3. Unemployment Insurance System

Employment Structure and Unemployment Insurancein East Asia: Establishing Social Protection
for Inclusive and Sustainable Growth
Yasuhiro Kamimura∗

1. Why We Need Unemployment Insurance for East Asia
East Asian economies, surrounded by other APEC (Asia-Pacific Economic Cooperation)
economies, have deepened their economic interdependence over the past few decades. Recent free
trade agreements and economic partnership agreements among economies help confirm market
integration in the region. As Stiglitz (2001: x) points out, “free international trade allows a country
to take advantage of its comparative advantage, increasing incomes on average, though it may
cost some individuals their jobs.” Free trade may bring about social instability throughunemployment, in parallel with economic prosperity.
Social instability brought about by unemployment is not merely a domestic problem; it isalso a region-wide issue, for domestic social tension can easily lead to international tension.
Polanyi (1944: 219) writes that “the strain which sprang from unemployment might induce
foreign tension. In the case of a weak country this had sometimes the gravest consequences for its
international position. Its status deteriorated, its rights were disregarded, foreign control was
foisted upon it, its national aspirations were foiled. In the case of strong states the pressure might
be deflected into a scramble for foreign markets, colonies, zones of influence, and other forms ofimperialist rivalry.”
Each government is responsible for coping with social instability, not just for domestic
integration but also for improving the sustainability of regional economic cooperation. Moreover,
it is not just each government but also the region as a whole that is responsible for addressing theissue. It is therefore advisable and reasonable that improvements to the region’s social protection
system be discussed at the APEC 2010 Summit. Unemployment insurance and related schemes
will comprise some of the essential points of the discussion.
In the following sections, I will examine the theoretical definition of “unemployment”(Section 2). Then, I will go through related schemes and argue that unemployment insurance is thebest among them and an essential part of a social protection system (Section 3). After glancing
through the characteristics of labor markets in East Asia (Section 4), I will explore why some
economies have unemployment insurance while others do not (Section 5). I will concentrate myanalysis on 11 economies, without excluding other APEC economies from the discussion. I will
∗ Yasuhiro Kamimura is Associate Professor of Welfare Sociology and Comparative Social Policy at Nagoya University. He
studied at Tokyo University, and worked there and at Hosei University. He has published on the development of welfare
states in East Asia, new corporatism in East Asia, and reconstruction assistance in post-tsunami Aceh153

also evaluate the existing unemployment insurance schemes and point out their inadequacies,
especially in terms of coverage (Section 6). In the conclusion (Section 7), I will stress theimportance of regional cooperation in upgrading social protection systems.
2. A Theory of Unemployment
What does the term “unemployment” mean? As a real-world issue, how should we copewith it? Okochi (1952), the leading social policy scholar in postwar Japan, provides a goodstarting point. His perspective covers both developed and developing economies, for when hewrote his theory, Japan was a developing economy that was on the verge of experiencing ahigh-growth era. He stressed three aspects of the concept of unemployment.
First, unemployment denotes that a worker who does not have his own means of production
has lost his workplace. If he has his own workshop, land, or store, he cannot be unemployed. Insuch a case, if that worker cannot earn enough money to live, he is called “poor” or“underemployed,” but he is not “unemployed” in a precise sense (ibid.: 9).
Second, the idea of unemployment presumes that the unemployed worker retains his
willingness to work. It implies that he shares a characteristic of modern wage workers that Weber
calls “the spirit of capitalism.” Such a worker should not be idle and should make every effort toearn his own bread (ibid.: 12).
Third, if a worker cannot find a job that suits his skill or ability set, it can be said that he is“unemployed.” In economies where unemployment insurance is inadequate, dismissed workers
may be ready to accept whatever job is possible. If they get a new job that is not appropriate totheir skills, however, it is a kind of unemployment, in the sense that they are misallocated fromthe viewpoint of the efficiency of the whole of industrial society (ibid.: 16).
How do these three points relate to our current issue? The first point suggests that only
employed workers can be unemployed. Self-employed workers such as farmers or petty traderscannot, by definition, be unemployed. Their problems related to poverty or underemployment
cannot be solved with unemployment insurance. Other measures such as industrial policy or
education policy should be put in place to improve their lives. Even in this case, however,
unemployment insurance will at least reduce the uncertainty of workers in the formal sector.
The second point reminds us of discouraged workers. In developing economies, dismissed
workers may go back to their home village and join the family business as unpaid workers. As
such, they may not appear to be unemployed. Even in developed economies, dismissed female
workers and older workers are sometimes discouraged from seeking a new job; instead, they relyon their families. For these people, active labor market policies such as training programs are
more suitable than unemployment insurance.
The third point implies a merit of unemployment insurance. If there is an adequate
unemployment insurance scheme in place, dismissed workers can retain their skills until they finda suitable job that makes use of their abilities. If their skills are outdated, they can undergo154

training to acquire new skills that are suited to their abilities. In either case, unemployment
insurance is helpful for the unemployed in maintaining or upgrading their skills; this is good notjust for them but also for the efficiency of the whole of an industrial society.
3. Unemployment Insurance and Its Related Schemes
Besides unemployment insurance, other compensation schemes related to unemployment
are severance pay, unemployment insurance savings accounts, unemployment assistance, andwork programs (Berg and Salerno 2008: 81).
Severance pay is a benefit paid by the employer to the employee upon termination of theemployment contract (ibid.). If all employers were honest and generous when dismissing
employees, the function of severance pay would be similar to unemployment insurance. In reality,
however, the employer of a bankrupt company may run away without offering severance pay toemployees. Nonetheless, it is better than nothing. Economies like Malaysia, the Philippines, andIndonesia, neither of which have unemployment insurance, mandate severance pay (ILO 2010,
Asher and Mukhopadhaya 2004).
Unemployment insurance savings accounts are private savings accounts that workers candraw on in the case of job loss (Berg and Salerno 2008: 81). They contain no risk-poolingmechanism. They are not very helpful for the most vulnerable of the unemployed, that is, those
who have not accumulated sufficient savings prior to becoming unemployed (ibid.). Chile has thistype of scheme, in which accumulated contributions are paid out upon job separation (OECD2010: 134).
Unemployment assistance is a means-tested benefit program that helps workers in greatest
need (Berg and Salerno 2008: 81). Australia and New Zealand have developed this type of scheme,
instead of unemployment insurance (Palme et al. 2010). Economies such as Germany use this typeof scheme to support job seekers who cannot receive benefits from unemployment insurance(Toda 2010). In Japan, it has been discussed as a second-tier safety net between unemployment
insurance and social assistance in supporting job seekers (Hamaguchi 2010).
Work programs also self-select from the neediest groups by paying wages that are at or
below the minimum wage in exchange for public work, such as building roads, schools and clinics(Berg and Salerno 2008: 82). When combined with skills training, such programs resemble thoseenacted by active labor market policies.
Among these four schemes, the first two are meager alternatives to unemployment
insurance; the latter two are complements rather than alternatives to unemployment insurance.
After all, unemployment insurance is an essential part of social protection systems in promoting
inclusive and sustainable growth in East Asia.
4. Varieties of Labor Markets in East Asia
Before examining unemployment insurance, we should outline the varieties of labor155

markets in East Asia. There are similarities as well as differences in this respect among East Asian
economies. The most striking similarity is that they have maintained low unemployment rates
until recently. The most salient differences concern each economy’s economic level and thesector-based structure of its labor market. If you apply convergence theory, however, it can beinterpreted that each economy is proceeding on the same road, but is currently at a different point.
On the other hand, some divergent characteristics in each labor market, such as those pertaining to
the employment rates of young mothers and the elderly, cannot be explained by convergence
theory.
Figure 1 compares the unemployment rates before and after the Asian economic crisis of
1997–98. Before the crisis, most economies other than the Philippines and Malaysia had achieved
nearly full employment. After the crisis, most economies other than Malaysia, Thailand, andVietnam experienced a rise in unemployment. Of course, we should be careful with the different
definitions of unemployment in each economy. For example, the unemployment rate in Thailand
is a figure that excludes the “seasonally inactive labor force”; this workforce component becomessizeable during the agricultural off-season. On the other hand, the unemployment rate in Indonesia
after 2000 includes discouraged workers (Dhanani et al. 2009: 54). Obviously, Thailand’s rate isunderestimated, while that of Indonesia is overestimated. In any case, the unemployment problem
in East Asia has emerged since the economic crisis.
Figure 1: Unemployment is a new experience for East Asia

Hong Kong, China

Data Source: ILO, Key Indicators of the Labour Market

156

Figure 2: Different phases of industrialization

Hong Kong, China

Data Sources: UNDP, Human Development Report 2007/2008. For Chinese Taipei, Directorate
General of Budget, Accounting and Statistics, Statistical Yearbook of the Republic of China
2007. For China, National Bureau of Statistics of China, China Statistical Yearbook 2008.
For the EU economies, OECD, StatExtracts (data for 2005).
The significance of unemployment, however, varies depending on the sector-based structureof each economy. In agrarian economies, underemployment and poverty rather thanunemployment may be the central problems, whereas industrial economies likely have many
workers who need traditional types of unemployment insurance. In post-industrial economies, thescheme should bear the characteristics of active labor market policy that make it suitable for theknowledge economy. As figure 2 shows, while there are some post-industrial economies in theregion, such as Japan, Korea, and Chinese Taipei, most East Asian economies seem to still be in
the industrialization process. (Black dots represent East Asian economies; white dots, as areference, represent EU member countries. Chinese provinces are represented by “+.” Here I
would like to stress China’s internal disparities.) Some of the coastal provinces of China, such as
Zhejiang, Jiangsu, and Tianjin, seem to be at the peak of the industrial stage and are worthy of thename “Workshop of the World” (Kamimura 2010: 90). Thus, it is time to introduce or strengthen
unemployment insurance in such economies.

157

Figure 3: Different labor-market structures
0%20%

Employees

Employers

40%

60%

80%

100%

Japan male
Japan female
Singapore male
Singapore female
Chinese Taipei male
Chinese Taipei female
Korea male
Korea female
Thailand male
Thailand female
Vietnam male
Vietnam female
Self-employed workers

Unpaid family workers

Data Sources: For Japan, Statistics Bureau, Labor Force Survey 2009. For Singapore, Ministry of
Manpower, Report on Labour Force in Singapore 2009. For Chinese Taipei, Directorate
General of Budget, Accounting and Statistics, Manpower Survey 2009. For Korea, National
Statistical Office, Economically Active Population Survey 2008. For Thailand, National
Statistical Office, Report of the Labor Force Survey 2009. For Vietnam, ILO, Vietnam
Employment Trends 2009 (data for 2007).
Figure 3 illustrates that there are certain people who work as employees, even in largely
agrarian economies such as Vietnam. Of course, sector-based distribution varies from economy toeconomy. It is difficult to introduce unemployment insurance for self-employed workers or unpaid
family workers; however, even in economies where the agricultural sector dominates, there arecertain unemployment insurance needs.
It is worth noting here that, to date, there is a dearth of comparative study into labor markets
in East Asia, at least upon which social policy arguments can be based. Figure 4 suggests that
there are different types of labor markets in East Asia. Differences here cannot be explained away
by economic levels or by any other single factor. This kind of divergence requires further
investigation.

158

Figure 4: Different types of labor market?

Women-Friendly Economies?

Hong Kong, China

Veteran-Friendly Economies?

Data Source: ILO, Key Indicators of the Labour Market
5. Structure Does Not Explain the Lack of Unemployment Insurance
There are economies that have unemployment insurance schemes: Japan, Chinese Taipei,
Korea, Thailand, China, and Vietnam. There are also economies that do not have unemployment
insurance schemes: Hong Kong (China), Singapore, Malaysia, the Philippines, and Indonesia.
What explains the differences between them? The purpose of the following analysis is not tocriticize the latter set of economies; every economy has its own philosophy and measures to copewith unemployment. I would like to suggest, however, that sharing experiences among economies
is useful in removing misunderstandings concerning structural barriers to the introduction ofunemployment insurance schemes.

159

Figure 5: Economic level does not matter

GDP per capita (US$, 2005)
40000
35000
30000
25000
20000
15000
10000
5000

Ta

ipe
i
Ko
re
Th a
ail
an
d
Ch
in
Ho
Vi a
ng
et
Ko nam
ng
,C
hi
na
Si
ng
ap
or
e
M
ala
ys
Ph
ia
ilip
pin
es
In
do
ne
sia

Ch
in

es
e

Ja

pa

n

0

Data Sources: UNDP, Human Development Report 2007/2008. For Chinese Taipei, Directorate
General of Budget, Accounting and Statistics, Statistical Yearbook of the Republic of China
2007.
Some people believe that only rich economies can afford unemployment insurance. That is
not the case, however. Figure 5 compares the economic levels of economies that haveunemployment insurance (white bars) and those that do not (black bars). Both sets include richand not-so-rich economies. Obviously, one cannot conclude that economic level matters withregard to unemployment insurance provisions.
Some people may worry that unemployment insurance discourages the unemployed fromsearching for work and eventually increases the overall unemployment rate. This is not the case in
East Asia, however. Figure 6 shows that unemployment rates in economies that haveunemployment insurance are not necessarily higher than those in economies that do not. Note thatthe high rate in Indonesia and the low rate in Thailand are due to different definitions of“unemployment” in each economy, as discussed.

160

Figure 6: Social protection does not cause unemployment

Unemployment rate (%, 2007)
10.0
8.0
6.0
4.0
2.0

Ta

ipe
i
Ko
re
Th a
ail
an
d
Ch
in
a
Ho
Vi
et
ng
Ko nam
ng
,C
hi
na
Si
ng
ap
or
e
M
ala
ys
Ph
ia
ilip
pin
es
In
do
ne
sia

Ch
in

es
e

Ja

pa
n

0.0

Data Sources: ILO, Key Indicators of the Labour Market. For Vietnam, ILO, Vietnam Employment
Trends 2009.
Some people may think that agrarian economies like Indonesia and the Philippines do notneed unemployment insurance, for two reasons. One is that self-employed farmers do not need
unemployment insurance if they have their own land; the other is that dismissed workers inagrarian economies can go back to their home village and rely on their family. As discussed inpreviously, however, there are employees even in agrarian economies, and not all dismissed
workers can rely upon their family. Figure 7 shows that some agrarian economies like Vietnam,
Thailand, and China have already introduced unemployment insurance. Moreover, Japan was ahighly agrarian economy when it introduced unemployment insurance in 1947. Thus, the size ofan economy’s agricultural sector is not a structural barrier to its introduction of unemployment
insurance.
To conclude, structural barriers do not interfere with the introduction of unemployment
insurance. Whether or not unemployment insurance is feasible depends upon an economy’s
philosophy and political leadership, rather than its structural conditions.

161

Figure 7: Agriculture and introduction of unemployment insurance

Agricultural Sector (% of Whole Employment)
70.0
60.0
50.0

when
unemployment
insurance wasintroduced
2007

40.0
30.0
20.0
10.0

Ch
i

ne J a p
se an
Ta
ip
e
Ko i
Th rea
ail
an
d
Ch
Ho
ng V i i n a
Ko etnng a m,C
S i hin
ng a
ap
M ore
a
P h l a ys
ilip iap
In i n e s
do
ne
sia

0.0

Data Sources: ILO, Key Indicators of the Labour Market. For Japan (when unemployment
insurance was introduced), Statistics Bureau, Labor Force Survey. (However, the data is for
1953, not for 1947.) For Chinese Taipei, Directorate General of Budget, Accounting andStatistics, Manpower Survey 2009. For China (2007), National Bureau of Statistics of China,
China Statistical Yearbook 2008. For Vietnam, ILO, Vietnam Employment Trends 2009.

6. Existing Unemployment Insurance Is Not Necessarily Effective
How do existing unemployment insurance schemes function in Japan, Chinese Taipei,
Korea, Thailand, China, and Vietnam? Are the existing schemes effective, especially in terms ofcoverage? Comparisons make it possible to detect and improve weak points in each economy.
General Description
As Table 1 shows, Japan introduced unemployment insurance relatively early, as part ofpostwar reforms. China introduced it following the start of economic reforms. Korea and Chinese
Taipei each introduced it after democratization, and Thailand and Vietnam each introduced it only
recently.

162

Table 1: Unemployment insurance in East Asian economies

First implementation(Current law)
Type of program

Japan

China

Korea

Chinese Taipei

Thailand

Vietnam1947 (1974)

1986

1995

1999 (2002)

2004

2007

Social insurance Social insurance Social insurance Social insuranceSocial insurance Local
governmentadministeredsocial insurance
Employees

Employees ofurban
enterprises andinstitutions

Employees

12 months of
insurance during
the last 24
months.

12 months of
insurance; must
be involuntarily
unemployed.

6 months of
12 months of
insurance during insurance; mustthe last 18
be involuntarily
months; must be unemployed.
involuntarily
unemployed.

Covered persons

Qualifying conditions

Employees

Employees

Employees

6 months of
insurance during
the last 15
months.

12 months of
insurance during
the last 24
months.

Data Source: International Social Security Association, Social Security Country Profiles (www.issa.int/aiss/Observatory)

Unlike the schemes in the other economies studied, unemployment insurance in China is
run by local governments, and only employees of urban enterprises are covered. Okochi’s
aforementioned theory of unemployment teaches us that unemployment insurance need not coverthose who have their own means of production. Farmers who have their own land need not becovered, for example. Employees who work in rural areas, however, should be covered under acertain scheme.
In each of China, Korea, and Chinese Taipei, benefits are provided only to those who are“involuntarily

unemployed.”Thedifferences

between“voluntary”

and“involuntary”

unemployment are not clear, however; it is difficult to generate a precise demarcation between thetwo categories. It is therefore advisable to include both categories of unemployed workers in thescheme.
Contributions and Benefits
As Table 2 indicates, contribution rates vary among economies. The highest two are thoseof China and Vietnam, the two socialist economies in the study sample, while the lowest is that ofChinese Taipei. Table 3 shows the benefits; the benefit rate in most economies is proportional to
the former average earnings of the unemployed, while in China it is a flat rate that is determinedby the local government. The duration of benefits in China is longer than in the other economies.

