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.