Solution to Korea jobless woes

By John Burton

President Moon Jae-in faces a host of economic problems. Growth is slowing. Job creation is being hobbled by hikes in the minimum wage. Youth unemployment remains high. Domestic consumer spending is weakening. Lagging productivity threatens to lead to a loss of global competitiveness, while squeezing profit margins. Exports are slipping due to soft overseas demand and the U.S.-China trade dispute. All these factors are undermining confidence in the economy and threatening to increase jobless numbers.

So what should Moon do? Perhaps he should consider introducing universal basic income (UBI), which provides a minimum monthly payment to every citizen, no matter if they are rich or poor.

A recent two-year UBI experimental program in Finland found that although it did not solve the country's unemployment problem, it did make its recipients happier and less stressed. Perhaps, more importantly from the viewpoint of Moon's struggling government, "basic income recipients trusted politicians considerably more," according to the study.

UBI has recently been touted across the political spectrum. Progressive politicians like the concept because a minimum income offers a safety net to the unemployed and those holding vulnerable jobs in the gig economy. Right-wing libertarians support the idea because it reduces the need for cumbersome bureaucracies in doling out benefits to the underprivileged by largely eliminating means testing.

Finland's current center-right government decided to test the idea in 2017 in a controlled experiment that focused on the unemployed. It randomly selected 2,000 jobless Finns who received a flat monthly payment of 560 euros, or about 720,000 won, without the need to apply for benefits. This amount corresponded to the basic unemployment allowance provided by the government.

Finland has had a relatively high unemployment rate over the last decade. It currently stands at 6.7 percent. The government has sought to reform the social security system to make it more inclusive, while increasing the labor supply.

Although critics of UBI have claimed it amounts to a handout that discourages working, the Finnish government wanted to test whether UBI could save money by cutting down on a complicated unemployment bureaucracy.

It also wanted to see whether UBI could lead to more active labor participation and provide a stronger incentive to work. Supporters of UBI believe that an unconditional safety net can help promote labor mobility by giving people more time to apply for jobs or learn essential new skills at a time of increased automation. Many unemployment schemes around the world discourage the jobless from taking on part-time work because they could lose their benefits as a result.

Preliminary results released last month revealed that the UBI recipients "were no better or worse at finding employment" than those in a control group of unemployed who received normal jobless benefits.

But there was a clear difference between those in the test and control groups when it came to psychological well-being. UBI recipients "experienced significantly fewer problems related to health, stress and ability to concentrate," the study said. They were also "more confident in their own future and their ability to influence societal issues."

In addition, the limited time of the experiment period may have underestimated the effectiveness of UBI in increasing employment prospects. The UBI recipients "were more confident of their employment prospects" since "it would make more sense financially to accept a job offer and would be easier to start a business." UBI also "would reduce the bureaucracy involved when accepting a job offer."

Although Finland will not continue the UBI experiment due to domestic political reasons, it may be worthwhile for the Moon administration to launch a UBI pilot program to test its merits.

UBI directly addresses several of Korea's labor market problems. One is the large percentage of workers who work on temporary contracts rather than having salaried positions. UBI would provide some level of comfort for them when they did not enjoy job security.

UBI could also improve labor mobility. Workers have opposed efforts to ease "hiring and firing" rules because of a lack of a secure social safety net. UBI would boost labor market mobility since it would provide a guaranteed income between jobs.

UBI could also serve as an alternative to the government's current policy of hiking the minimum wage, which places a cost burden on small businesses and discourages them from hiring. With a basic income in place, the government could allow a more flexible wage structure, while promoting its goal of income equality. The increase in the minimum wage is also linked to efforts to boost domestic demand as an engine of growth. UBI would serve the same function.

Opponents will say that UBI is too expensive to implement, but it could offer the possibility of saving the government money in reducing the costs of bureaucracy. UBI could prove to be a cost-effective solution to achieving income equality and creating jobs, especially for the young.

John Burton (johnburtonft@yahoo.com), a former Korea correspondent for the Financial Times, is now a Washington, D.C.-based journalist and consultant.