163

Table 2: Contributors to unemployment insurance
Japan
0.5%
0.9%
Subsidies

Employee
Employer
Government

China
1.0%
2.0%
Subsidies

Korea
0.45%
0.7～1.3%
None

Chinese Taipei

0.2%
0.7%
0.1%

Thailand
0.5%
0.5%
0.25%

Vietnam
1.0%
1.0%
1.0%

Data Source: International Social Security Association, Social Security Country Profiles (www.issa.int/aiss/Observatory)

Table 3: Unemployment insurance benefits
Japan

The amount of benefit

China

Korea

Chinese Taipei

50 to 80% of theinsured's
average daily
wage; The
minimum daily
benefit is 1,656
yen. The
maximum daily
benefit is 7,775
yen.

60% of theHigher than the 50% of theinsured's
insured's
local public
average daily
average monthly
assistanceearnings.
benefit but lower earnings. The
minimum daily
than the local
minimum wage. benefit is 22,320
won. The
maximum daily
benefit is 40,000
won.

3 to 11 months

12 to 24 months 3 to 8 months

6 months

US$1.00 =105.52yen.

US$1.00 =6.94yuan.

US$1.00 =30.40NT$.

The duration of benefit

Exchange rate

US$1.00 =1028.50won.

Thailand

Vietnam

60% of the
50% of theinsured's
insured's
average monthly
average daily
earnings.
wage for the
involuntarily
unemployed, 30%of the insured's
average daily
wage for thevoluntarily
unemployed. The
maximum daily
benefit is 250
baht.
6 months in any 3 to 12 months.
1 year for the
involuntarily
unemployed, 3months in any 1
year for thevoluntarily
unemployed.
US$1.00 =38.49baht.

US$1.00 =16,245dong.

Data Source: International Social Security Association, Social Security Country Profiles (www.issa.int/aiss/Observatory)

Legal and Effective Coverage
The most important matter with respect to unemployment insurance schemes is how many
people are protected from the economic uncertainty caused by unemployment. Table 4 reveals thereal function of each scheme. Legal Coverage refers to the ratio of insured persons as apercentage of the total labor force (Scholz et al. 2010: 345). Rates vary from economy toeconomy; the highest is that of Japan, while the lowest two are those of Vietnam and Thailand.
It is misleading, however, to conclude that unemployment insurance in these latter two
economies is not useful. As shown earlier, Vietnam and Thailand each has a large agricultural
sector, and so there are many self-employed workers for whom unemployment insurance would
not be suitable. If we take the ratio of insured persons to all employees (i.e., Covered Employees),
there we find an unexpected proximity: the rates of Vietnam and Thailand are almost similar tothat of Korea. We can guess that the schemes of these economies have a significant role in theformal sector, at least.

164

Table 4: Unemployment insurance coverage
Japan
Legal Coverage(Insured/Labor force)

Covered Employees(Insured/Employees)

Effective Coverage

China
4.7～54.4%

Korea

Chinese Taipei

Thailand

Vietnam56.1%(varies amongprovinces)

38.5%

49.9%

24.4%

11.8%

64.3%

NA

56.0%

65.0%

54.8%

52.3%

22.9%

11.7～74.2%

6.7～17.7%NA
23.7%(varies among（varies amongprovinces)months)Data Sources: Calculated by the author based on national statistics (2007 for China, 2008 for other countries).
(Beneficiary/Unemployed)

0.7%

For the rates of Thailand, I am grateful to Professor Yasuhito Asami for providing the data.

When it comes to Effective Coverage, which is the ratio of the beneficiaries to all thoseunemployed (ibid.), the picture changes. Rates are quite low across all the economies studied.
Compared to other advanced economies, even the rates of Chinese Taipei and Japan are ranked at
the bottom. The rates of European economies such as the United Kingdom, France, and Sweden
are above 50%, and Germany’s rate is almost 100% (Scholz et al. 2010: 349).
Goishi (2009) points out that the decline in effective coverage in Japan can be explained byincreases in non-regular employment and long-term unemployment in that economy. Moreover,there are some vulnerable groups such as young workers who are not effectively covered by theexisting scheme. As figure 8 shows, more than half of young workers in Japan, Korea, andChinese Taipei are legally covered by unemployment insurance. As figure 9 reveals, however,their effective coverage in Japan and Chinese Taipei (possibly in Korea also) is quite low.
Unemployment insurance in these economies is inadequate for coping with current “youth
problems” (Kamimura, forthcoming).

165

Figure 8: More than half of young workers are legally covered

Insured / Labor Force (%, by age, 2008)
80.0
70.0
60.0
50.0
Japan
Korea
Chinese Taipei

40.0
30.0
20.0
10.0

60

～

～

～

～

～

～

30

35

40

45

50

55

54

49

～
25

44

39

～
20

34

29

24

0.0

Figure 9: Young workers are not always covered effectively

Beneficiary / Unemployed (%, by age, 2008)
40.0
35.0
30.0
25.0
20.0

Japan
Chinese Taipei

15.0
10.0
5.0

60

～

～

～

～

～

～

30

35

40

45

50

55

54

49

～
25

44

39

～
20

34

29

24

0.0

Data Sources for figures 8 and 9: For Japan, Ministry of Health, Labour and Welfare, Yearbook of
Employment Insurance Program 2008. For Korea, Korea Employment Information Service,
Employment Insurance Statistics Yearbook 2008. For Chinese Taipei, Council of Labor
Affairs, Labor Insurance Statistics Yearbook 2008.

166

Figure 10: Diversity of legal and effective coverage

Data Sources: For China (data for 2007), National Bureau of Statistics of China, China Statistical
Yearbook 2008. For Japan, Ministry of Health, Labour and Welfare, Yearbook of
Employment Insurance Program 2008. For Chinese Taipei, Council of Labor Affairs, Labor
Insurance Statistics Yearbook 2008.
Here it is appropriate to note diversities in legal and effective coverage among the provincesof China. As figure 10 shows, while the legal coverage (horizontal axis) is lower than 30% in
most provinces, the effective coverage (vertical axis) varies widely among the provinces. One
may guess that, in some provinces with high effective coverage, unemployment insurance is akind of privilege for the former employees of state enterprises. If this is true, Chineseunemployment insurance also seems inadequate for supporting those who truly need help.
7. Conclusion
There are two conclusions. First, it is possible for Hong Kong (China), Singapore, Malaysia,
the Philippines, and Indonesia to consider introducing unemployment insurance or strengthening
other schemes that would suit their situation. As noted above, the choices that each economy
makes depend upon the economy’s philosophy and political leadership rather than structural
conditions. The economies that already have unemployment insurance can provide technicalcooperation. Unilateral assistance is, however, inappropriate in an era of regional cooperation.
Each economy can freely draw lessons that are learned through comparative study. It is useful tocompare the merits and demerits of relatively advanced systems of Japan, Korea, and Chinese
Taipei as well as to learn from the experiences of economies with similar labor market structures.

167

For example, it is advisable for Indonesia to investigate the policies and practices of Thailand if it
is looking to introduce an unemployment insurance scheme.
Second, for economies that already have unemployment insurance, it is recommended thatthey reform the schemes that cover people who really need social protection. The most important
challenge is to increase the effective coverage of unemployment insurance. It is advisable toextend legal coverage to non-regular workers, and it is also worth considering a combination ofunemployment insurance with an unemployment assistance scheme. The problems that Japan,
Korea, and Chinese Taipei face are not totally different; these economies can compete with eachother in proposing policies to increase effective coverage, and in more fully developing active
labor market policies. Such competition would be beneficial not only for the economies involved
but also for other economies. To promote policy innovation, it is essential to compile comparable
and longitudinal data; for this purpose, it is expected that the StatsAPEC will be upgraded to thelevel of the Eurostat in the EU.

Acknowledgments
I am grateful to all those who made comments on the draft of this paper at the International
PECC Workshop on Social Resilience Project at the International House of Japan (Tokyo) on
March 4, 2010; the APEC Study Centers Consortium (ASCC) Conference at the Japan External
Trade Organization (Tokyo) on July 8, 2010; and the Seventh East Asian Social Policy (EASP)
Conference at Sogang University (Seoul) on August 21, 2010.

168

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Handbook of the Welfare State, Oxford University Press, 2010.
Polanyi, Karl, The Great Transformation: The Political and Economic Origins of Our Time,
Beacon Press, 1944(2001).
Scholz, Wolfgang, Florence Bonnet, and Ellen Ehmke, “Income Support in Times of Global
Crisis: An Assessment of the Role of Unemployment Insurance and Options for Coverage
Extension in Asia” in Armin Bauer and Myo Thant (eds.), Poverty and Sustainable

169Development in Asia: Impacts and Responses to the Global Economic Crisis, AsianDevelopment Bank, 2010.
Stiglitz, Joseph E., “Foreword” Karl Polanyi, The Great Transformation: The Political andEconomic Origins of Our Time, Beacon Press, 2001.
Toda, Noriko, “Between Unemployment Insurance and Social Assistance: Basic Security for Job
Seekers in Germany” Reference, No.709, 2010 (Japanese).

170

Unemployment Insurance in Thailand: Rationales for the Early
Introduction in a Second-Tier Newly Industrializing Economy
Yasuhito Asami∗

I. Introduction
Unemployment insurance (UI) has often been considered as a “luxury good” that only richeconomies can afford. Thailand, however, introduced UI in 2004. By examining Thailand’s
experience with UI, this paper argues that newly industrializing middle-income economies canalso have UI without putting a burden on the government’s coffers or hurting their overall
international competitiveness. It also argues that, if properly designed and managed, UI canfacilitate timely adjustments to a volatile global economy, and reduce political tension, especiallyin small middle-income states with an open economy like Thailand.
As we will see in detail later, Thailand’s UI scheme has been generating healthy annual
surpluses since its start in 2004. Involuntarily laid-off workers can receive 50% of their monthly
salary for six months after losing their jobs, if they worked and contributed to UI for at least six
months prior to their job interruption, while those who resign voluntarily can receive 30% of theirsalary for three months. Employers and employees are required to equally contribute 0.5% of each
employee’s salary to UI, while the government contributes 0.25% of the salary. With thisarrangement, it is very unlikely for Thailand’s UI scheme to run a deficit, unless a large portion of
the fund is used for other purposes than UI benefits to the eligible unemployed workers.
The duration and amount of UI benefits in Thailand are kept shorter and lower than those inmost of the developed economies. But even with such limited benefits, the UI scheme in Thailand
alleviated the plights of unemployed workers, at least to some extent, when the Thai economy was
hit hard by the worldwide economic downturn in 2009.
In the book that won the 1986 Woodrow Wilson Foundation Award for the best book on
government, politics, and international affairs, Peter Katzenstein (1986) argued that small states in
Europe, such as Netherlands, Belgium, Austria, Sweden, Norway, Denmark, and Switzerland,
have achieved and maintained a high level of economic prosperity by pursuing a different set ofpolicies from big states like the United States, Britain, France, and Japan. He wrote:
For the small European states, economic change is a fact of life. They have not chosen it; itis thrust upon them. These states, because of their small size, are very dependent on world
markets, and protectionism is therefore not a viable option for them. ... Instead, elites inthe small European states, while letting international markets force economic adjustments,∗ Yasuhito Asami is Professor of Comparative Politics at Hitotsubashi University. He received an M.A. in Asian Studies
from Tokyo University in 1987, and an M.A. in Economics from Thammasat University in 1988. His research focuses onpolitical economy, democratization, and social policies in Southeast Asia.

171

choose a variety of economic and social policies that prevent the costs of change from
causing political eruptions. They live with change by compensating for it. ... Their strategy
differs profoundly from the liberal and statist principles that inform the political choices
and structures of the large industrial states. (Katzenstein 1986: 24)
Thailand, as well as other second-tier NIEs, such as Malaysia and the Philippines, is facing
a similar situation to the small states in Europe studied by Katzenstein. Though their population
size is larger, the size of their GDP is even smaller than that of “small” states in Europe. Like theircounterparts in Europe, “small” second-tier NIEs are very dependent on world markets.
Protectionism is not a viable option for them, either. They therefore cannot escape from thevolatility of the global market. Many of Southeast Asian economies, especially Thailand, learned
a bitter lesson on how politically disastrous and socially painful the adverse effect of theincreasingly precarious global economy can be, when the region was ravaged by the Asianfinancial crisis in 1997.
If neither protectionism nor a retreat from the global economy is a viable option, small
second-tier NIEs have only two options: 1) to implement social policies that prevent the costs ofeconomic fluctuation and structural change from causing political eruptions as small states in
Europe did, or 2) to strengthen the power of the government vis-à-vis various societal groups sothat the government can force those who suffer from the adverse impact of the precarious global
economy to withstand the pain without any pain-killers, as some authoritarian states did. This
paper argues that the first option is less risky and less painful than the second one in many of thecases, and also that UI is a useful and relatively inexpensive tool to reduce the social pain
associated with economic adjustments imposed by international markets.
However, as Milan Vodopivec, a World Bank specialist on UI, pointed out, the “standard
OECD-style” UI program is unlikely to function well in the developing economies “faced bylarge informal sectors, weak administrative capacity, large political risk, and environment prone tocorruption” (Vodopivec 2009: 1). The UI scheme in Thailand differs from those in European
economies on some of the important aspects. Now that a number of other middle-income
economies, such as Malaysia and the Philippines, started considering the introduction of the UI
programs seriously1, it will be meaningful to examine Thailand’s six-year experience with the UI
scheme to draw some policy implications for other second-tier NIEs.
II. Overview of Thailand’s Unemployment Insurance
II-1 Coverage
Unemployment insurance (UI) was introduced in Thailand in 2004 as a part of the social
security system. The social security system started in 1991. Though the Social Security Act
1

Interviews with officials in the Philippines’ Social Security System in July 2009, and in Malaysia’s Social Security
Organization in March 2010.

172

promulgated in 1990 had provisions on unemployment insurance, its implementation was
postponed until 2004. When the social security system started in 1991, it covered only those who
worked in the formally registered business enterprises with 20 or more employees. The coverage
expanded to the workplace with 10 or more employees in 1993, and further extended to include
all the regular employees in the formal sectors regardless of the size of the workplace in 2002.
The participation in the social security system is compulsory for all the private employees in theformal sectors with a few exceptions2. There are provisions (namely, articles 39 and 40 of theSocial Security Act) for those who are not a regular employee in the formal sectors to voluntarily
participate in the social security system. But, as their participation is not compulsory and they are
required to pay a much higher amount of contributions if they are to participate, the number of
insured persons who are not a regular employee in the formal sectors has remained small.
As of March 2010, the number of people insured by the social security system in Thailand
is 9,443,629, out of which 8,744,795 or 92.5% are private employees in the formal sectors. Unlike
other social security benefits, such as old-age pension and maternity benefit, those who are not a
regular employee in the formal sectors are not allowed to join in the UI scheme. Therefore, thenumber of the people under the UI scheme as of March 2010 is 8,744,795 and it occupies about
one-quarter of the total labor force in Thailand. The vast majority of the workers not covered by
UI are farmers, workers in the informal sectors, and irregular workers, whose income is generally
lower than that of regular workers in the formal sectors.
II-2 Unemployment Benefits and Qualifying Conditions
A. Qualifying Conditions
Only those who meet the following qualifying conditions are entitled to receive
unemployment benefits3.
1) The insured must have worked and paid contribution to the Social Security Fund for at least
six months in the 15 months before unemployment.
2) The insured must be registered with the Government Employment Service Office (ESO), andreport his/her work status at least once a month, be ready to participate in skill development
or job training programs arranged by the Department of Skill Development, and accept any
suitable job offer made by the ESO.
3) An interruption of employment must not be a consequence of (a) a job violation, (b) a serious
criminal act by the insured.
4) The insured must not be receiving the Old Age Pension benefit simultaneously.

2

Employees of foreign governments or international organizations as well as temporary and seasonal workers are notrequired to participate in the social security system. Companies with superior employee benefit schemes already established
before the establishment of the social security system were also granted exemption upon request. Civil servants andemployees of state enterprises are under separate and more benevolent benefit schemes.
3
Article 78, Social Security Act.

173

B. Unemployment Benefits
The monthly unemployment benefit for those who are involuntarily unemployed is equal to
50% of the insured’s average monthly salary in the highest paid 3 months in the 9 months before
unemployment, and they can receive it for up to six months in any one year. For those who arevoluntarily unemployed, the monthly benefit is equal to 30% of their average salary, and they canreceive it for only three months in any one year.
C. Contribution Rate
Insured workers are required to pay 0.5% of their monthly earnings as a contribution to UI,
and employers are also required to contribute 0.5% of their employees’ salaries to UI, while thegovernment contributes 0.25% of workers’ salaries. It should be noted, however, that the
maximum monthly earnings for contribution calculation purposes are set at 15,000 baht.
Therefore, the amount of workers’ monthly contribution does not exceed 75 baht, even if theirsalary is higher than 15,000 baht.
D. The Number of Unemployment Benefit (UB) Recipients
Table II-1 shows the number of unemployment benefit recipients in December of each year
since the start of UI in Thailand and that of the first six months of 2010. As clearly shown in thetable, the number of the recipients has been increasing.
An increase in the first four years is mainly attributable to workers’ growing familiarity
with UI. It is reported that, in the first few years of the implementation of UI, a number ofqualified unemployed workers failed to receive unemployment benefits because they were notfamiliar with the procedures they had to go through to get UB (Chutima 2008).
The upsurge in 2009 was caused by the adverse effects of the abrupt downturn of the global
economy triggered by the collapse of some of the leading financial institutions in the UnitedStates. The constant increase of the unemployment benefit recipients, however, seems to havestopped in 2010, partly because the Thai economy started recovering despite political turmoil
caused by the pro-Thaksin red-shirt protesters in the first half of 2010, and also because most of
the workers in the formal sectors have already become well familiar with the UI regulations4.

4

UI was spotlighted when the Abhisit administration announced that the Social Security Office would temporarily extend
the duration of unemployment benefits for involuntarily laid-off workers from six months to eight months as a part of theeconomic stimulus package to mitigate the adverse impact of the global economic slowdown in July 2009. The Social
Security Office repeatedly broadcasted TV ads on this temporary extension.

174

Table II-1: Number of Unemployment Benefit Recipients 2004-2010(unit: person)(1) UB Recipients(2) Insured Persons(1)/(2)

Dec. 2004

15,7227,434,237

0.2%

Dec. 2005

28,021

7,831,463

0.4%

Dec. 2006

39,9028,225,477

0.5%

Dec. 2007

56,581

8,537,801

0.7%

Dec. 2008

71,951

8,781,262

0.8%

Dec. 2009

139,165

8,779,131

1.6%

Jan. 2010

117,210

8,662,410

1.4%

Feb. 2010

104,7938,704,302

1.2%

Mar. 2010

121,794

8,744,795

1.4%

Apr. 2010

119,755

n.a.

n.a.

