburtonft@yahoo.com.