Despite Semiconductor Boom, Employment and Income Lag; Proposal for 'National Activity Allowance'

Economic growth driven by artificial intelligence (AI) and the semiconductor industry is not translating into increased employment and labor income, according to recent assessments. In response to the impacts of AI, including reduced youth hiring and a decline in entry-level freelance work, experts have proposed the introduction of a 'National Activity Allowance' to guarantee income during periods of vocational training and caregiving.

At a public forum titled 'How to Prepare for the Era of AI Transformation' held by the National Economic Advisory Council in Seoul on October 26, Jang Ji-yeon, a senior researcher at the Korea Labor Institute, highlighted a structural issue where economic growth is not leading to increased employment and income.

According to Jang, the employment elasticity for the first half of this year was 0.10, which is less than one-third of the average from 2000 to 2025 and lower than the 0.11 recorded during the semiconductor boom in 2018. Employment elasticity measures the rate of job growth relative to economic growth; a lower figure indicates a smaller job creation effect from growth. The share of employee compensation in nominal GDP also fell from 47.9% in the second quarter of last year to 41.1% in the same quarter this year.

Jang expressed concern, stating, 'The extent to which growth translates into employment is less than one-third of the historical average. This cannot be solely explained by the declining population growth rate.'

Youth employment in occupations with high exposure to AI has decreased by approximately 17% since November 2022. A study by the Korea Labor Institute of 35 job categories found that companies are increasingly using AI to handle tasks previously assigned to freelancers, resulting in a reduction of entry-level work and pay rates.

This trend reflects a disconnect between the growth of high-value industries like semiconductors and the limited increase in employment, with wage growth benefits concentrated among a few primary companies. Analysts suggest that companies are holding back on new hires while observing the effects of AI, which may further limit opportunities for youth skill development.

Jang noted, 'Domestic companies are responding by restricting new hires and expanding the responsibilities of existing employees rather than conducting large-scale layoffs. Overall, we are not reaching the level of new hiring and training needed in society.'

To address the income gaps arising from the AI transition, experts have suggested implementing a 'National Activity Allowance' that would guarantee income during periods of vocational training and career transitions, as well as caregiving. Hong Kyung-jun, a professor of social welfare at Sungkyunkwan University, stated, 'Existing vocational training and social insurance systems are designed around regular employment and are unable to respond to changes in the labor market. It is necessary for the state to guarantee income during periods when training and caregiving disrupt earnings.'

The proposed National Activity Allowance would provide all citizens aged 18 to 64 with a virtual 'National Activity Account' and support income during qualifying periods of vocational training and caregiving. The first phase, 'Basic National Capability Allowance,' would provide up to 12 months of income support at 60-70% of the median income for single-person households for career transition training and youth job entry training.

In the second phase, the allowance would expand to include parents of children under eight years old, including those not covered by employment insurance, and extend the payment period to a maximum of 24 months. Additional benefits would supplement up to 80% of previous income for those contributing to social insurance.

Hong estimated that the annual cost of the fixed allowance would be approximately 3.1 trillion won if utilized at 1%, and between 9.4 trillion and 15.7 trillion won at 3-5% usage rates. He proposed utilizing future response funds and general accounts, with a timeline for establishing the system by 2027, pilot operations in 2028-2029, and full implementation by 2030.

Hong emphasized, 'It is crucial for the state to guarantee income during periods when training and caregiving disrupt earnings. We need to shift from a reactive approach after job loss to a proactive investment strategy before transitions occur.'

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