May 2010

111,780

n.a.

n.a.

Jun. 2010

128,071

n.a.

n.a.

Source: Social Security Office
E. The Ratio of Unemployment Benefit (UB) Recipients to the Number of Unemployed
Table II-2 shows the ratio of UB recipients to the total number of unemployed in the firstsix months of 2010. In the Labor Force Survey conducted by the National Statistical Office, those
who are in the labor force are classified into the three categories, namely, employed, unemployed,
and seasonally inactive. As shown in Table II-3, about 30-40% of Thailand’s labor force work in
the agricultural sector, and the number of those who work in the agricultural sector fluctuatesconsiderably; It increases in the planting (mid-May to August) and harvesting (November toDecember) seasons, and decreases in the dry season (February to mid-May). The annual
fluctuation in 2009 was more than 4 million. Therefore, they have a relatively large number ofseasonally inactive persons in the dry seasons.
If we take into the consideration that only regular workers in the formal sectors are covered
by UI, and UB lasts only for six months 5 , the ratio of UB recipients to unemployed isimpressively high, though it still leaves much room for improvement.

5
The extension of the duration of unemployment benefits from six to eight months explained above applies to those who
were laid-off between January 1 and December 31, 2009. For those who were laid-off after January 1, 2010 can get the UB
only for six months.

175

Table II-2: Ratio of Unemployment Benefit (UB) Recipients to Unemployed 2010
(unit: person)(1) UB
Recipients(2) Employed(3) Unemployed

Jan. 2010

117,21037,040,000

530,000

Feb. 2010

104,793

38,270,000

Mar. 2010

121,794

Apr. 2010(4) Seasonally
Inactive(1)/(3)(1)/(3+4)

230,000

22.1%

15.4%

380,000

290,000

27.6%

15.6%

37,600,000

380,000

320,000

32.1%

17.4%

119,755

37,260,000

450,000

420,000

26.6%

13.8%

May 2010

111,780

37,020,000

590,000

460,000

18.9%

10.6%

Jun. 2010

128,071

38,100,000

460,000

190,000

27.8%

19.7%

Source: Social Security Office & National Statistical Office* Own-account workers, including famers, are classified into “employed” in the above table.
Table II-3: Monthly Fluctuation in the Share of Agricultural Employment(1) Agriculture(unit: thousand persons)(2) Employed Persons(1) / (2)Jan. 2009

12,00036,20033.1%

Feb. 2009

11,19036,67032.5%

Mar. 2009

12,00036,57032.8%

Apr. 2009

11,89037,06032.1%

May 2009

13,31037,51035.5%

Jun. 2009

15,56038,36040.6%

Jul. 2009

16,01038,79041.3%

Aug. 2009

15,05038,30039.3%

Sep. 2009

14,55037,80038.5%

Oct. 2009

13,72037,66036.4%

Nov. 2009

14,66038,33038.2%

Dec. 2009

15,55038,54040.3%

Source: National Statistical Office* Fishery is not included in Agriculture** Own-account workers are included in “employed” persons
II-3 Financial Sustainability
As shown in Figure II-1, the unemployment rate in Thailand has not been very high even in
the period of economic slowdown. As Thailand’s UI covers only the regular workers in the formal
sectors, which constitute about one-fourth of total labor force, however, the unemployment rate in
the informal sectors does not directly affect the balance sheets of the UI scheme. It is the ratio of
unemployment benefit recipients to those who pay contributions to UI that directly determines thebalance sheets of UI. As we have already seen in Table II-2, this ratio has never exceeded 2%.

176

As the contribution rate is set at 0.5% for employees and employers, and 0.25% for thegovernment, the Social Security Office receives 1.25% of each insured person’s salary as theircontribution every month. If we assume that there is no difference in the wage distribution
between laid-off workers and those who were not laid-off, and also that a half of unemployedworkers lose their job involuntarily and the remaining half voluntarily, the total amount of UB
will be 0.4αβ/(100-α), where α represents the percentage ratio of UB recipients to the insured
workers, and β the sum of all the insured workers’ salaries, while the total amount of thecontribution will be 0.0125β. The total amount of UB, 0.4αβ/(1-α), exceeds the total amount ofcontribution, 0.0125β, only when α is larger than 12.5/4.125 ≒ 3. In reality, the average wage ofthe laid-off workers tends to be lower than that of non-laid-off workers, because those who
receive higher salaries, in general, tend to have better job security. It should also be noted that, as
we will see later, the “voluntarily” unemployed workers far outnumbers involuntary ones inThailand. Therefore, the break-even-point we calculated by assuming no difference in wage
distribution and the equal numbers of voluntary and involuntary unemployment, is probably lower
than the real figure. As shown in Table II-2, the ratio of UB recipients to the insured persons inThailand has been much lower than this “lower-than-real” breaking point.
Figure II-1: Unemployment Rate in Thailand 2001-2009| 2001 | 2002 | 2003 | 2004
Source: National Statistical Office

|

2005

|

2006

|

2007

|

2008

|

2009

Figure II-2 compares the real amount of UB and that of UI contribution in the past five
years. Thailand’s UI scheme has been recording large surpluses since its start in 2004. Before theintroduction of UI, some academics and business leaders argued that, the introduction of UI
would increase an unemployment rate, because some workers would rather remain unemployed to
get unemployment benefits than seek a new job. They also warned that, without an effective
mechanism to distinguish genuinely unemployed workers from disguised ones, UI would run a177deficit 6 . As shown in Figure II-1, the introduction of UI in 2004 did not increase an
unemployment rate in Thailand, and it did not run a deficit even when the Thai economy was hitvery hard by the global economic slowdown in 2009.7
Figure II-2: Contribution-Benefit Ratio of the Unemployment Insurance Scheme 2004-2008
Million Baht

%

2004

2005

Contribution

2006

2007

Benefit2008
Benefit/Contribution

Source: Social Security Office, Annual Report 2008, p. 39.
Table II-4 shows the wage distribution of the insured workers. The workers whose monthly
salary exceeds 15,000 baht are included in the wage range of 14,001 to 15,000 in this table,
because the maximum monthly earnings for contribution calculation purposes are set at 15,000baht.
As shown in Table II-4, about three quarters of the insured workers are receiving less than
10,000 baht a month. The minimum wage in Bangkok and surrounding provinces is about 200
baht a day8. A six-days-a-week work with the minimum wage will yield a monthly income ofabout 5,000 baht. As involuntarily laid-off workers can get 50% of their salaries as an
unemployment benefit, only those whose monthly income exceeds 10,000 baht can get ahigher-than-the minimum-wage unemployment benefit. Or in other words, according to Table II-4,
the amount of unemployment benefit for three quarters of the insured workers will be lower thanthe minimum wage, even if their unemployment is involuntary.

6

See, for example, the article titled “Wijai Chi Prakan Wang-ngan Dab Song Khom, ‘Rabob Khomun Huai’ Kongthun
Thangtaek,” in Prachachat Turakij, January 6, 2003.
7
Thailand’s GDP growth rate dropped from 2.5% in 2008 to -2.3% in 2009.
8
The minimum daily wage is set at 206 baht in Bangkok and Samutprakan, 205 baht in Nakhonpathom, Nonthaburi,
Pathumthani, and Samudsakhon, and 204 baht in Phuket. About 60% of the insured workers live in these seven provinces.

178

Table II-4: Number of Insured Persons by Wage and Sex (December 2008)
unit: person

Source: Social Security Office, Social Security Statistics 2008, p.35.
There is also an upper limit for the amount of unemployment benefit. The maximum
monthly earnings for contribution/benefit calculation purposes are set at 15,000 baht. So as far as
the calculation of UI contribution and benefit is concerned, those who receive ahigher-than-15,000-baht monthly salary are regarded as just receiving 15,000 baht a month. Thatmeans, no matter high their salary is, 7,500 baht (50% of 15,000 baht) is the upper limit formonthly unemployment benefit.
As for voluntary unemployment, even the richest worker would not be able to get ahigher-than-the minimum-wage unemployment benefit. No matter how high their salary is, if theirunemployment is voluntary, they can get only 4,500 baht a month (30% of 15,000 baht), which islower than the minimum wage.
The comparison of unemployment benefit and the minimum wage reveals thatunemployment benefit in Thailand is not designed to cover all the expenses during unemployment.
It is designed just to partially alleviate their plights. For most of the insured workers, they cannot
expect to rely solely on unemployment benefits for their survival even in their first few months
after their job loss.
Table II-5 and II-6 show the durations and amounts of unemployment benefits paid for eachcategory of workers from July 2004 to December 2005. Both tables show a very clear positive
correlation between the amount of salary and the duration of UB. Those whose salary is low tend179

to receive UB for a shorter period. It should be noted that the average monthly salary of those who
received UB for only one month is almost equal to the minimum wage level9, while the averagemonthly salary of those who received UB for three months or longer is well above the minimum
wage level. It is difficult for the workers whose salary is at the minimum wage level or slightly
higher to remain unemployed for more than two months, because their UB is below thesubsistence level, and not many of them have enough savings to live on for many weeks. Table
II-5 and II-6 imply that a low level of UB, especially for those whose salary is at the minimum
wage level, gives the unemployed workers a strong incentive to look for a new job.
Table II-5: The Duration and Amount of Unemployment Benefits (UB) Paid to Voluntarily
Unemployed Workers (July 2004 – December 2005)
Duration

No. of Recipients%

Average Amount of UB

Average Monthly Salary

1 month24,35726.7

1,478 baht

4,927 baht

2 months

25,05727.4

1,941 baht

6,470 baht

3 months

41,92345.9

2,345 baht

7,817 baht

total

91,337100.0

2,003 baht

6,677 baht

Source: Worawan, et. al., (2006: 79)
Table II-6: The Duration and Amount of Unemployment Benefits (UB) Paid to Voluntarily
Employed Workers (July 2004 – December 2005)
Duration

No. of Recipients%

Average Amount of UB

Average Monthly Salary

1 month

4,232

13.1

2,323

4,646

2 months

2,993

9.2

3,340

6,680

3 months

2,249

6.9

3,819

7,638

4 months

2,417

7.5

3,953

7,906

5 months

3,693

11.4

3,853

7,706

6 months

16,833

51.9

4,186

8,372

total

32,417

100.0

3,784

7,568

Source: Worawan, et. al., (2006: 70)
II-4 Voluntary and Involuntary Unemployment
As shown in Table II-7, according to the classification by the Social Security Office, those
who were involuntarily laid-off occupy about one-third of all the benefit recipients. Some Thai
academics claim that those who quit their job voluntarily should not be entitled to any
unemployment benefits, and warn that the large share of voluntarily unemployed workers would
9

The minimum daily wage in outer provinces is lower than that in Bangkok and its vicinity. The lowest minimum wage is
151 baht in Phayao, Phijit, Prae, and Maehongson.

180put unnecessary financial burden on the social security system10. On the other hand, labor union
leaders and workers’ rights advocates argue that many of those who are classified as “voluntarily”
unemployed by the Social Security Office are, in fact, laid-off involuntarily11.
Table II-7: Number of UB Recipients Classified by the Benefit Claims(unit: person)
Laid-off%

Voluntary Resignation%

End of Employment
Contact%

Total

Dec. 2004

5,432

34.6

8,102

51.5

2,188

13.9

15,722

Dec. 2005

9,074

32.4

14,821

52.9

4,126

14.7

28,021

Dec. 2006

14,76737.0

22,427

56.2

2,708

6.8

39,902

Dec. 2007

20,47036.2

33,573

59.3

2,538

4.5

56,581

Dec. 2008

21,92630.5

45,545

63.3

4,480

6.2

71,951

Source: Social Security Office, Social Security Statistics 2008, Nonthaburi: Social Security
Office, p.79
Though it is difficult to estimate how prevalent it is for employers to “force” theiremployees to “voluntarily” resign, judging from the field researches this author conducted in
Thailand in the past two decades, it would be safe to say that such practices are not “rare,”especially in the small- and medium-sized companies. One of the most common reasons for some
employers’ preference of forced or solicited “voluntary” resignation to outright lay-off is theiraversion to providing severance pay to departing employees. Thailand’s Labor Protection Law
stipulates that the employer must provide severance pay when he/she fires his/her employees(Article 118). The amount of compulsory severance pay varies from 30 to 300 days’ pay,depending on the length of the period for which a fired employee worked (Article 118). But theemployers are not required to provide a severance pay, when an employee “voluntarily” resigns.
It is also reported that the criteria used by the Social Security Office staff to distinguishinvoluntary lay-off from voluntary resignation are sometimes not so transparent. In July 2009,
more than 200 former employees of NMB Minebea Thai staged a demonstration in front of theAngthong branch of the Social Security Office (SSO). Those 200 workers had a dispute with the
SSO’s Angthong branch regarding the classification of their unemployment status, for several
months. According to a newspaper report, 2,700 workers were dismissed from NMB Minebea
Thai at the beginning of 2009. Although all the dismissed workers who went to register at theother branch of the SSO were classified as involuntarily laid-off, and received 50% of their salaryfor six months, those 200 workers who registered at the Angthong branch were classified asvoluntarily resigned, and given only 30% of their salary for three months. After those 200 workers
staged a demonstration for three hours, the director of the SSO’s Angthong branch reluctantly
10
11

For example, see Aphichart (2006), Somchai & Pat (2009: 16), and Kriengsak (2007)
For labor leaders’ views, see Thai Journalist Association (2006).

181

agreed to reclassify them and increased their unemployment benefit.12
II-5 Job Placement and Skill Development
Active unemployment policies, such as job placement and skill development, are embeddedin Thailand’s UI scheme. Those who receive unemployment benefits are required to report at least
once a month to the Government Employment Service Office. However, only a small fraction of
the unemployment benefit recipients attend skill development programs arranged by the
Department of Skill Development.
According to the statistics released by the Department of Employment, out of 31,867
unemployment benefit recipients who got a new job between July 2004 and December 2005, only
4,246 workers, or 13.3%, got a new job through the Government Employment Service Office, andthe remaining 27,621 workers, or 86.7%, found a new job by themselves (Worawan, et. al., 2006:
78).
Many workers complain that skill development programs arranged by the Department ofSkill Development do not match their needs and market demand (Wasana, 2006). Their programs
are so unpopular that only 198 unemployment recipients attended the programs between July
2004 and December 2005 (Worawan, et. al., 2006: 78, Bundit 2005: 14).
In almost all the developed economies, active unemployment policies are embedded in the
UI scheme. But, in newly industrializing middle-income economies with a limited administrative
capacity in job placement and skill development, like Thailand, we cannot expect those active
unemployment policies to be very effective. Except for Bangkok and its vicinity, each province
has only one Employment Service Office. If unlimited resources in terms of budget and personnel
were available, it would be recommendable to spend those resources to increase the number of the
Employment Service Offices and improve the quality of skill development programs. But if wetake into consideration the very limited amount of available resources and what Milan Vodopivec
called “environment prone to corruption” (Vodopivec 2009: 1), it does not seem advisable tospend a lot of resources on those active employment policies in the early phase of the UI scheme13.
For the early phase of the UI scheme, it would be better to concentrate on the quick and fairdisbursement of unemployment benefits, efficient and accurate collection of contribution, and thefinancial stability of the scheme.
III. Fallacies of the Conventional Arguments against the Early Introduction of UI
As shown in Table III-1, when Korea and Chinese Taipei introduced UI in the latter half ofthe 1990s, the vast majority of their labor force worked in the non-agricultural sectors. But
Thailand introduced UI when more than one-third of its labor force was in the agricultural sector.
12“Panakngan Minebea Ji So. Po. So. Angthong Jai Chotchoei Wang-ngan 50%,” Krungthep Turakit, July 9, 2009.
In June 2009, the National Anti-Corruption Commission unanimously decided to file a criminal charge against a former
director-general of the Social Security Office for irregularities in the rental contract of computers with a private company,
which cost 2.8 billion baht (Krungthep Turakit, June 16, 2009).

13

182

Because of the large number of farmers as well as own-account and unpaid family workers, lessthan half of Thailand’s labor force were employees at the time of the introduction of UI, while
employees occupied about two-thirds of the labor force in Korea and Chinese Taipei. Thailand’s
GDP per capita in 2004 was less than one-fourth of that of Korea and Chinese Taipei in the latter
half of the 1990s. Although Malaysia surpasses Thailand in all the three indices shown in Table
III-1, UI has not been introduced in Malaysia, yet.
Table III-1: Comparison of the Level of Economic Development at
the Time of the Introduction of Unemployment Insurance(Korea, Chinese Taipei, Malaysia, Thailand, the Philippines)
GDP per capita

Agriculture / Labor Force

Employee / Labor Force

Chinese Taipei (1999)

US$13,535

8.1 %70.6 %

Korea(1995)

US$11,779

11.8 %

62.6 %

Malaysia (2004)

US$ 4,898

13.3 %

74.6 %

Thailand (2004)

US$ 2,479

41.2 %

43.8 %

Philippines (2004)

US$ 1,040

31.7 %

52.1 %

Source: International Monetary Fund, World Economic Outlook Database, 2010
International Labor Organization, LABORSTA (http://laborsta.ilo.org/)* UI was introduced in Korea in 1995, and in Chinese Taipei in 1999. Malaysia and thePhilippines have not introduced UI, yet.

It was not until they felt acute “social pain” caused by the Asian financial crisis in 1997
when the Thai government started seriously considering the introduction of UI14. ILO wrote in
one of their reports published in 2001:
The recent Asian financial crisis has made it clear that unemployment insurance schemes
could have played a substantial role in coping with the unacceptable levels of hardshipcaused by rapidly escalating unemployment. They would also have helped to limit thecollapse of consumer demand and business confidence which made the crisis much moreacute than it would otherwise have been. (ILO 2001, 52)
But the Chuan administration (Nov. 1997 – Feb. 2001) took a very cautious attitude toward
the introduction of UI. The business leaders also expressed their concern with the adverse impactof the introduction of UI on the already badly weakened economy (Worawan, et. al., 2006: 49-50).
The main reasons raised by opponents of the introduction of UI are: 1) fiscal constraints of thegovernment, 2) possible abuse of the system in the absence of effective monitoring mechanisms,

14

Thailand’s GDP shrank 10.5 percent in 1998.

