To the surprise of many, the first
executive order put out by
President Moon Jae-in was to
create a new committee directly
under his stewardship to help encourage
job creation in Korea. Immediately after its
inception, the committee, which was headed
by the president himself, announced its
first 100-day plan on June 1.
The plan contains a variety of measures but the main message is clear—the government is wholeheartedly dedicated to creating jobs, not just in the public sector but also in the private sphere. More specifically, the plan emphasizes first that every government project will be evaluated and determined by how much it contributes to job creation. Second, it stresses that the private sector will be provided more incentives as well as tax benefits, according to its contribution to job creation. The first measure is called the Employment Effect Evaluation System and the second is called the System of Incentive for Employment. There are other important elements in the plan such as the creation of a new government ministry for small and venture businesses and a committee for the Fourth Industrial Revolution. But the most striking and audacious announcement in the plan is to hire 12,000 public workers in 2017 and 174,000 by the end of 2022.
The notable attempt of hiring more public workers by the Moon Jae-in administration was an immediate response to “growth without employment” in the private sector. The president also understands that it is his constitutional obligation to address this problem without hesitation. The constitution proclaims an individual the right to work and maintain decent human livelihood. Not having a job equates to not having enough spending income, further stagnating economic growth. Slow growth then will translate into even fewer jobs in the economy, rendering a vicious circle. Immediate and drastic action was necessary. If there is no
employment in the private sector, then the
president believes the public sector has to
do something right away. By having hired
more people in the public sector, he
believes more income of the newly
employed will be spent on consumption,
and the economy will thus grow faster.
This act of directly creating more jobs in the public sector to cut the vicious circle of ‘no growth, no job, no income’ is a story unheard of in traditional economic text books. There has been a theory of effective demand by Sir Keynes in the 1930s, or supply-side deregulation in the 1980s. There has also been a series of discussions about the income based growth economics in recent years, but those were mostly about projects or the private sector, not like the direct public hiring process that President Moon and the Job Creation Committee is dedicated to. This really is something new and everybody wants it to succeed.
Most criticism of the Committee’s 100- day plan has been directed toward the concern about the integrity of the national budget. Although approximately KRW 11 trillion (USD 9.65 billion) in this year’s supplementary budget has not added onto national debt at all, 174,000 new public workers by 2022 will definitely put a permanent denture on the national spending. Assuming the average annual salary of a public worker is KRW 30 million (USD 26,310), the total payroll alone will cost KRW 5.22 trillion (USD 4.58 billion) per year. If all the benefits, social insurance and fund subscription for new public workers are included, then the total burden will easily hit over KRW 10 trillion (USD 8.77 billion) a year. That is the perennial burden for perpetuity. Considering the fact that the Korean national budget has recorded deficits for most of the last decade, and that the national budget should follow the guidelines set by the National Budgetary Soundness Act, this increased public payroll burden will significantly encroach upon the
spending of other government projects in the future. Other critics point out that the salary
income of those newly hired public workers
will not have asmuch growth impact as other traditional government spending
projects, because most of them have to
pay off their previous borrowings or interests
thereof, causing workers to spend less
on personal consumption.
Concerns about the national budget and the less-than-expected growth multiplier are indeed legitimate concerns regarding the 100-day plan. But we should not forget various critical public services in Korea, including public education, national health services, safety infrastructure, public housing, unemployment insurance and services for children and the elderly, still have room for improvement. Therefore, it is imperative to upgrade the level of these public services, and it is also crucial to hire more people in this sector. The hiring of more people in the public sector goes beyond economic growth or the national budget; it’s about elevating Korea so that it can truly be on par with advanced economies.
As such, the government should carefully design the priority of public services to be implemented and also detail the financial consequences of public works. Only under those premises can the government legitimately take bold actions to provide more jobs and better public services to make Korea a more ideal country. There are challenges and obstacles ahead, of course, but everyone is hoping this audacious 100-day plan is the boost that Korea needs.