Expanding Employment Insurance: Who Bears the Premium Burden?

The ruling party and the government are considering expanding eligibility for employment insurance. At first, they said they would expand it to all citizens, but now they have changed their wording and are moving to expand it to all employed people.

From the standpoint of strengthening the social safety net, broadening employment insurance coverage is something that will be necessary in the long run. However, there are problems with both the substance and the method of this expansion.

At a time when both workers and business owners who bear the insurance premiums are already highly dissatisfied, this is likely to increase the number of beneficiaries who do not pay premiums. Expanding welfare in this way does not accord with the purpose of the employment insurance system, which is based on the principles of insurance.

Employment insurance is a system in which subscribers who voluntarily wish to pay premiums for their own long-term benefit bear the cost of those premiums. It is efficient only when it is based on individual choice, and only then is it sustainable over the long term.

The current employment insurance system legally compels enrollment and premium payments, so simply increasing the number of covered people will itself produce undesirable results. When the people paying premiums and the beneficiaries are different, and when the program has a monopolized structure managed by government agencies as a form of political largesse, inefficiency and insolvency grow, and the public’s tax burden only increases.

Workers who pay premiums do not pay much attention even when waste occurs, because employers bear a larger share of the burden. There is a strong possibility of moral hazard, with some beneficiaries repeatedly abusing the system by working only for a short period and then receiving unemployment benefits.

The current condition of the employment insurance fund is not good. In 2019 alone, it recorded a deficit of more than 2 trillion won. The fund appears likely to be depleted before long. If employment insurance coverage is expanded, will the new beneficiaries be willing to bear their own premiums?

That possibility is very low. Even now, the self-employed are eligible to enroll in employment insurance, but the enrollment rate is extremely low, at less than 1%. This shows that when enrollment is not mandatory, people do not regard it as worthwhile insurance.

If coverage is expanded by force, the biggest issue will be who should bear the premiums. The government will likely try to raise the share borne by existing subscribers or increase the burden on businesses. With the fund already facing a serious risk of depletion, the shortfall in financing will ultimately have no choice but to lead to higher taxes.

Any worker—including the self-employed and those in special employment categories—may worry about a decline in income if they lose their job, and in that case there is a need to prepare for it through insurance. There is no reason to prevent those who wish to enroll voluntarily from doing so. What the government should strive to do is create a system through which individual workers can solve the problem on their own.

Because employment insurance premiums are meant to secure each worker’s future income, it is desirable for all workers to bear them themselves. Only then can they regard the premiums not as a tax payment, but as spending for their own future. And only then can the institutions managing and disbursing those funds operate in a sustainable manner.

Sung-no Choi, President of the Center for Free Enterprise (CFE)

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Original title: 고용보험 확대, 보험료 부담은 누가하나

Author: Sung-no Choi

Date: 2020-05-06

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&pn=21&idx=22611