183

and 3) untimely and harmful burdens on employers15. Six years of relatively successful operationof UI in Thailand, however, show that these obstacles and problems are not insurmountable.
III-1 Fiscal Constraints of the Government
If UI is designed to cover all the unemployed with a sufficient amount of allowance for
their survival no matter how long they remain jobless, it will put a very heavy burden on thegovernment’s coffer, for sure. Infeasibility of such a “perfect” form of UI, however, does notmean that any forms of UI are infeasible in developing economies. With limited coverage (about25%) and small benefits (not more than 50% of the salary) only for a short period (not longer than
6 months), the UI scheme in Thailand has been operating in surplus since its start in 2004, as wehave seen in the previous section of this paper.
Even when an unemployment rate is high, the ratio of unemployment benefit (UB)
recipients to the insured can be kept low by limiting the coverage of UI. To illustrate this point, let
us examine a very simplified hypothetical case, where 1% of workers are laid-off every monthand all the laid-off workers remain jobless for 10 months. Under this hypothesis, theunemployment rate would reach 10% in ten months, and remain there from the 11th month on. If
UI covers all the unemployed, the ratio of UB recipients to the insured would be 1:9. However, if
UI covers only the first three months of unemployment, this ratio would drop to 1:3016. With this
1:30 ratio, it is not difficult to avoid a deficit in the UI scheme even if a contribution rate for
employees and employers is set at a modest level.
Relatively short duration of UB is recommendable not only for a financial reason, but also
for social fairness. As Table II-5 and II-6 in the previous section showed, those who remain
jobless for a longer period tend to have a higher pre-unemployment salary than those who remain
jobless for a shorter period. It is because those who are in dire poverty cannot afford to remain
jobless for a long period, for they have very small, if any, savings to rely on. A similar view isexpressed in a report written by World Bank experts when they examined the pros and cons of theintroduction of UI in the Philippines:
The peculiarity of developing economies like the Philippines is that unemployment is morecommon among non-poor workers, that is, members of more prosperous households are
more than proportionally represented in the ranks of the unemployed. For example, in
1997, of the households whose heads were not employed only 12.1 percent were poor, incomparison to a 25 percent poverty incidence in general. It therefore seems that given the
country’s present level of economic development, members of less prosperous households
15

Opponents of the introduction of the UI in the Philippines have also made similar arguments. See, for example, Esguera,
Jude H., Makoto Ogawa, and Milan Vodopivec (2002) and Manasan (2009). Counter-arguments against such oppositions in
the Philippines can be found in Weber (2010).
16
From the 11th month on, 90% of labor force would be employed and obliged to pay contribution to UI. If UI covers only
the first three months of unemployment, 30% of the unemployed would get unemployment benefits, while the remaining
70% would be disqualified.

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cannot afford to stay unemployed for a prolonged period of time. They try to cushion theloss of earnings by opting for low productivity jobs instead of not working at all while they
continue to pursue more adequate job opportunities. (Esguerra, Ogawa, and Vodopivec
2002: 9)If we take into consideration the limited resources the governments in the developing
economies have and the wide spread poverty among farmers and peasants in the rural areas aswell as those who work in the urban informal sectors, it might not be justifiable to provide too
benevolent UB to regular workers in the formal sectors. However, if regular workers in the formal
sectors are given no protection when they lose their job and no other option than to seek refuge in
the informal economy or go back to the rural areas, it will make over-supply of labor in those
sectors worse, and those workers’ skills obtained from their work in the formal sectors might bewasted. The first two or three months are often a critical period for not-so-affluent dismissed
workers to find a new job in the formal sector again. To provide UB to them for the first few
months of unemployment would not only alleviate their plights but also prevent their skills frombeing wasted.
It should also be stressed that UI in Thailand has been generating a large amount of surplus
as shown in Figure II-2 in the previous section. As UI in Thailand is established as a part of thesocial security system, which also provides old-age pension, maternity benefit, child allowance,
invalidity benefit, funeral benefit, and medical insurance, the surplus generated by UI is put into
the Social Security Fund together with surpluses in the other fields of the social security system.
The social security system in Thailand has been making over-all surplus since its start in 1991.
Figure III-1 shows the investment portfolio of the Social Security Fund in 2008.
Figure III-1: Investment Portfolio of the Social Security Fund (2008)

Source: Social Security Office, Annual Report 2008, p. 44.
If we regard state enterprises are a part of the government, Figure III-1 shows that 73.23%of the investment made by the Social Security Fund went to the government’s coffer. As the total
amount of investment the Social Security Fund made in 2008 was 567,906 million baht, it means

185

that 415,878 million baht went to the government’s coffer from the Social Security Fund in 2008
in exchange for treasury bills, government bonds, the central bank’s bonds, and state enterprisebonds.
The total amount of contribution UI collected in 2008 was 10,222 million baht (Social
Security Office 2009b: 38) with one-fifth of them from the government. That means, in 2008, thegovernment paid 2,044 million baht as their contribution to UI. The total amount of
unemployment benefit payment in 2008 was 2,437 million baht. Therefore the amount of UI’s
current surplus was 7,785 million baht. If we assume that 73.23% of this surplus was spent on thebonds issued by government agencies, it means that 5,701 million baht, which is much larger than
the amount of the government’s contribution to UI, went to the government agencies from UI in
exchange for various forms of bonds.
The government expenditure on staff and equipment for the operation of UI is excluded
from the above calculation, and the government will eventually have to pay back those bonds. The
above calculation, however, shows that, even if the government pays contribution to UI, if thecontribution rate is kept low, it will not put a burden on the government’s coffer, at least in the
short-run.
III-2 Possible Abuse of the System in the Absence of Effective Monitoring Mechanisms
The combination of a large informal sector and weak administrative capacity makes it
difficult to prevent abuse of the UI system. When the Thai government started seriously
considering the introduction of UI in 1998, the social security system in Thailand only covered
workers in the business enterprises with 10 or more employees. ILO recommended the Thaigovernment to expand the coverage of the social security system and include all the regular
workers regardless the size of companies they work before the introduction of UI, so that they canmonitor the employment status of workers more effectively (Worawan, et. al., 2006: 49). The
coverage of the social security system was expanded in 2002, and it became compulsory for all
the regular workers in the formal sectors to enroll in the social security system. However, evenafter the expansion of the coverage in 2002, the social security system covers less than 30% ofThailand’s labor force. Most of those who are not covered by the social security system arefarmers, own-account and unpaid family workers, and those who work in unregistered workplacesin the informal sectors.
As it is difficult for the Social Security Office to know who works in the informal sectors,
the dismissed workers can continue to get UB even after they start working in the informal sectors
or in the paddy fields. Though some Thai academics expressed serious concerns about thepossibility that such illegitimate UB claims might put an unbearable burden on UI, it turned outthat adverse effects of illegitimate UB claims were not as big as they worried.
In a sense, Thailand’s UI is designed on the assumption that many of UB recipients would
do a part-time job in the informal sector during the period for which they receive UB. UB for

186

voluntarily unemployed workers is set at 30% of their salary. Without doing some part-time job in
the informal sector, it is difficult for many of them to survive. In addition, the provision of UB forvoluntarily employed workers lasts for only three months. As the average income of the regular
workers in the formal sector is higher than that of those who work in the informal sector, many ofworkers who lost their job in the informal sector try to find a new job in the formal sector. Someof them succeed, while others fail.
For those who successfully find a new job in the formal sector, it is difficult to continue toreceive UB after they get a new job, because once they start working in the formal sector, theSocial Security Office will be informed of their new employment status. According to Table II-5
and II-6 in the previous section, 54.1% of those who received UB as voluntarily unemployedworkers stopped receiving UB before the third month, and 48.1% of those who received UB as
involuntarily laid-off workers stopped receiving UB before the six month. Many of those who
stopped receiving UB before the UB duration expires are probably those who found a new job in
the formal sector again within three or six months17.
Many of UB recipients do a part-time job in the informal sector, but not many of them do afull-time job in their first few months after their dismissal from the formal sector, because they
prefer to spare enough time for job seeking activities. Though the amount of UB is not large
enough to cover all of their daily expenses, they can survive by combining it with their income
from a part-time job in the informal sector.
It should also be noted that the qualifying condition for UB regarding the duration of theenrollment in the social security system is quite generous. If one works and pays contribution to
UI for six months in the 15 months before unemployment, one can get UB, as explained in theprevious section. In the un-irrigated areas, which constitute the vast majority of farmlands inThailand, farmers have little to do in the dry season, which starts in February and ends in
mid-May. If they go to work in the city for three months from mid-February to mid-May, andwork in their farmland for the rest of the year, and do the same thing in the second year, they can
get UB when they quit their job in the city in the second year, because by the time they go back totheir farmland in mid-May in the second year, they will have worked for six months in the 15
months before “unemployment.” No reliable statistics are available on how prevalent thesepractices are. But judging from the amount of UB paid each year, it does not seem that suchpractices are so rampant. There are many farmers who come to work in the city during the dry
season. But it is very hard for them to find a full-time job in the formal sector. Most of them workin the informal sector, or work as a part-time or irregular worker in the formal sector. Therefore,
not so many of them can enroll in the social security system.

17

Some of them stop receiving UB, even when they cannot find a new job in the formal sector. One of the most common
reasons is travelling cost to the Government Employment Service Office (ESO). As there is only one Employment Service
Office in most of the outer provinces, traveling costs can become prohibitively high for those who live far from ESO. See forexample, Wasana (2006).

187

III-3 Harmful Burdens on Employers and the Economy
Like in many other economies with UI, employers are also obliged to pay contribution to UIin Thailand as well. Though the contribution rate is as low as 0.5% of employees’ salaries, it puts
some burden on employers, for sure. Therefore, it is not surprising at all that business leaders in
Thailand lobbied against the introduction of UI, when the Thaksin administration showed muchstronger willingness to introduce UI than the previous administrations. On November 13, 2003,
when the Social Security Office was scheduled to start collecting contribution for UI in less than
two months, Federation of Thai Industries, Thai Bankers’ Association, and Thai Chamber ofCommerce jointly submitted a petition to the Thaksin administration to postpone theimplementation of UI, and make an amendment to exclude voluntarily unemployed workers from
UB recipients and also to abolish the mandatory severance pay in exchange for the introduction of
UI (Bundit 2004: 14). But the Thaksin administration rejected their requests, and started
collecting contribution in January 2004 as scheduled without making any amendment.
Though employers showed their dissatisfaction with some provisions in the UI regulations,they did not deny the societal needs of UI, and did not oppose the implementation of UI sostrongly. The biggest reason for their weak resistance was the low rate of contribution, which was
set at 0.5% of employees’ salary with the maximum monthly ceiling amount at 75 baht (about
US$2.5) per employee. With this small amount, its adverse impact on the profitability of theirbusinesses is limited. Another important reason was employers’ awareness of the importance ofsome forms of a social safety net.
As shown in Figure III-2, the Thai economy was hard hit by the Asian financial crisis in
1997, and political and social turmoil ensued. In the early 2000s, there was widely sharedconsensus that the adverse impact of financial crisis would have been smaller if they had had aproper social safety net. Thailand’s export-dependent economy is susceptible to the fluctuation of
the global economy. Without an effective social safety net, economic downturn caused by an
external shock is likely to trigger a vicious circle. The number of workers who are laid-off orafraid that they might be laid-off increases, and those workers will reduce their consumption
expenditure to the very minimum. The decline of domestic demand will further dampen theeconomy, and it will result in more lay-offs and deepen political and social turmoil, which will
scare away foreign investment. The decline in foreign investment will make an already bad
economic situation much worse.
But if UI can alleviate workers’ sense of fear about their uncertain future to a certain extent
by providing UB for the first several months of their unemployment, the decline of domestic
demand will be mitigated18. Having learned a bitter lesson from the financial crisis in 1997 andunprecedented economic slump in 1998, many of employers in Thailand came to realize theimportance of a social safety net for workers.
18
UI’s role as an alleviator of the decline of domestic consumption in the time of economic downturn was emphasized in thestatement made by the Social Security Office on February 7, 2007, which is downloadable at
http://prasitwiset.is.in.th/?md=content&ma=show&id=245

188

IV. Policy Implications
Thailand’s six-year experience with UI shows that the implementation of UI, if properly
designed, is not only feasible but also desirable even at the relatively early stage ofindustrialization. Because of the differences in the size of the informal sectors, administrative
capacity, and economic affluence, however, the standard OECD-type UI is unlikely to function
well in second-tier NIEs. We can draw a number of policy implications from Thailand’s
experience to figure out a more suitable form of UI for second-tier NIEs.
(1) Modest Unemployment Benefits
Unemployment benefits (UB) do not have to be so generous. Provision of 50% of the salary
for the first three to six months can make a significant difference in alleviating the plights of theunemployed workers. By making the duration shorter and the amount smaller, UI can maintainsurpluses even with a low contribution rate. By lowering a contribution rate, we can reduce theburden on employers and weaken their opposition to the introduction of UI.
The presence of the large informal sector, high labor mobility between rural and urban areas,
and limited administrative capacities make it difficult to prevent those who start working in theinformal sector after losing a job in the formal sector from receiving UB. In the second-tier NIEs,
UI should be designed on the more realistic assumption that many of UB recipients will do apart-time job in the informal sector while they look for a new job. If the amount of UB is set at
50% of the salary, those workers whose income was just a little above the subsistence level would
not be able to survive by solely relying on UB. But if they can supplement their income by doinga part-time job in the informal sector, they can continue to look for a more decent job, preferably
in the formal sector, for several more months.
Small amount and short duration of UB give unemployed workers a strong incentive to look
for a new job seriously. Needless to say, not all the unemployed workers will be able to find adecent new job in the formal sector within several months, no matter how hard they look for it.
Some of them might go back to the rural areas, and others might take a full-time job in theinformal sector. If they do so, it is very likely for their income to decline. In order to prevent it,
one may feel like making the duration of UB longer. But we should also take into consideration
the fact that, in developing economies, a large number of people are working in the agricultural
sector or in the informal sector without ever receiving UB, because they have never worked in theformal sector. To continue to provide UB for a very long period to those who used to work in theformal sector, while providing nothing to those who have never worked in the formal sector might
not be socially justifiable.
(2) Limited Effectiveness of Active Unemployment Policies
Skill development programs run by the Thai government have been ineffective. Only asmall fraction of the UB recipients attends government-sponsored skill development programs,

189because most of workers know that those programs would not improve their prospect of getting a
new decent job much. The government agencies in Thailand do not seem to have comparativeadvantage to the private sector in the field of skill development. If we take into consideration thelimited administrative capability of the Department of Skill Development and widespread
corruption in those government-sponsored skill development programs, it does not seem worth
spending much budget on them.
For developing economies where government agencies in charge of workers’ skill
development have insufficient administrative capabilities and susceptibility to corruption, active
unemployment policies are unlikely to work well, and it would be better to concentrate on the
improvement of the efficiency and transparency in contribution collection and benefit payment of
the UI scheme, at least in the first decade of its implementation.
(3) Severance Pay
Like many other developing economies, Thailand made it mandatory for employers toprovide severance pay to laid-off workers. When Thailand started considering the introduction of
UI seriously in the early 2000’s, some of the World Bank experts recommended the Thaigovernment to abolish the mandatory severance pay system. Their recommendation was
supported by the three main business organizations in Thailand. But the proposal to abolishmandatory severance pay in exchange for the introduction of UI was strongly opposed by labororganizations (Bundit 2004: 10). The populist government led by Thaksin Shinawatra decided tokeep the mandatory severance pay system even after the introduction of UI.
As shown in Table IV-1, the amount of mandatory severance pay differs depending on thelength of employment before lay-off. For those who worked for more than six years under one
employer, the amount of severance pay would be larger than that of UB. Weakness of theseverance pay system, however, is its susceptibility to moral hazard by employers. Severance pay
is mandatory only when workers are laid-off involuntarily without any misconduct. As explainedin the second section, it is not rare for employers to force their employees to “voluntarily” resignin order to avoid severance pay. Those who work in profit-making large-scale companies withstable and less oppressive labor relations are likely to get severance pay in a full amount when
they are laid-off, while their counterparts in smaller companies operating in the red with more
oppressive labor relations are less likely to get it.

