Experts warn of job, fiscal risks in ‘fair allowance’ plan

Members of labor and civil society groups hold a rally in central Seoul, May 1, as they mark International Workers' Day. Newsis

The government’s plan to introduce a “fair allowance” for short-term public sector workers is drawing criticism from economists and administration experts, who warn that the policy could distort the wage system, strain public finances and end up shrinking jobs it is meant to protect.

Announced at a Cabinet meeting on April 28, the initiative would grant an additional lump sum payment to fixed-term workers employed at state-funded organizations, whose contracts are shorter than a year, with higher rates applied to shorter contracts to reflect their greater employment insecurity. The allowance would be pegged to a reference “living wage” of 2.54 million won ($1,730) per month, set at 118 percent of the legal minimum wage.

The rationale is to tackle the widespread practice of repeatedly hiring workers on 11-month contracts to avoid paying severance and granting them the other benefits associated with permanent positions. But some critics believe the measure is built on shaky conceptual and institutional grounds.

Lee Ji-man, an industrial relations expert at Yonsei University, said that the government did not clearly define whether the money is a wage for labor or a social welfare benefit, warning that blurring that line could create legal and policy confusion.

“Can we really regard this one‑month fair allowance given after 11 months of work as the price of their labor? It is not, in my view,” he told The Korea Times.

Lee said the government needs to clearly fund the payment as part of a social security policy. Otherwise, he warned, employers would face questions over the legitimacy of using payroll budgets to finance what is essentially a welfare measure, rather than a reward for labor.

He also raised an equity question, saying concentrating a significant, highly visible benefit on a single category risks sparking fairness disputes with other low-income or insecure workers in the private sector.

Experts are also concerned about unintended consequences for employment. Kim Gi-seung, an economics professor at Pusan National University, drew a parallel with sharp increases in minimum wages during the Moon Jae-in administration, which prompted many small firms to cut jobs or reduce hours rather than absorb higher wage costs.

Kim noted that, even though policy intentions are good, as with past rapid minimum wage hikes, well-meaning measures can backfire if not carefully designed.

“It could result in a reduction in jobs,” he said. “Public institutions could just say, ‘Then we’ll reduce the number of short-term workers and projects (that depend on their labor).”

In addition, he questioned whether the state can sustain the initiative over time without squeezing other essential services. What might be manageable as a high-profile project over one or two years could become fiscally burdensome in the long run, he said.

Hong Sung-gul, emeritus professor of public administration at Kookmin University, criticized the timing of the announcement of the plan, which is expected to be included in next year’s national budget. He believes that unveiling the plan now, ahead of the June 3 local elections, can be seen as a politically motivated move designed to appeal to short-term public workers.

Hong also criticized what he sees as a top-down fiscal decision rather than a policy crafted through normal legislative and budgetary procedures.

“Even though the ruling party now holds a majority in the National Assembly and can, in practice, do as it wishes, the president should not ignore the procedures of due process and administrative legality and act as if he could do it on his own,” he said.