SEOUL, June 14 (AJP) -South Korea's labor market weakness is increasingly spilling into public finances, with rising unemployment benefit payments and a growing economically inactive population exposing cracks beneath an economy still buoyed by semiconductor exports.
According to the Ministry of Employment and Labor's 2025 Employment Insurance Fund settlement report, benefit expenditures surged to a record 20.94 trillion won ($15.3 billion) last year, up 12.3 percent from a year earlier and exceeding the 20 trillion won mark for the first time since the height of the pandemic-triggered job crisis in 2021.
Unemployment benefit payments alone reached an all-time high of 17.48 trillion won as layoffs increased in manufacturing and construction while minimum wage hikes pushed up benefit calculations. As result, the Employment Insurance Fund recorded a deficit of 592 billion won last year.
The fund's financial position has become increasingly fragile. While year-end reserves stood at 7.8 trillion won on paper, the actual reserve balance excluding borrowings from the Public Capital Management Fund was only 79.6 billion won, effectively leaving the fund close to depletion.
Current regulations require unemployment insurance reserves equivalent to 1.5 to 2 times annual expenditures to prepare for large-scale employment shocks. Last year's reserve ratio stood at just 0.1 times annual spending.
The Board of Audit and Inspection warned in a recent report that the fund's sustainability could be at risk if South Korea faces another major employment crisis.
The warning comes as labor market conditions continue to deteriorate. Slowing job creation threatens premium income while rising unemployment pushes benefit payments higher, creating a widening structural gap between inflows and outflows.
According to data from the Ministry of Data and Statistics, the number of employed people aged 15 and older fell by 40,000 from a year earlier to 29.12 million in May, marking the first year-on-year decline in 17 months. The employment rate dropped 0.5 percentage point to 63.3 percent, the steepest decline since February 2021.
The deterioration was concentrated in sectors traditionally responsible for creating stable jobs. Manufacturing employment fell by 140,000 to 4.295 million, while agriculture, forestry and fisheries lost 121,000 jobs. Professional, scientific and technical services shed another 89,000 positions.
Youth employment weakened particularly sharply. The number of employed people aged 15 to 29 dropped by 255,000 from a year earlier to 3.427 million, pushing the youth employment rate down 2.4 percentage points to 43.8 percent. The youth unemployment rate rose 0.6 percentage point to 7.2 percent.
The economically inactive population increased by 264,000 to 15.986 million, suggesting a growing number of people are abandoning job searches altogether amid deteriorating labor market conditions.
The Ministry of Employment and Labor launched a task force last November to examine reforms aimed at improving the employment fund's financial health, but concrete measures have yet to emerge.
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