190

Table IV-1: Mandatory Severance Pay
Length of Employment

Severance Pay Entitlement

More than 120 days but less than one year

30 days pay

Not less than one years but less than three years

90 days pay

Not less than three years but less than six years

180 days pay

Not less than six years but less than ten years

240 days pay

Not less than ten years

300 days pay

Source: Article 118, Labor Protection Law 1988
As there are significant overlaps in coverage, the mandatory severance pay system should
be integrated into UI in the long run. But the abolishment of mandatory severance pay at the timeof the introduction of UI might complicate the negotiations on the design of UI. If the monthly
amount of UB is set at 50% of their pre-lay-off salary, workers would not agree with theabolishment of mandatory severance pay unless UI provides UB for at least 20 months to those
who are laid-off after having worked for more than 10 years, because mandatory severance pay tothem, that is 300 days’ pay, is equivalent to UB of 50% of their monthly salary for 20 months. But
if UB is to be provided for 20 months to those who have worked for more than 10 years, and for
16 months to those who have worked for not less than six years but less than 10 years, the UI’s
contribution rate for employers and employees must be much higher. It will not be an easy task
for the government to persuade employers and employees to agree with such a high contribution
rate. To start UI with modest UB without abolishing mandatory severance pay might be a practical
way to introduce UI at an early stage of industrialization.
(4) Timing of the Introduction of UI
Thailand introduced UI seven years after the Asian financial crisis. As shown in Figure III-1
in the previous section, the Thai economy started recovering in 1999, and GDP growth rate
reached an impressive 7.1% in 2003. It was in 2003 when the Thai government made its final
decision on the introduction of UI, and they started collecting contribution in January 2004.
The economic crisis in 1997 changed the public perception of unemployment considerably.
It was not only low-educated factory workers but also a large number of high-educatedwhite-collar workers in the banking and financial sectors who lost their job suddenly. Many
people came to view unemployment not as a consequence of lack of diligence and ability but as aconsequence of macro-economic turbulence often caused by the volatile global economy.
Widely shared awareness of the necessity of a social safety net facilitates the introduction of
UI. But it is often infeasible to start collecting contribution when many businesses are struggling
just to stay afloat. In hindsight, the year 2004 happened to be the best timing for Thailand to
introduce UI. The Thai economy was in a good shape, but people’s memory about social pain

191

caused by economic turmoil in 1997/98 was still vivid. The Thai economy was hit hard again by
the turbulences in the global economy in the last quarter of 2008, and the number of lay-offs
increased in 2009. But social pain was at least partially alleviated by UI this time. The large
amount of surplus accumulated by the UI scheme during the four years of the operation of UI
before the economic slowdown in the last quarter of 2008 made employees as well as politicalleaders confident about the sustainability of UI even in the time of economic slump.
Thailand’s experience seems to imply that the best timing for other second-tier NIEs tointroduce UI is when their economy is recovering from the economic slowdown caused by the
turbulences in the global economy.
(5) Political AttractivenessIt should also be noted that the introduction of UI is likely to raise the popularity of politicalleaders who play a prominent role in its implementation. The labor minister as well as his deputies
received a lot of media attention when they made a statement on their plans to introduce UI. It
was under the Thaksin administration that the detailed design of UI was finalized and the final
decision to introduce UI was made. UI started paying UB to the unemployed in July 2004, only
seven months before the scheduled general election in February 2005. Though the introduction of
UI was not the only reason behind it, the incumbent government party led by Thaksin won an
unprecedented landslide victory by getting more than two-thirds of the seats in this election19.
(6) Role of International Organizations
One of the strongest supports for the introduction of UI came from inside the Ministry
Labor and the Social Security Office, partly because they learned the effectiveness of UI from theexperiences of other economies, such as Korea and Japan20, and partly because they hoped theintroduction of UI would increase the amount of budget and the number of personnel allocated totheir agencies.
Their proposal to introduce UI, however, was not so warmly welcomed by othergovernment agencies, especially the Ministry of Finance, and faced a cool response from businessassociations when they started advocating its introduction in 1998. Many of the bureaucrats inother ministries and business leaders had a negative view on UI. They had an impression that UI
is a very costly program. Some of them were afraid that UI might spoil the workers, and others
thought that UI was one of the main reasons for European welfare states’ economic failure, which
Thailand should not repeat. In order to dispel those negative images, Thailand’s Social Security
Office asked various international organizations, such as International Labor Organization, World

19

As for the analysis of political factors behind the introduction of UI, see Worawan, et. al., 2006: 57-60.
Interview with officials at the Social Security Office in August 2009. Thailand’s UI has more similarity to those in Korea
and Japan than to those in Western Europe. Korea accepted study teams from Thailand several times, and Japan International
Cooperation Agency sent a number of Japanese specialists to provide technical assistance in the designing process of, as wellas in the initial stage of implementation of, Thailand’s UI.

20

192

Bank, and Japan International Cooperation Agency to conduct a feasibility study.
The feasibility studies conducted by those international organizations turned out to be avery effective tool for the Ministry of Labor and the Social Security Office to persuade othergovernment agencies and business leaders to agree with the introduction of UI. One of thefeasibility study reports submitted by ILO wrote: “the contribution rate necessary to finance amodest unemployment insurance scheme would in the long run be less than 1 per cent of
earnings,” (ILO 2001, 52) and played an important role in reshaping the perception of UI in
Thailand.
Thailand’s experience suggests that the advocates of UI in other second-tier NIEs mightalso be able to use feasibility studies and policy advices by international organizations as aneffective tool to change their opponents’ perception of UI.
(7) Once-and-for-All Chance
A caveat must be mentioned at this point. If properly designed and properly managed, UI
can maintain its financial sustainability and alleviate the plights of the unemployed even in newly
industrializing economies. But that also means that UI might become financially unsustainable
and might not mitigate the sufferings of the unemployed much, if improperly designed and/or
improperly

managed.

Riskofendingup

withhavingimproperly-designed

and/orimproperly-operated UI is not small in many of developing economies.
Once improperly designed UI is introduced, or once the UI scheme is seriously plagued
with corruption and inefficiency in the first several years of its operation, the public will lose theirconfidence in UI, and both employers and employees will start resorting to all means available toevade the payment of their contribution to UI. The morale of the staffs in charge of UI will also
deteriorate, and the abuse of the UI scheme by unqualified claimants will also become rampant.
In this sense, the introduction of UI is a once-and-for-all chance. If a proper UI scheme issuccessfully installed, it will do a lot of good things. But if not, it may do more harm than good.
To make it worse, once it is installed, it is difficult to uninstall. However, it should also be added
that, though the introduction of UI is a risky endeavor, it is more risky for small export-dependent
second-tier NIEs to face the volatility of the global market without having UI.

193

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Thai Journalist Association (2006) “Chamlae Chongwo Prakan Kan Wang-ngan,” Thai Journalist
Association's website: http://www.tja.or.th/old/index.php?option=com_content&task=view&id=321&Itemid=90, posted on December 6.
Vodopivec, Milan (2004) Income Support for the Unemployed: Issues and Options (Regional and
Sectoral Studies), World Bank.
Vodopivec, Milan (2009) “Introducing Unemployment Insurance to Developing Countries,” IZA(Institut zur Zukunft der Arbeit) Policy Paper No. 6.
Wasana Lamdee (2006) “Khon Tokngan kab Khwam-khatwang to Prakan Sangkhom,”
Prachathai, June 2.
Weber, Axel (2010), “Social Protection in Case of Unemployment in the Philippines: Feasibility
Study,” International Labour Organization.
Worawan Chandoevwit (2000) “Unemployment Insurance,” TDRI Quarterly Review, Vol. 15 No.
3 September 2000.
Worawan Chandoevwit et. al. (2006) Nayobai Kanprakan Kanwang-ngan kab Phonkrathob to
Sawatdikan khong Khonthai, Thailand Development Research Institute.
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downloadable at
http://www.worldbank.or.th/WBSITE/EXTERNAL/COUNTRIES/EASTASIAPACIFICEXT/TH
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and Development and the International Finance Corporation to the Executive Directors on aCountry Assistance Strategy of the World Bank Group for the Kingdom of Thailand,”Report No. 25077-Th, January 22.
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Hotel, April 9.

195

Employment Insurance andActive Labor Market Policies in Chinese Taipei
Ke-Jeng Lan* and Wen-Chi Chou∗∗I. Introduction
The financial crisis erupted in 2008 and is considered by many economists as the worst one
since the Great Depression in the 1930s; it has not only resulted in the collapse of financial
institutions, but also triggered seriously rising unemployment around the world. A senioreconomist, Mr Gyorgy Szirzczki, in the ILO’s Regional Office for Asia and the Pacific said: “It isestimated that as many as 100 million people in Asia could be unemployed this year”. However,“Few countries in the region have an adequate unemployment insurance scheme, especially thosein the so-called “informal economy”. “So, in extraordinary times like we are now experiencing,extending social protection becomes critical”, stated Ms Sachiko Yamamoto, the ILO’s Regional
Director for Asia and the Pacific1 . Therefore, in June 2009 during the International Labor
Conference, ILO member states adopted a ‘Global Jobs Pact’, i.e., one global policy instrument
addressing the social and employment impact of the international financial and economic crisis,
centering on investments, employment and social protection.
In line with ILO Global Jobs Pact, the APEC Leaders’ Meeting of 2009 in Singapore also
addressed the risks of job crisis and got back on the track with the creation of decent work2.
Initiated by the bubble real estate market in the U.S. and the collapse of Lehman Brothers in thefirst half of 2008, the world has encountered the financial crisis since the latter half of 2008 with adeclining gross domestic product (GDP)3 and then a higher unemployment rate. Under suchcircumstances, every economy, including Chinese Taipei, has tried to revive its economy andalleviate the suffering of unemployment. In terms of employment and social policy, a mechanismof (un)employment insurance and active labor market policies (ALMPs) play the core roles tosupport the income of the unemployed and assist reintegration into employment.

∗ Ke-Jeng Lan is Associate Professor at National Chung-Cheng University, Department of Labor Relations. He received aPh.D. at Economics from Ohio State University, USA in 1989. His research specializes on the areas of labor economics,
economic analysis of labor laws and forign workers policy.
∗∗ Wen-Chi Chou is Associate Professor at National Chung-Cheng University, Department of Labor Relations and Instituteof Labor Studies. She received a Ph.D. at Sociology from Bristol University, UK in 2000. Her research specializes on theareas of employment security, employment in the ageing society, youth unemployment and gender studies. You can findmore details from her website at http://odin.ccunix.ccu.edu.tw/~labchou/1
Data Source: The Economic Crisis in Asia: It’s about real people, real jobs. 26 June 2009. Retrieved http://www.ilo.org/
global/About_the_ILO/Media_and_public_information/Feature_stories/lang--en/WCMS_108585/index.htm
2
Data Source: Asia-Pacific Economic Cooperation (APEC) Economic Leaders’ Meeting 2009-ITUC/APLN Statement, A
Priority: tackling the Financial and economic crisis. Singapore, 14-15 November 2009. Retrieved from http://www.ituc-csi.
org/asia-pacific-economic-cooperation.html?lang=en
3
From the composition of GDP=C (consumption) ＋ I (investment) ＋ G (government expenditure) ＋ X (exports) －M( imports), GDP has declined significantly since C, I, X and M have declined substantially.

197

Although the global economy has started to recover recently, the labor markets have not
improved too much (ILO 2010). The unemployment rate in Chinese Taipei is still very highdespite the joining of Chinese Taipei to the World Trade Organization (WTO) in 2002 and thestable recovery of the current economy in Chinese Taipei after the impacts of the global financial
crisis on job opportunities. The Chinese Taipei government is facing the challenges of how toshorten the recovery time in employment due to the high unemployment rate. The problems of
unemployment and the structures of job opportunities are significantly affected by the seasons ofschool graduation and the entry into the Economic Cooperation Framework Agreement (ECFA).
As a result, it is very difficult for Chinese Taipei to go back to the era of full employment and low
unemployment. By contrast, Chinese Taipei society and government need to deal with challenges
posed by globalization and population ageing and the following issues of the high rate of theunemployment and repeat unemployment as well as the largely worsening income distribution
between the rich and the poor (Chou 2010a).
The short-term rate of unemployment exceeded 2% and remained below 2% in the rest of
the period during two periods of the oil crisis in the 1980s. The unemployment rate has increasedin Chinese Taipei since 1996 and exceeded 2%. In 2002, the unemployment rate in Chinese Taipei
reached 5.17% due to global recession. In addition, the rate of unemployment exceeded 6% in
July, August, and September 2009 and 0.64 million persons were unemployed in 2009 due to theglobal financial crisis in 2008. The average rate of unemployment reached 5.85% in 2009 whichbroke the historical record of the past five decades.
Recession is not a new experience for the international community. OECD economies had
adopted a variety of strategies to fight against the high unemployment rate in the 20th century. For
example, in the 1970s, some OECD economies adopted the early retirement option and lowering
requirements of disability benefits (OECD 2009: 16). In the 1990s, France, Germany and the U.S.
provided a subsidy to re-employed workers of the part earnings differential between current andprevious jobs if compensation for the current job was lower. Finland and France lowered theirunemployment benefits to promote reemployment while Korea relaxed its coverage of
unemployment insurance to help unemployed workers. (OECD 2006: 57)
As for reactions to the financial crisis in 2008, OECD economies mostly adopted providing
vocational training to unemployed and employed workers, promoting labor demand, creating
short-term employment opportunities, and assisting in job search (OECD 2009: 11). In assessing
various policies, OECD (2009) pointed out that governments shall adopt various measures toassist unemployed older workers, youths, and new entrants; fiscal sustainability under
unemployment benefits extension and unemployed workers who were not covered byunemployment insurance would be challenges of the social security system; related policy shallintegrate measures of social assistance; the effectiveness of requiring the unemployed’s
responsibility of an active job search decline with depression; creation of public works would
encounter the problem of rationing; short-time work schemes of subsidizing workers’ incomes198

under shrinking work hours had to be kept short-term for efficiency; employment subsidy ofhiring vulnerable groups did not reveal a significant positive effect; non-discriminated ALMPs
shall be promoted to immigrants to attract and integrate immigrants; ALMPs shall be adjusted
timely, aiming at target groups and keeping temporary, to avoid the negative effect of reentering
the traditional labor market.
Encountering an unprecedented higher unemployment rate due to the financial crisis in
42008 , Chinese Taipei has adopted5 a variety of employment and social policies to fight against it
as well. Scholars may be interested in the following issues.
1. What were the unemployment problems in Chinese Taipei for the past decades andduring the global financial crisis?
2. What has been the historical development and the actual conditions of employment
insurance as well as their political/economic implications in Chinese Taipei?
3. What are the current active labor market programs available in Chinese Taipei and theireffects?
4. What are the existing challenges of Chinese Taipei’s employment insurance and thepolicy suggestions?
The Employment Insurance (EI) in Chinese Taipei has contributed partly to ease theunemployed person’s economic hardship during recessions and has been amended in reaction to
the financial crisis. Other ALMPs have been provided through the Employment Services Act with
the Employment Stabilization Fund which is collected from employers of (low-skilled) foreign
workers. Therefore the EI and ALMPs related to the Employment Services Act will be exploredprimarily. To cope with recent changes and future challenges, the social safety net, in particular
the EI, in Chinese Taipei shall have a better framework to keep the resilience of the society ofChinese Taipei. Thus some suggestions will be provided in the final section.
This article concentrates on the analysis of unemployment problems and public policy.
Contents of collective bargaining or individual bargaining are ignored because the trade unions do
not have significant bargaining power and individual bargaining is difficult to be detected.
II. Features of the Labor Market in Chinese Taipei
Due to the global financial crisis, Figure 1 shows that the economic growth rate in Chinese
Taipei has become negative (-0.8%) since the third quarter of 2008 and dropped to -9.06% in thefirst quarter of 2009. Although the economic growth rate has become positive since the fourth4
The unemployment rate in Chinese Taipei increased from May 2008 (3.81% in April 2008 was the lowest level), surpassed
5% in December 2008, surpassed 6% in July 2009, reached a record high of 6.13% in August 2009, declined since then andwas 5.68% in January 2010. The exports and imports in Chinese Taipei had declined from September 2008 to December
2009 and the GDP has declined from the fourth quarter of 2008 to the third quarter of 2009.
5
In order to boost GDP, Chinese Taipei also issued a consumption coupon of NT$85.6 billion to all residents in January
2009, increased NT$84.6 billion government expenditure on public construction projects, and promoted trade and initiatedthe ECFA (Economic Cooperation Framework Agreement) negotiation with China to stimulate exports.

199

quarter of 2009, the relative unemployment rate did not improve too much in Chinese Taipei, thatis, jobless growth. Jobless growth was defined as economic growth while maintaining or
decreasing the level of employment.
% 15

7
6.08

10

5.85
5.70

5.84

5.62

6
5.27
5

4.68
5
3.87

3.87

%

4.16

4
3

0
6.88

5.38

-0.80

-0.98

9.06

13.27

7.66
2

-5
1
-6.85

-7.11
-10

0

-9.06

2008I 2008II 2008III 2008IV 2009I 2009II 2009III 2009IV 2010I 2010II
GDP growth rate(left scale)

Unemployment rate(right scale)Figure 1. 2008-2010 GDP Growth Rate and Unemployment Rate in Chinese Taipei
Source: Directorate-General of Budget, Accounting and Statistics, Executive Yuan

Figure 2 mainly explains the increasing number of recipients of UI benefits in Chinese
Taipei during the global financial crisis. It shows that the number of recipients of UI benefits
showed significant growth as compared to the previous year during the global financial crisis.
However, these unemployed persons in Chinese Taipei could at least get their basic protections ofincome security owing to the Employment Insurance Act.

200

thousands
120
100
80
60
40

2009-12

2009-11

2009-10

2009-92009-8

2009-7

2009-6

2009-5

2009-42009-32009-2

2009-1

2008-12

2008-11

2008-10

2008-92008-8

2008-7

2008-6

2008-5

2008-4

2008-3-20

2008-20

2008-1

20

Recipients

Figure 2. Number of the Recipients of UI Benefits (changes over the previous year)
in Chinese Taipei, 2007-2009
Source: Directorate-General of Budget, Accounting and Statistics, Executive Yuan
Figure 3 shows that the cause of the early two periods of high unemployment rates in
Chinese Taipei was the oil crisis (1983 and 1985) and the unemployment rate afterwards remained
below 2% until 1996 (2.6%). After that, the unemployment rate reached the peak twice in 2002
and 2009 due to a change of structures and transitions of Chinese Taipei’s industrial structures andthe global financial crisis (Chou 2010a).

7
%

5.85

6
4.57

5
4
2.91

2.71

3

2.6

2
1

2010(1~3)

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

1988

1987

1986

1985

1984

1983

1982

1981

1980

1979

1978

0
year

Figure 3. Historical Trends of Unemployment Rates in Chinese Taipei, 1978-2010
Source: Directorate-General of Budget, Accounting and Statistics, Executive Yuan (2010)
Chinese Taipei has been a member of the WTO since January 2002 and promoted a higher

201

degree of globalization. The growth of trade with China across the Strait is the most significant
development in recent years6. This section briefly depicts Chinese Taipei labor market fromfeatures of labor force, employment, unemployment, and work compensation.
2.1 Labor ForceThe number of civilian population aged 15 years and over and the labor force grew steadilyin the long-run even during the financial crisis (Figure 4). They were 18,855,000 and 10,917,000
persons in 2009, respectively. Nevertheless, persons older than 65 years old showed a growing
trend (Figure 5) which was estimated to result in an increasing dependency ratio 7 . Total
dependency ratio was about 37.8% in 2008 and was projected to increase to 45.1% by 2023 andthen expected to increase to 91.2 % in 2056. The implications of population ageing on the labormarket and productivity for the case of Chinese Taipei could also be referred to Chou (2010b).

Figure 4. Number of Civilian Population 15 Years Old and Over and Labor Force
Source: Council of Labor Affairs website, labor statistics.

6

More than 40% of exports and imports are across the Strait.
Dependency ratio is defined as (population of 14 years or under + population of 65 years or over) / (population of 15-64
years) *100.
7

202

%

40
Japan

35

Taiwan30

South Korea
Italy

25

Singapore

20

Spain

15

U.K.
U.S.A.

