Promoting social cohesion in Korea

Social spending is low but increasing rapidly Rising income inequality and relative poverty and the factors behind it Labour market reforms to promote social cohesion by breaking down dualism Reforms in the education system to promote social cohesion Increasing social spending to promote social cohesion The service sector as a factor in inequality Conclusion

As in most OECD countries, however, the gap between rich and poor in Korea has expanded in recent years. Income inequality and relative poverty are increasing Promoting social cohesion in Korea

- According to the OECD measure based on disposable income, the poverty rate was 15% in 2008, the seventh highest in the OECD area, reflecting a high rate of 47% for the elderly. International comparison of relative poverty rates Rising income inequality and relative poverty and the factors behind it

Social spending is low but increasing rapidly Was an increase in the Korean social spending, still fall short of the oecd average International comparison of public social spending

Social spending is low but increasing rapidly Public social spending in Korea was lower than the OECD average in each of the major areas The composition of public social spending in korea compare to the OECD average

Social spending increases should be targeted at those most in need rather than provided universally. Increasing social spending to promote social cohesion The basic Livelihood Security Programme (BLSP) The earned income tax credit The basic old-age pension National health insurance (NHI)

Problems of BLSP The Basic Livelihood Security Programme (BLSP) Increasing social spending to promote social cohesion Not enough people are benefited The eligibility conditions should be relaxed Job training programme should be reformed

EITC is expected to have huge impact on Korean economy The earned income tax credit (EITC) Increasing social spending to promote social cohesion EITC lowers taxes or provides a tax refund Due to the expected impact, Korea is recommended to increase beneficiaries in number

Korean elderly has relatively high rate of poverty compare to other OECD countries The basic Old-Age Pension Increasing social spending to promote social cohesion

National Health Insurance is too much a burden for people National Health Insurance Increasing social spending to promote social cohesion NHI

Labour market reforms to promote social cohesion by breaking down dualism

Regular workers are characterized by high wages, employment inflexibility, high employment protection and broad coverage by the social safety net and active labor market policies In contrast, non-regular workers face low wages, unstable employment, low employment protection and weak coverage by the social safety net and active labor market policies. Korea is one of five OECD countries identified as having a high degree of inequality originating in the labor market Labour market reforms to promote social cohesion by breaking down dualism

Reasons given by firms for hiring non-regular workers 1.Hiring non-regular workers to reduce the labor costs 2.Hiring non-regular workers to increase employment flexibility Labour market reforms to promote social cohesion by breaking down dualism

Problems associated with the high share of non-regular workers The negative consequences of dualism are exacerbated by 1) lack of mobility between non-regular workers and regular workers. 2) Equity concerns are exacerbated by the low share of non-regular workers covered by social insurance. Labour market reforms to promote social cohesion by breaking down dualism

Policies to address labour market dualism Relax employment protection Expand social security insurance coverage Increase opportunities for vocational training

The government should invest in early childhood and care (ECEC) to provide better educational foundation for children from low-income households.

Price: Childcare Centers < Public Kindergartens < Private Kindergartens # of organization: Public Kindergartens < Private Kindergartens < Childcare Centers Operating days: Public Kindergartens = Private Kindergartens < Childcare Centers Quality: Childcare Centers < Public Kindergartens < Private Kindergartens

1. Increasing the capacity of public kindergartens for Low-income families 2. Higher tuition subsidies for low-income families Solutions

Total 70% of Korean student participated in private tutoring/ after- school education The reason for increasing private tutoring is mostly to enter high ranking universities, which has an impact on job prospects and future income Problem The higher participation and spending on private tutoring thus allows family income to determine access to higher education, creating cycles of poverty and wealth that endure over generation

Solutions 1. Reducing the importance of the CAST exam ( 대학수학능력시험 ) in university admission 2. Making after-school lessons more accessible to low-income students.

Tuition fees of universities were the third highest in the OECD area in the academic year. At the same time, government scholarships and grants to students and student loans were well below the OECD averages of 11.4% and 8.8%.

Solutions Expand the ‘Study Now, Pay Later’ program of public loans for undergraduates.

The service sector as a factor in inequality

Bigger the company is, higher the income will be Income disparity due to size of companies The service sector as a factor in inequality

Policy recommendations will provide a double dividend in increasing economic growth and social cohesion Conclusion Well-targeted increases in social spending to address inequality and poverty Labour market reforms to reduce labour market dualism Education reforms to promote equality 3 main policy recommendations conclusion