10

World

5
2010

2015

2020

2025

2030

2035

2040

2045

2050

years

Figure 5. Population 65 Years Old and Over in Selected Major Economies
Sources: 1. United Nations, World Population Prospects: The 2008 Revision;
2. Population Projections for Chinese Taipei Areas: 2008 ~ 2056 (2008), Council for
Economic Planning & Development, Chinese Taipei(a) Trend of Labor Force Participation Rate
The LFPR had a relatively low level in 2001 (57.23%), then increased until 2008 (58.28%)
and declined in 2009 (57.90%) due to the financial crisis (Figure 6). The LFPR and theunemployment rate changed in opposite directions during Aug. 2008-Nov. 2009 (left part of
Figure 5) which reflected a discouraged workers effect.

The LFPR by gender showed adeclining male LFPR (66.40% in 2009) and an increasing female LFPR (49.62% in 2009) (Figure7) reflecting the effect of promoting female employment by government over two decades8. The
expansion of service sectors and the increasing number of dual-income and dual career families
has also partly explained the increase of female labor force participation rates.

8
Some may argue that females are a reserved labor force (claiming that females will participate in the labor market more
under a recession and retreat from the labor market in a boom), yet females may not encounter a better employment
environment without government assistance.

203

Figure 6. Unemployment Rate and Labor Force Participation Rate
Source: Council of Labor Affairs website, labor statistics.

Figure 7. Labor Force Participation Rate by Gender
Source: Council of Labor Affairs website, labor statistics.
Concerning the LFPR by age group, the age group of 25-44 presented the highest LFPR
(84.19% in 2009), the age group of 45-64 the second (60.25% in 2009), the age group of 15-24
the third (28.62% in 2009), and the age group of 65 or over the lowest (8.05% in 2009). During
the financial crisis, the age group of 25-44 kept increasing the LFPR (83.81% in 2008), while204

age groups of 15-24 (30.17% in 2008), 45-64 (60.83% in 2008) and 65 or over (8.10% in 2008)
were declining (Figure 8). These showed that the financial crisis was a setback to the LFPR of age
groups of 15-24, 45-64 and 65 or over.

Figure 8. Labor Force Participation Rate by Age Group
Source: Council of Labor Affairs website, labor statistics.
Concerning the LFPR by education, college and above showed the highest LFPR (68.40%
in 2009), high school the second (62.61% in 2009), and junior high the least (41.67% in 2009),
which were closely related to the increase of educational level over time and the reducing
numbers of young workers due to a lower fertility rate. During the financial crisis, the LFPR ofcollege and above kept increasing (68.18% in 2008), junior high and below kept decreasing(42.87% in 2008), while high school decreased (63.64% in 2008, 62.61% in 2009) from its peakin 2007 (63.95%) (Figure 9). Hence high school was the victim group of the financial crisis interms of LFPR.

205

Figure 9. Labor Force Participation Rate by Education
Source: Council of Labor Affairs website, labor statistics.
(b) Number of (Low-Skilled) Foreign Workers
Due to declining LFPR, low fertility rate, NT dollar appreciation, increase of educational
level, and the enactment of the Labor Standards Act, a labor shortage of low-skilled workers had
become an issue in the late 1980s. In reaction to alleviate the labor shortage, Chinese Taipei has
opened its door to (low-skilled) foreign workers since 1989. The number of foreign workers had
increased rapidly to 351,016 persons by the end of 2009. During the financial crisis, the numberof foreign workers decreased from the peak of 374,147 persons in July 2008 to the lowest 341,484
persons in June 2009, primarily due to the reduction of foreign workers hired in manufacturing(194,258 persons in July 2008, 158,728 persons in June 2009) (Figure 10)9.

9

Possible reasons include the market mechanism (layoff some foreign workers and nationals at the same period) andgovernment policy to restrict new hiring of foreign workers.

206

Figure 10. Trend of Foreign Workers
Source: Council of Labor Affairs website, labor statistics.
2.2 Employment/Unemployment
Under globalization, the labor demand in Chinese Taipei has changed fast and promoted
polarization. Skilled jobs a decade ago may become low-skilled ones because of deskilling orcontracting out overseas. In searching for flexibility, there is a growing share of contingent(non-standard, atypical) workers, particularly dispatched workers and a routine to rotate
work-sites around the world. Nondiscrimination has been highlighted for decades, but employers’
demand for flexibility may cause avoiding such social responsibility.
On the supply side, a significant amount of low-skilled foreign workers have been hired(357,937 persons in the end of 2007, 351,016 persons in the end of 2009)10. Low-skilled nationals
may face a more competitive labor market than before and they prefer local jobs while afraid of
migration due to asymmetric information. The capacity of colleges has expanded fast so that a lot
more college graduates are supplied to the market each year which results in larger new entrants’
unemployment. In the following, number of employed, employment by class of workers,
nonstandard workers, and unemployment rate are analyzed.
(a) Number of Employed
The number of those employed in the tertiary sector has grown the fastest over the past
three decades and reached its peak in 2008 (3,540,343 persons). The number of those employed in
the industrial sector has grown slower over the past three decades yet reached its peak in 200810

The number of low-skilled foreign workers had increased to 359,583 persons in June 2010 (Council of Labor Affairs 2010:
176).

207

(3,048,257 persons) as well. Both declined in 2009 (3,446,509 persons in the tertiary sector and2,884,127 persons in the industrial sector) due to the financial crisis. The number of those
employed in the primary sector has shrunk over the past three decades and reached its bottom in2008 (535,000 persons), but it increased in 2009 (543,000 persons) to absorb some urban
unemployed (Figure 11).

Figure 11. Number of Employed in Three Sectors
Source: Number of employed in the industrial and the tertiary sectors are collected fromwww.dgbas.gov.tw, number of employed in the primary sector are collected from Councilof Labor Affairs website, labor statistics.
Disabled person employment peaked in 2006 (187,602 persons), lowered significantly to
134,432 persons in 2007 (no data is available for 2008) and increased to 163,112 persons in 2009
(Figure 12). It seems that disabled person employment does not suffer from the financial crisis,
which increment may be related to governmental specific programs to promote employment ofvulnerable groups. As for aborigines, their employment peaked in Dec. 2005 (207,493 persons),
then declined up to Sept. 2009 (198,950 persons) and increased in Dec. 2009 (203,412 persons)(Figure 13). Hence aboriginal employment suffered from the impact of the financial crisis until
Sept. 2009.

208

Figure 12. Disabled’s Employment and Monthly Wages
Source: Council of Labor Affairs website, labor statistics.

Figure 13. Aboriginal Employment and Average Wage
Source: Council of Aboriginal Affairs website, Surveys of Aboriginal Employment.
(b) Employment by Class of Workers
Regarding employed persons by class of workers, it can be detected that private employees
are the largest group, growing in the long-run and peaking in 2008 (6,945,000 persons), numberof employers or self-employed the second, peaking in 2000 (2,036,000 persons) then declining

209

until 2009 (1,802,000 persons), number of government employees the third, peaking in 2000
(1,027,000 persons) then declining but varying (low points observed in 2000, 2002 and 2007) toincrease in 2008-2009 (958,000 persons in 2008) and peaking in 2009 (1,040,000 persons), andthe number of unpaid family workers the least, declining since 1987 and reaching its lowest levelin 2009 (588,000 persons) (Figure 14).
Over the period of 2007-2009, it is found that private employees varied (6,803, 6,945 and
6,850 thousand in 2007-2009 respectively) that employers or self-employed (1,919, 1,882 and1,802 thousand in 2007-2009 respectively) and unpaid family workers (641, 619 and 588
thousand in 2007-2009 respectively) declined while government employees increased (932, 958
and 1,000 thousand in 2007-2009 respectively). These trends imply that various programs of
ALMPs adopted in recent years may have attracted other class workers to migrate into the public
sector.

Figure 14. Employed Persons by Four Classes of Workers
Source: Council of Labor Affairs website, labor statistics.
(c) Nonstandard Workers
Nonstandard workers, particularly dispatched workers, have grown rapidly and that has
raised concern11 in recent years. According to enterprises, dispatched workers can be utilized to
substitute permanent hiring in an uncertain recovery to preserve resilience.

As recovery

becomes certain, dispatched workers with good performance may be recruited to permanent
positions. According to the surveys conducted by the Directorate-General of Budget, Accounting
and Statistics (DGBAS), the number of nonstandard workers increased steadily with 368,000
11For example, reasons for dispatched workers prevail, how dispatched workers rights can be protected effectively, whether
a Dispatched Act shall be enacted (the CLA proposes currently to amend the Labor Standards Act to cover the phenomenonof dispatched workers).

210

part-time workers and 517,000 temporary or dispatched workers in 2009, which grew from thefigures in 2008 (311,000 part-time workers and 498,000 temporary or dispatched workers) (Figure
15).

Figure 15. Number of Nonstandard Workers
Source: www.dgbas.gov.tw, Manpower Utilization Survey Report.
(d) Unemployment Rate
Unemployment rate is used as the indicator of unemployment here. The unemployment rate
in Chinese Taipei had surpassed 2% since 1996 and then 4% since 2001. The former one pushed
the start of offering UB under the Labor Insurance in 1999 while the latter promoted theenactment of EI Act in 2003. The unemployment rate reached its peak in 2002 (5.17%), thendeclined to 3.91% in 2007, increased to 4.14% in 2008, and reached a new high of 5.85% in 2009
(Figure 16).
The unemployment rate revealed its relatively lowest level in April 2008 (3.81%), increased
from May 2008, surpassed 5% in December 2008, surpassed 6% in July 2009, reached its highest(6.13%) in August 2009, declined thereafter, and was 5.74% in the end of 2009 12(www.dgbas.gov.tw). Comparing with the LFPR13, the impact of the financial crisis may be morestriking if comparing August 2009 to August 200814.
The high record of the unemployment rate during the financial crisis induced amendment of
the EI Act in May 2009 to extend UB and provide an employment stabilization clause. Moreover,the unemployment rate in Chinese Taipei has started to increase since May 2008 (3.81% in April
12

The unemployment rate declined further to 5.14% in June 2010. President Ma had claimed to lower the unemployment
rate to be below 5% by the end of 2010 in February 25, 2010. This goal is equivalent to reducing unemployment of 240,000
persons from the figure in Jan. 2010.
13
The LFPR reached its highest in August 2008 (58.53%), declined thereafter, down to 57.70% in April 2009, increased
from May 2009 (57.76%) and was 58.11% in December 2009. (www.dgbas.gov.tw)
14
Such comparison may avoid seasonal factors as well.

211

2008 was the lowest level), surpassed 5% in Dec. 2008, and surpassed 6% in July 2009 (6.07%).
Unemployment rate is a traditional indicator of the business cycle; however, the Chinese Taipei
government did not detect the message of recession until Oct. 2008 when the furlough prevailed.

Figure 16. Trends of Employment, Unemployment and Unemployment Rate
Source: Council of Labor Affairs website, labor statistics.
Looking into the unemployment rates by education level, high school has the highest level(4.31%, 4.34% and 6.19% over the period of 2007-2009, respectively), college and above thesecond (4.00%, 4.21% and 5.57% over the period of 2007-2009, respectively), and junior high or
under the third (3.22%, 3.76% and 5.84% over the period of 2007-2009, respectively) (Figure 17).
The unemployment rate of junior high or under was higher than that of college and above in 2009,
which may be ascribed to government policy leaning to promote employment of those in college
and above.

212

Figure 17. Unemployment Rates by Education
Source: Council of Labor Affairs website, labor statistics.
The unemployment rates by gender show that males have presented a higher levelsystematically than females since 1996. Over the period of 2007-2009, female unemployment
rates were 3.72%, 3.83% and 4.96%, respectively, while male unemployment rates were 4.05%,
4.39% and 6.53%, respectively showing that the gender gap enlarged15 during the financial crisis(Figure 18). Such observation may be a result of actively promoting female employment bygovernment.

15

Say, 4.05/3.72=1.0887, 4.39/3.83=1.1462, 6.53/4.96=1.3165.

213

Figure 18. Unemployment Rates by Gender
Source: Council of Labor Affairs website, labor statistics.
As for the unemployment rates by age group, the age group of 15-24 had the highest level(10.65%, 11.81% and 14.49% over the period of 2007-2009, respectively), the age group of 25-44
the second (3.86%, 4.02% and 5.93% over the period of 2007-2009, respectively), the age groupof 45-64 the third (2.24%, 2.54% and 3.90% over the period of 2007-2009, respectively), and theage group of 65 or over the lowest (0.16%, 0.17% and 0.13% over the period of 2007-2009,
respectively) (Figure 19). These revealed that the age group of 45-64 increased its unemployment
rate with the largest proportion over the period of 2007-200916, the age group of 25-44 thesecond17, and the age group of 15-24 the third18. Moreover, age groups of 15-24, 25-44 and45-64 had a higher unemployment rate due to the financial crisis while that of the age group of 65
or over declined; the latter might be a result of the discouraged workers effect.

16

3.90%/2.24%=1.741.
5.93%/3.86%=1.536.
18
14.49%/10.65%=1.361.
17214

Figure 19. Unemployment Rates by Age Group
Source: Council of Labor Affairs website, labor statistics.
Disabled person’s unemployment rate remains high constantly, with a peak revealed in 2000
(20.93%), the lowest level appeared in 2005 (14.55%), then it increased to 16.70% in 2007 andfurther to 17.30% in 2009 (Figure 20). In combination with the increment of disabled person
employment, it is inferred that the disabled transfer their status between non labor force and labor
force.

Figure 20. Disabled Person’s Unemployment Rate
Source: Council of Labor Affairs website, labor statistics.

215

Aboriginal unemployment and unemployment rate reached the lowest level in Dec. 2005
(unemployment was 9,263 persons, unemployment rate was 4.27%), then increased gradually in
Sept. 2009 (unemployment was 19,306 persons, unemployment rate was 8.85%) and declined in
Dec. 2009 (unemployment was 16,053 persons, unemployment rate was 7.31%) (Figure 21).
These imply that aborigines suffered increasing unemployment rates before the financial crisisand became worse off during the financial crisis.

Figure 21. Aboriginal Unemployment, Unemployment Rate and Non labor Force
Source: Council of Aboriginal Affairs website, Surveys of Aboriginal Employment.
2.3 Work Compensation
In the financial crisis, the furlough has been adopted gradually by enterprises as a substitutefor layoffs. The phenomenon of the furlough became a concern by the mass media in October
2008 and resulted in a tracing survey by the government. The number furloughed was 202,000
persons, mostly (71.4%) in enterprises with 500 or more workers in December 2008(http://file.ejob.gov.tw/Uploadfiles/4642.doc). The number climbed to the highest 238,000
persons in March 2009 (Aug. 17, 2009, United Evening News), and then declined to 144,000
persons in April 2009 (Shin 2009:10), 66,709 persons in August 2009 (Aug. 17, 2009, United
Evening News) and 10,000 persons in the end of 2009 (Feb. 25, 2010, DGBAS News Brief).
The financial crisis has lowered work compensation. The average wages of employees in
the industrial and tertiary sectors and the manufacturing showed a decreasing trend from August
2008 to August 2009. The decreased proportions were 4.00% (1-39827/41486) and 9.74%(1-36524/40466), respectively. Additionally, the proportions of regular wage in the industrial andtertiary sectors and the manufacturing were not stable. For example, the proportions were 88.14%
and 85.47% in August 2008, 90.09% and 89.21% in August 2009, and 84.78% and 81.16% in216

December 2009. However, over the period of 1999-2009, Chinese Taipei GDP increased by
17.5%, but the average wage in the industrial sector decreased by 4.3%, so it was claimed thatworkers’ compensation did not keep up with economic growth.
Employees’ average monthly wages by industry showed a growing trend, up to 2008 when
the financial crisis occurred. Among them, the industrial sector (NT$43,302), the manufacturing(NT$43,169) and the banking and insurance (NT$75,732) presented their peak in 2007, while thetertiary sector (NT$45,450) and the computer, electronic and optical products manufacturing(NT$49,754) had their peak in 2008 (Figure 22).

Figure 22. Employees’ Average Monthly Wages by Industry
Source: DGBAS website, www.dgbas.gov.tw.
Wages for disabled persons (Figure 12) and aboriginals (Figure 13) were lower than thelevels of the general society (Figure 22). Before the financial crisis, work compensation in
Chinese Taipei showed a bonus-inclined trend, namely, regular wage proportion decreased whileirregular wage proportion increased over time. For example, the regular wage proportions of theindustrial and tertiary sectors and the manufacturing declined over the period of 2003-2007 andreversed their direction in 2008-2009. That of the computer, electronics and optical products
declined over the period of 2002-2007 and reversed its direction in 2008-2009. That of thebanking and insurance declined over the period of 2005-2008 and reversed its direction in 2009
(Figure 23). The irregular wage proportions reflected the opposite trend (Figure 24). Increasing
irregular wage proportion might be ascribed to strategic human resource management adopted byenterprises in reaction to increasing nonwage personnel costs. Under the financial crisis,217

enterprises presented more resilience to a lower irregular wage (hence a lower irregular wage
proportion and a higher regular wage proportion) to alleviate the impact of depression.

Figure 23. Employees’ Regular Wage Proportion
Source: DGBAS website, www.dgbas.gov.tw.

Figure 24. Employees’ Irregular Wage Proportion
Source: DGBAS website, www.dgbas.gov.tw.
Income distribution is another concern. The Gini coefficient in Chinese Taipei revealed an218increasing trend since 1980 (0.278), reached its peak in 2001 (0.350), declined thereafter to 0.340
in 2007 and 0.341 in 2008 (no data is available for 2009 yet) (Figure 25). Thus the financial
crisis seems to make income distribution worse a little bit.

Figure 25. Gini Coefficient in Chinese Taipei
Source: DGBAS website, www.dgbas.gov.tw.
III. Overview of the Employment InsuranceThis section sketches the evolution and features of the Employment Insurance and the roleof the Employment Services Act.
3.1 Historical Development of Employment Insurance in Chinese Taipei
When the provision of Labor Insurance Act was passed in 1958, it was supposed to enact
the unemployment benefits within the shortest period. However, it was not implemented since
unemployment problems did not become problems and social concerns in the society at that time.
Council of Labor Affairs (i.e., Ministry of Labor), established in 1989, has drafted the
Unemployment Insurance Act and has been long ignored by the Legislative Yuan. However, theunemployment rate has started to be over 2% from 1996 (see also Figure 3) and the absence of
unemployment insurance has been seriously questioned by labor groups. Therefore, theLegislative Yuan firstly passed “Implementing Methods of Unemployment Benefits” as part ofLabor Insurance Act on December 28, 1998 and it was in 1999 when Chinese Taipei first started
to provide unemployment benefits for unemployed. It was not until 2003, when the Employment
Insurance Act (to correspond to the global trend of Active Labor Market Policy) was
independently enacted, through temporary financial support from the Labor Insurance (Chou2010a).
The employment system was amended in April 2009 in order to adapt to the global crisis,
unemployment problems and ageing population. It raised beneficial ages of insured persons from60 years old to 65 years old, added the middle-aged and older adults aged 45-65 and physically219

and mentally disabled persons to beneficiaries, as well as extended unemployment pay to ninemonths. In addition, the limit of unemployment pay was 60% of monthly insured salary for thegeneral unemployed persons and could be added an extra 10% to 20% if the general unemployedpersons had family to foster.
Maintenance of people’s income is facing a significant unsafe and unstable status due toglobal and Chinese Taipei economic changes. Those unemployed persons who receive fullunemployment pay and still can not get jobs may be reduced to poverty, when unemployedpersons and long-term unemployed persons are continuing to increase. In addition to current
systems of the unemployment pay, the government should provide unemployment assistance orother subsidies. In most of the current OECD economies, unemployment pay includes two levels,as the beginning stage of unemployment pay based on the principles of social insurance and thelonger spells of unemployment based on basic survival needs of social welfare protections toprovide unemployment assistance or basic income protections (Schmid and Reissert 1996).
3.2 Evolution of the Employment Insurance
Over the past decades, Chinese Taipei has encountered a trend of ageing and declining
fertility rate. For example, the proportion of population over 65 years old had passed 7% in 1993
and increased to 10.63% in 2008, and the fertility rate per thousand decreased from 15.07 in 1997
to 8.3 in 2009 (www.cepd.gov.tw). These contributed to an ageing labor force, smaller labor
supply growth, and a potential labor shortage. Moreover, Chinese Taipei has evolved into a
democratic society since the lifting of the Martial Law in 1987 and further integrated into
globalization when it joined the World Trade Organization in January 2002 (under the name of
TPKM). Therefore, lobbying for particular interests has become more prevalent and the demand
for a better social safety net has been gradually enhancing19. In addition to expecting a better
designed pension system20 and comprehensive medicare system21, workers in Chinese Taipei
anticipate to have sound employment safety.
In the 1990s, Chinese Taipei provided some ALMPs (such as placement services, vocational
training, and employment promotion programs to vulnerable groups) solely through the
Employment Services Act22. Before 1995, the unemployment rate in Chinese Taipei had been
below 2%, so employment safety had rarely been an important issue. The unemployment rate had
surpassed 2% since 1996, so the demand of unemployment benefits had strengthened. Hence

19

Including the enactment of the Labor Retirement Pension Act in 2005 to substitute for the retirement payment systemstipulated in the Labor Standards Act and the amendment of the Labor Insurance Act in April 2009 to offer pensions.
20
For example, due to the ageing demographic structure and employers’ preference to hire younger workers, older workers
maintain a larger lobby pressure after they have suffered a higher unemployment rate. Additionally, under globalization,
Chinese Taipei enterprises have evolved industrial up gradation as a time lapse which results in occupational position
polarization such that low-skilled workers become more vulnerable to unemployment because they are less capable tomigrate for employment and having fewer options to be promoted for employment through occupational training.
21
Particularly the National Health System has been implemented since March 1995.
22
The Employment Services Act was enacted in 1992 mainly to manage the hiring of low-skilled foreign workers.

220some unemployment benefits were offered through the Labor Insurance Act in 199923. However,as the qualification had been too strict and the unemployment rate had surpassed 4% since 2001,
the Employment Insurance Act was enacted in 2003 to provide better designed unemployment
benefits.
Facing the significant impact of the financial crisis outburst in 2008, the Employment
Insurance Act was amended in April 2009 (to be effective since May 2009) to extend
unemployment benefits (from six to nine months maximally) for older workers (defined as morethan 45 years old), the disabled (defined as qualifying for the national standards), and theunemployed, offer extra payment to dependents (10% of insured wage to each dependent, 20% in
maximum), as well as stipulate an employment stabilization clause and an emergency clause ofextending unemployment benefits (from six to twelve months maximally) to all unemployed24.
But the implementation of the employment stabilization clause and the emergency clause are still
pending on a severe environment because the economy has been recovered from March 2009.
Furthermore, whether better benefits of the Employment Insurance may or may not promote alower unemployment rate, a longer duration of unemployment and/or a higher labor force
participation rate depend on an empirical study of time-series.
3.3 Current Features
3.3.1 Coverage of the Employment Insurance
All national (including a native’s spouse who has obtained the status of permanent resident)
employees within the age of 15-65 are required to join the EI compulsorily. Foreigners are notallowed to join the EI because (low-skilled) foreign workers are in full employment and foreign
professionals are capable to take care of themselves25. Insurees of the Labor Insurance throughoccupational trade unions are not allowed to join the EI because their unemployment status is very
difficult to verify. However, some insurees of the Labor Insurance through occupational tradeunions are actually employees of units (enterprises or institutes) with four or less workers (socalled micro-enterprise) or employees with unstable employment. Disqualifying their joining the
EI has been debated for a decade.
Not all non-regular employees or employees in units with four or less workers would join
the EI. Since all employees shall join the EI, non-regular employees are covered by the Act. Yet

23
The Labor Insurance Act enacted in 1958 includes the category of unemployment insurance in Article 2. But the
unemployment insurance under the Labor Insurance Act has never been implemented until 1999.
24
In the same amendment, Parental Leave Allowance was offered and insurees’ maximum age was increased from 60 to 65.
But both are not regarded as a measure to fight against recession. In essence, offering Parental Leave Allowance is one of
President Ma’s presidential campaign commitments and has been treated as welfare to parents (female in particular) while
increasing insurees’ maximum age is a corresponding amendment with the pension qualification stipulated in the Labor
Insurance Act.
25
Once low-skilled foreign workers were unemployed, either the government would help them to find a new job or theforeign workers would have to fly back to their mother economies. Foreign professionals may be unemployed but they are
regarded as capable to get another job or migrate back to their home economy for support, so their unemployment is not an
issue to be concerned.

221some employers of non-regular employees do not observe the Act26. Furthermore, employees inunits with four or less workers are required to join the EI even though they are not required
compulsorily to join the Labor Insurance. However, it has been estimated that 70% of units withfour or less workers and 60% of their employees did not join the EI in 2006 (Lan and Chen 2009:103-104). Such defects are due to ineffective inspection and monitoring27.
The grand total of the insured in the EI grew over the period of 2003-2007 (5,024,816
persons in 2003), declined in 2008 and increased again in 2009 (5,584,169 persons) (Figure 26).
The decline in 2008 obviously was a result of the financial crisis while the increment in 2009
probably was a result of special governmental programs (ALMPs) to promote employment inreaction to the financial crisis as the Chinese Taipei government required enterprises which hired
subsidized workers to ask them to join the EI. The insured in the EI by gender showed that there
were more male than female and that the proportion of male/female revealed a declining trend(figures over the period of 2005-2009 were 1.065, 1.060, 1.061, 1.053 and 1.046). The decline ofmale/female proportion from 2008 to 2009 might be partly a long trend and partly a result of
ALMPs favoring female employment.

Figure 26. Insured in the Employment Insurance Grand Total and by Gender
Note: There were no statistics by gender in 2003 and 2004.

26

For example, employers may offer life insurance to part-time workers as a substitute, ask dispatched workers to participate
in the Labor Insurance through occupational trade unions to avoid the requirement of joining the Employment Insurance or
do not offer the Employment Insurance to temporary workers claiming the feature of an unstable job.
27
These proportions may be biased because they are the end of year figure divided by the average of year figure.

222

Source: Bureau of Labor Insurance website, Statistics Annals of Bureau of Labor Insurance,
http://www.bli.gov.tw/sub.aspx?a=FcGrI9gVwyc%3d.
The insured in the EI by age group showed that the group of 25-44 years old was the
majority (3,262,409 persons and 64.93% in 2003, 3,680,314 persons and 65.91% in 2009) with agrowing trend, the group of 45-60 years old also showed a growing trend (1,020,806 persons and20.32% in 2003, 1,285,463 persons and 23.02% in 200928), but the group of 15-24 years old
declined (741,601 persons and 14.76% in 2003, 562,426 persons and 10.07% in 2009) (Figure 27).
Since the qualification of employment insurance is the records of attending insurance beyond one
year, for those first-entry young unemployed workers, current employment insurance could notprovide assistance (Chou 2009).

Figure 27. Insured in the Employment Insurance by Age Group
Source: Bureau of Labor Insurance website, Statistics Annals of Bureau of Labor Insurance,
http://www.bli.gov.tw/sub.aspx?a=FcGrI9gVwyc%3d.
The insured in the EI by size of work unit showed that persons insured in each size
increased over the period of 2005-200929, but the proportion insured in most sizes decreased
except in sizes of 1-4 persons and 500 or more persons. For example, size of 1-4 persons was
512,637 persons (9.55%) in 2005 and 534,605 persons (9.57%) in 2009, size of 5-99 persons was
2,504,643 persons (46.65%) in 2005 and 2,561,466 persons (45.87%) in 2009, size of 100-499
persons was 1,015,916 persons (18.92%) in 2005 and 1,029,728 persons (18.44%) in 2009, andsize of 500 or more persons was 1,336,082 persons (24.88%) in 2005 and 1,458,370 persons(26.12%) in 2009. Calculating in different sizes, size of 1-99 persons was 3,017,280 persons
28

Due to the amendment of increasing the maximum age of participants in the EI in May 2009, there were 55,966 persons(1.00% of grand total) of 60-64 years old.
29
Data of 2003-2004 are not available.

223

(56.20%) in 2005 and 3,096,071 persons (55.44%) in 2009, while size of 1-199 persons was
3,452,725 persons (64.31%) in 2005 and 3,559,304 persons (63.74%) in 2009. (Figure 28).
It is interesting to highlight the figures of size of 1-4 persons, which was 512,637 persons(9.55%) in 2005, 524,254 persons (9.62%) in 2006, 527,552 persons (9.58%) in 2007, 529,241
persons (9.76%) in 2008, and 534,605 persons (9.57%) in 2009. The peak proportion of 9.76%
in 2008 was consistent with the earlier inference that special ALMPs programs adopted after thefinancial crisis requiring participants to join the EI might have encouraged the growth of insured
with respect to the size of 1-4 persons in the EI.

Figure 28. Insured in the Employment Insurance by Size of Work Unit
Source: Bureau of Labor Insurance website, Statistics Annals of Bureau of Labor Insurance,
http://www.bli.gov.tw/sub.aspx?a=FcGrI9gVwyc%3d.
Comparing to total employees who shall have joined the EI, coverage rates of the EI overthe period of 2003-2009 were 85.02%, 85.42%, 84.24%, 82.44%, 80.96%, 78.05% and 81.52%,
respectively (Table 1). These proportions30 showed a declining trend till 2008. Possible reasons
included that employers and employees wanted to save the premium and lacked comprehensive
inspection. The increased coverage rate in 2009 might have resulted from the special ALMPs
programs adopted in 2008-2009 requiring participating workers to join the EI in order to get a
subsidy.

30

These proportions may be biased because they are the end of year figure divided by the average of year figure.

224

Table 1. Coverage Rates of the Employment Insurance in Chinese Taipei (2003-2009)(1) Number of persons
Year

(2)

participating in Employment employees

Numberin

theofprivateInsurance (end of year figure) sector (average of year figure)(Persons)(3)=(1)/(2)(Persons)

2003

5,024,816

5,910,000

85.02%

2004

5,242,310

6,137,000

85.42%

2005

5,369,278

6,374,000

84.24%

2006

5,447,373

6,608,000

82.44%

2007

5,507,865

6,803,000

80.96%

2008

5,420,549

6,945,000

78.05%

2009

5,584,169

6,850,000

81.52%

Sources: Council of Labor Affairs (2009), www.dgbas.gov.tw.
3.3.2 Premium and Benefits of the Employment Insurance(a) Premium of the EI
The EI premium has been 1% (which can be raised to 2% when necessary by the Act) ofinsured wages (which range from NT$17,28031 to NT$43,900 and are consistent with the Labor
Insurance) since 2003. The insured wages usually are lower than actual earnings because only
regular earnings will be taken into account. In December 2008, among 5,420,549 insured, 19.65%
were insured at NT$17,280 or below, and 23.26 % were insured at NT$43,900. In December 2009,
among 5,584,169 insured, 20.28% were insured at NT$17,280 or below, and 22.86 % were
insured at NT$43,900. And the average insured wages over the period of 2007-2009 were
NT$29,539, NT$29,756 and NT$29,525, respectively.32 Hence the insured wages might only
have lowered just a minor amount due to the financial crisis because they were usually lower thanactual earnings.
(b) Qualification of Unemployment Benefits
To be qualified for unemployment benefits, the insured shall obtain evidence of being
involuntarily unemployed, have accumulated a one year tenure of EI prior to three years of
unemployment, and register for a job search through Public Employment Service Institution(PESI). Employees of a fix-term contract can apply if they could not be reemployed after one
month from the date of contract termination, when their contract period was more than six months
prior to one year from the date of contract termination.

31

NT$17,280 has been the minimum monthly wage effective from July 2007. Part-time or daily workers may be insured at
a level lower than NT$17,280.
32
Figures are available in Council of Labor Affairs (2010a).

225

To obtain evidence of being involuntarily unemployed from employers may become anissue of labor disputes because employers are reluctant to take responsibility stipulated in otherlaws. In particular, the Labor Standards Act empowers severance payment to involuntarily
unemployed and the ESA penalizes significantly (from NT$30,000 to NT$150,000) the employer
who does not notify the authority prior to ten days of severance. Due to the financial crisis, there
were more layoffs and then more labor disputes. The number of labor disputes per monthincreased to over 2,000 cases in August 2008, reached its highest (3,066 cases) in March 2009,and declined to the relatively lowest (2,093 cases) in November 2009 (Council of Labor Affairs
2009, 2010a)33. According to the experience of labor dispute conciliators, some unemployedworkers simply demand evidence of being involuntarily unemployed issued by their employers inorder to be qualified for unemployment benefits. The phenomenon of furlough 34 that has
prevailed since October 2008 may be a result of employers’ shying away from regulation
requirements of involuntary unemployment.
Requiring involuntarily unemployed to register for a job search through PESI has revived
the function of PESI since 2003 because PESI had been relatively vulnerable in competing forbusiness with private employment service agencies. However, under the requirement of EI,
two-thirds of PESI personnel have to be ascribed to handle unemployment verification. Due to thefinancial crisis, such pressure has become more severe.
(c) Unemployment Benefits of the EI
There are five kinds of benefits offered in EI, namely, UB, ERA, VTLA, NHIPS and PLA.
Since being qualified for PLA is not related to unemployment, only the first four will be discussed
here.
Concerning the acquisition of UB, there is a 14-day waiting period. Within this period, PESI
will refer employment or vocational training to UB applicants. After an unsuccessful effort of
PESI, involuntarily unemployed can get their UB. Moreover, the unemployment status has to beverified by PESI every month and the unemployed are required to search for a job twice permonth. The payment of UB is 60% of average insured wage (which is calculated as average of
insured wages prior to six months) per month up to six months. Older workers and disabled can
get UB up to nine months35. For those who have qualified dependents they can get an additional
10% of insured wage per person up to 20%. Once UB quota is used up, the insured has toaccumulate one year tenure of EI again prior to being qualified for the next round of UB. Suppose
UB was applied twice within two years and the first UB was claimed to its maximum months,
33

Yearly labor disputes over the period of 2007-2009 were 19,729, 24,540 and 30,385 (Council of Labor Affairs 2010a: 48).
At the beginning, the employer can pay workers any wage under furlough. Later, under the pressure of trade unions, theCouncil of Labor Affairs amended its position and required employers to pay at least the minimum wage under furlough in
Oct. 2008.
35
The extension of unemployment benefits to older workers and disabled workers revealed a concept of treating older
workers as disabled. In a similar vein, a scholar has suggested to treat persons who do not possess digital techniques andEnglish as disabled (Isenberg 2002: 306-319).
34

226

then the maximum months of the second UB is halved. Additionally, the emergency clause of UB
extension allows the CLA to extend UB for all insured up to 12 months under conditions of huge
unemployment or other emergent situation due to recession.
The VTLA is designed to encourage the involuntarily unemployed to participate infull-day36 vocational training, which is free of charge to the involuntarily unemployed, in order toenhance their human capital. The amount of VTLA is 60% of average insured wage (prior to six
months, the same as UB) and up to six months. Hence VTLA can perform as an extension of UB.
The unemployed need to get a referral from PESI in due cause to be qualified for VTLA.
ERA is designed to encourage earlier reemployment and can be claimed after three monthsof reemployment if the involuntarily unemployed were reemployed prior to using up theirmaximum UB. Claiming ERA is equivalent to claiming UB but the amount of ERA is half of
unclaimed UB. Those who are afraid of being unemployed again in a short period may not apply
for ERA. The benefit of NHIPS will be provided automatically by the Bureau of Labor Insurance
once the status of the involuntarily unemployed was verified for the insured. The involuntarily
unemployed who are receiving UB or VTLA can also obtain full support of their own and theirdependents’ NHIPS. The NHIPS is important because some unemployed may try to save suchpremium and shy away from clinics and hospitals when they get sick.
Furthermore, an employment stabilization clause of wage subsidy for the furlough
phenomenon can be adopted once specified conditions are met in the future. The wage subsidy is
50% or 70%37 of the reduced wage which must be reduced for at least 20% and at most 80% of
the insured wage up to twelve months. The activated specified conditions are UB proportion (UBapplicants/Persons of Insured in the EI) which reaches 2.2% for three consecutive months and theunemployment rates of the whole society do not decline. These are strict because even in theworst months during the financial crisis, UB proportion had reached only 2.19% for two months,
which might be the result of governmental intervention. Yet strict conditions avoid a lenientsubsidy to preserve the fiscal sustainability of the EI.
Amendments of UB extension to older workers and the disabled, providing dependents’
benefits, an employment stabilization clause, and an emergency clause of UB extension can be
regarded as a redistribution of property rights (Cooter and Ulen 2000). The EI may alleviate
problems of cyclical unemployment through its automatic benefit payment mechanism, but not somuch for structural unemployment. Older workers’ unemployment may have a high proportion in
the structural unemployment. In practice, most of the unemployed prefer to get UB from the
beginning without bothering to get an employment or vocational training referral. Since not muchobligation has been imposed on the unemployed,38 it has been observed that younger unemployed36

A full day training is defined as a training period for more than one month, four or more sessions per week, four or more
hours per daily session (night sessions are excluded) and more than 100 training hours per month.
37
Subsidy of 70% applies to a situation when work hours were reduced and 16 hours of vocational training per month was
implemented.
38
Some scholars claim that current obligation requirements have been too burdensome to encourage active job search
efforts.

227

were more eager to search for a job than older unemployed. This may also be due to theunemployed’s expectation of employers’ preference. Perhaps extending UB longer to unemployedvulnerable groups had better be substituted by VTLA extension or be combined with othermeasures to guarantee a better reemployment effect.
Moreover, no prior tenure was required to be qualified for VTLA and that aroundone-eighth of VTLA recipients were “professional” vocational training participants who had nowillingness to be employed. Such unwelcome behavior has been alleviated by limiting one chance
within two years, strict screening for the training class, and employment record tracing conductedby the CLA.
The payment amount and proportion trends of UB are displayed in Figure 26, and the trendsof ERA, VTLA, NHIPS and PLA are displayed in Figures 29 and 30. The payment proportions of
UB, ERA, VTLA and NHIPS out of all payments in December 2009 were 66.58%, 11.16%,
3.70% and 4.68%, respectively,39 which declined from the figures in 2008 due to the share of
PLA. All four payments (UB, ERA, VTLA and NHIPS) showed a significant increment in2009(Figure 29-31). 40

Figure 29. Payment Amount and Proportion Trend of UB under Employment Insurance
Source: Council of Labor Affairs website, labor statistics.

39
40

The proportion of PLA was 13.90% in December 2009.
The PLA started in May 2009.

228

Figure 30. Four Payment Amounts Excluding UB under Employment Insurance
Source: Council of Labor Affairs website, labor statistics.

Figure 31. Proportions of Four Payments Excluding UB under Employment Insurance
Source: Council of Labor Affairs website, labor statistics.
(d) Wage Subsidy in Hiring Unemployed
A wage subsidy regulation (Employment Promotion Subsidy) to promote hiring
unemployed has been specified according to the EI Act, in which employers who hire specified
unemployed, including consecutively unemployed for more than three months, consecutively229

unemployed for more than 30 days of vulnerable groups41, and female reentrants after more than
two years out of the labor market due to family reasons, for at least three months may apply for awage subsidy up to NT$12,000 (NT$8,000, NT$10,000 or NT$12,000) per head per month for 12months. Suppose the work hours were less than the specified level, the subsidy would be up to
NT$65 (NT$45, NT$55 or NT$65) per hour. The subsidy is welcomed by some local SMEs anddispatching companies.
(e) Fiscal Sustainability
To maintain a sound financial status of the EI is important42 because other social insurance(such as the Labor Insurance, the Farmers’ Health Insurance and the National Health Insurance) isin severe deficit. At the beginning of the enactment of the EI Act in 2003, NT$35.3 billion wasappropriated from the Labor Insurance Fund. In 2008, right before the outburst of the financial
crisis, the EI Fund had a surplus of NT$100 billion that the CLA decided to return NT$35.3
billion to the Labor Insurance Fund.
The premium receivable of the EI over the period of 2003-2008 had surpassed the real
insurance benefit payments with a surplus of at least 10.3 billion each year. But the situation
reversed to reveal a deficit of 6.54 billion in 2009 due to the high unemployment rate of UB
payment after the financial crisis. Other payments increased significantly in 2009 as well. The big
surplus over the period of 2003-2008 was the reason of PLA43 being enacted through the EI Act
and extension of UB and dependents’ benefits being amended in May 2009. The PLA wasestimated to cost 3.6 billion (13.9%) a year by the payment figure of Dec. 2009. Additionally,
10% of the yearly premium and accumulative surplus will be ascribed to employment stabilization
measures. Hence the government has to be aware of the fiscal sustainability of the EI in the future,
particularly if the unemployment rate remains high.
It is also interesting to discuss the management of the EI Fund. About one-third of the EI
Fund can be used to invest in the stock market to accrue a better return and support the Chinese
Taipei Stock Index. However, invested stocks are picked simply in consideration of rate of return.
There are no clear ethics requirements (such as Corporate Social Responsibility) imposed on theobjects of invested stocks.

The CLA may ameliorate the management of the EI Fund by

establishing such ethics standards.

41

The definition of vulnerable groups here is wider than the stipulation in the ESA.
Several EU economies have suffered from the threat of state insolvency in 2010. For example, government deficit in
Greece was 12.7% of GDP in 2009, when Greece tried to reduce government expenditure substantially to alleviate suchthreat it encountered several strikes initiated by its people in 2010.
43
Offering Parental Leave Allowance through the EI Act had been debated because it was estimated to cost 8 billion per
year. Fortunately, estimating from the figures of payment over the period of May-December 2009, it might just cost 3.6
billion per year.
42230

Table 2. Premium and Payments of Employment Insurance (2003-2009)

Year(1) Premium
Receivable (NT$)(2) Real Insurance
Benefit Payments(NT$)(3)=(1)/(2)(4)=(1)-(2)

(%)

(NT$)

2003

16,260,940,000

5,972,625,000

272.26% 10,288,315,000

2004

17,082,766,000

4,457,978,000

383.20% 12,624,788,000

2005

17,814,770,000

5,423,489,000

328.47% 12,391,281,000

2006

18,658,809,000

6,151,731,000

303.31% 12,507,078,000

2007

19,281,118,000

6,837,552,000

281.99% 12,443,566,000

2008

19,679,573,000

8,243,843,000

238.72% 11,435,730,000

2009

19,466,889,161

26,005,177,404

74.86%-6,538,288,243

Sources: Council of Labor Affairs (2010), www.dgbas.gov.tw.
3.4 Role of the Employment Services Act
The EI covers only the insured. The unemployed who are not covered by the EI may seek
support from the ESA. The benefits provided by the ESA include Vocational Training Living
Allowance (up to 6 months, the same name as in the EI Act), public works referral, etc. Thesebenefits are rather discretionary and have been concentrated on specified vulnerable groups(details may refer to section 4.1) since 1992. The resource of these measures is the ES Fund, thecollection of the Employment Stabilization Fee from the employers who hire low-skilled foreign
workers specified by the ESA. Since the introduction of foreign workers has caused worry to
threaten the job opportunities for local people of Chinese Taipei, the ESF is used to promotenationals’ employment and foreign workers’ management (including inspectors’ wage subsidy,
subsidy to foreign workers’ leisure activities). The ESF is important to the CLA which has only
1.2 billion available for use per year44.
Part of the EI premium collected and all the Employment Stabilization Fee collected fromthe employers of low-skilled foreign workers are put together in the ESF and used on workers’
benefits. The ESF amounts to NT$10 billion per year currently. In 2008, the EI premium
appropriated to the ESF was 8.18 billion and the Employment Stabilization Fee collected was
2.03 billion, while the amount used for nationals’ employment promotion was 10.12 billion(90.32% of total expenditure45) and for management of low-skilled foreign workers was 813.6
million (7.26% of total expenditure).
IV. Active Labor Market Policies
This section discusses the scope of vulnerable groups, programs of ALMPs, foreign workers
44

The CLA has a NT$60 billion annual budget but most of it is ascribed to specific purposes (Taiwan Labor Quarterly,
March 2009, p.43).
45
There was a deficit of 240.5 million in 2008.

231

policy, and the fiscal conditions related to ALMPs.
4.1 Vulnerable Groups
Who are vulnerable groups? Starting from 1992, vulnerable groups were defined as female
bread-winners, older workers, disabled, aboriginals and members who were in the labor force in a
low-income family by the ESA, while ex-prisoners were assigned as a vulnerable group on March
2, 2005. In practice, ALMPs apply further to victims of domestic violence, youths (age 29 orunder) and new immigrants (who have not received citizenship).
The definition of vulnerable groups in the ESA was extended in April 2009 due to thefinancial crisis in 2008. Firstly, “female bread-winners” was amended as “sole bread-winners” tocover “male” bread-winners. Secondly, long-term (more than one year) unemployed wereamended as a new group. Other groups remained as before. In the ALMPs adopted by otherdepartments in the central government in 2009 due to the financial crisis in 2008, college
graduates within three years (youths) and unemployed PhDs46 are treated as vulnerable groups as
well.
4.2 Programs of ALMPs
Over the past two decades, various measures of ALMPs, including advantageous referral ofjobs and training in Public Employment Services Institute, better VTLA, better wage subsidy,
advantageous consideration in subsidized public works, and business establishment assistance,
have been adopted by the CLA constantly to promote employment for vulnerable groups. Under
the financial crisis, various measures of ALMPs still offer assistance priority to vulnerable groups.
After the outburst of the financial crisis, the CLA has provided the Getting to Work
Immediately Program (GWIP), the Short-term Employment Skill Promotion Program (STESPP),
and the Skill-Plus Program (SPP)47 since October 2008 by using the ESF. Other departments
provide ALMPs, too. The most expensive one is the College Graduates Practical Training
Program (CGPTP). These four programs are evaluated in the following.
(a) Getting to Work Immediately Program
The GWIP was a wage subsidy program implemented from October 22, 2008 to December
2009. It intended to offer a wage subsidy to employers (private enterprises or nongovernmentorganizations) which hired native workers who were consecutively unemployed for at least threemonths or involuntarily unemployed (for those employees covered by EI). The target group was
relaxed later (Nov.11, 2008) to cover unemployed workers (with evidence) who did not participate
in EI yet had their Labor Insurance through trade unions, fishermen unions or farmers unions.
In order to be qualified for the subsidy, employees shall work at least 32 hours per week (2046

Due to some private colleges being on the brink of bankruptcy, PhDs find it relatively difficult to find a teaching or
research position in school, so they are treated as a vulnerable group.
47
Similar programs had been adopted around the world (Messenger 2009).

232hours per week for disabled). The subsidy was NT$10,000 per person per month up to 6 months.
Each enterprise could apply for subsidized personnel up to 30% of its workers (up to 3 persons forunits with 10 or less workers) who were insured under the Labor Insurance. The maximum
number of persons being subsidized at the beginning of the program (Oct. 22, 2008) was set for
10,000, and amended to unlimited on Dec. 5, 2008. At the beginning, most employers applying
for the GWIP were micro enterprises. At the time, the GWIP was originally scheduled to be endedin April 2009, but the CLA extended the program to the end of 2009. At the same time, the target
groups were extended to cover new entrants and victims of natural disasters who were
unemployed. And the subsidy rose for hiring vulnerable groups (wage subsidy increased to
NT$12,000 per head per month, and an additional employment training allowance of NT$5,000
per head per month was offered). The final number subsidized through the GWIP was 70,000
persons by the end of 2009. The GWIP cost was estimated to be 3 billion and was financed by the
Employment Stabilization Fund.
The GWIP requires employers to continuously hire the target groups after the subsidy is
expired, so some employers may recruit them even without a subsidy. Such behavior may benatural and will make the GWIP look successful, but will result in a disadvantage to vulnerable
groups. This is the so called “creaming off” effect (O’Higgins 1997). Nonetheless the GWIP has
been welcomed by both employers and employees.
The Chinese Taipei government proposed a draft of Industrial Renovation Act empowering
the government to decide at its discretion to offer a wage subsidy to SMEs in hiring workers in
February 2009. The subsidy amount was NT$10,000 up to six months and another six months forhiring older workers. Such effort tended to make the essence of GWIP into law and lower theunemployment rate. However, this Act is pending on the discussion in the Legislative Yuan andits effectiveness on reducing the unemployment rate requires empirical study in the future. Yet inorder to identify accurate target groups, a well defined program and implementation is required to
avoid possible defects (such as the displacement effect, deadweight loss, creaming off).
When the GWIP expired in December 2009, the CLA offered a wage subsidy program(Employment Sailing Program), especially applied to older workers, long-term unemployed,
disabled, victims of domestic violence, and aborigines. In it, employers hiring the mentioned
unemployed could receive a subsidy of NT$17,280 (the minimum wage level) for the first threemonths and a subsidy of NT$10,000 for the nine months thereafter. But the employers had tocontinuously hire these workers after the subsidy expired. The subsidy quota of each employer
was 30% of employees or 100 persons.
Disabled labor force showed a significantly high unemployment rate of 17.30% in 2009
(Figure 17, Bureau of Employment and Vocational Training 2009: IX). Hence in December 18,
2009, the CLA announced a wage subsidy program (Hiring Disabled’s Plus Counselling Subsidy
Program) particularly to assist enterprises which hire the disabled. In it, enterprises which hired
the disabled might apply for a wage subsidy up to NT$12,000 for 12 months (regular program is233

NT$10,000 up to 12 months). For enterprises which hired more than three disabled they might
apply additionally for a coach counseling subsidy up to NT$6,000 per head per month.
(b) Short-term Employment Skill Promotion Program
The Short-term Employment Skill Promotion Program (STESPP) was initiated in December
22, 2008 and ended in December 2009 to subsidize the enterprise training expenditure up to 70%
in order to promote inside-enterprise training during a slack time and to enhance theircompetitiveness afterwards. The budget was 299.4 million and expected to involve 30,000
workers. The STESPP also intended to improve the quality of training, so it incorporated theadoption of the Chinese Taipei TrainQuali System (TTQS) in a multi-stage subsidy. Anyenterprise applying for the subsidy must follow the TTQS Scoreboard to conduct training
evaluation48 to qualify for 50% of the subsidy. After an on-site visit, qualified enterprises could
receive another 10% of the subsidy. Enterprises possessing other specified merits (such as morethan 17% of trainees were older workers, Excellent Friendly Worksite Award winners, Manpower
Renovation Award winners) could get an additional 10% of the subsidy.
Such requirements are relatively strict. For example, by March 2009, there were 2,095
applications, but only 59.2% were qualified for the subsidy. Possible reasons included that SMEs
did not have experience of inside-enterprise training, that many enterprises were not familiar with
the TTQS, and no upper limit of the subsidy amount was set such that further applications had to
be denied due to running out of budget.
In reviewing the implementation of the STESPP, the Tainan Vocational Training Center(which is one of seven units handling the STESPP) pointed out that most employers and workers
were satisfied with the program and agreed that such program could enhance workers’
employability, but employers needed to upgrade their concept of human capital investment andimprove their knowledge of the TTQS while workers’ participation willingness could be enhanced
if the training was linked to wage or promotion. For the program per se, the information systemshall be ameliorated, requirement of paper documents could be substituted by e-file, andemployability of different industries shall be analyzed in advance to have a better design oftraining contents.
(c) Skill-Plus Program
The Skill-Plus Program (SPP) was initiated on February 2, 2009 and ended in October 2009
to subsidize training expenditure fully (up to NT$950,000 for SMEs and NT$1.9 million for LEs)
to enterprises that were under a furlough (defined as having a bilateral agreement between
employer and employee to reduce work hours more than 16 hours per month49) and Vocational
48

The TTQS Scoreboard is specified by the Bureau of Employment and Vocational Training and the training evaluation
includes steps of Plan, Design, Do, Recheck and Outcome.
49
This was amended on March 4, 2009. In the first month, furlough qualification was defined as reducing work hours
more than 16 hours biweekly.

234

Training Living Allowance (by the ESA, whose offer has the same name as in the EI Act) toworkers (NT$100 per hour, up to 100 hours per month for six months) who joined the training atleast 24 hours per month in order to promote inside-enterprise training during a slack time andenhance workers’ employability and their earnings. The budget was 15.97 billion and was
expected to involve 168,000 workers. To be qualified for the subsidy, the enterprises shall conduct
on-the-job training (in work days, from 8am to 8pm and 2-8 hours each day) and maintainemployment of 99% of workers. Each training class shall have at least 8 workers. Enterprises(limited to 5) might jointly conduct the training. In the end, enterprises in manufacturing weremore willing to join the SPP than the tertiary industry.
According to a survey of 260 employers and 1,097 employees, both employers andemployees welcomed the SPP. Employers agreed that the SPP could encourage workers to join
training, assist workers’ living expenses, and promote more stable industrial relations; while
employees agreed on the effect of promoting more stable industrial relations but not in assisting
workers’ living expenses. Region, size and the proportion of VTLA/ amount of reduced wage
showed a significant differential in perception of effects. For example, workers in the central andsouthern Chinese Taipei, enterprises of smaller sizes and workers with a higher proportion of
VTLA/ amount of reduced wage confirmed more on the positive effect of the SPP. (Sin 2010)(d) College Graduates Practical Training Program
As shown in Figure 17, the unemployment rate for the college educated and above isincreasing after 2008. By simply looking at the 15-24 age group, the unemployment rate ofuniversity educated and above degree is the highest (Chou 2010a). The CGPTP was initiated by
the Department of Education in April 2009 to assist youth’s employment 50 for one year
(originally to be ended in September 2010) with a budget of NT$12.1 billion (NT$11.5 billion
was used up by February 2010).

In the CGPTP, the Department of Education provided amonthly subsidy of NT$22,000 for wages (employers were free to provide a higher wage, but
most provided the same wage such that the subsidy becomes a 100% subsidy) and up to
NT$4,190 for social insurance to enterprises which hired unemployed college graduates who
graduated within the period of 2006-2008. The maximum length of the subsidy was one year andthe quota was set for 33,500 persons with a NT$12.1 billion budget. To prevent concentration of
hiring, each enterprise was limited to hire 30% of its workers and up to 350 persons. For
enterprises with workers less than 10, a maximum 2 workers might be hired. The placement
services were conducted by the Department of Education at the beginning. But the result wasinefficient due to inexperience and frequently amending the contents of the program. So the CLA
50

The unemployment rates in Chinese Taipei over the period of 2003-2008 were 4.99%, 4.44%, 4.13%, 3.91%, 3.91% and4.14%, respectively. But the corresponding unemployment rates of college or above graduates over the age of 15-24 were
9.49%, 10.67%, 10.68%, 10.47%, 10.96% and 12.54% while that of college or above graduates over the age of 25-29 were
5.66%,5.47%, 5.57%, 5.95%, 5.98% and 6.42% (www.dgbas.gov) and both were higher than the figure of the wholesociety.

235

stepped in in July 2009 to smooth such implementation and quickly complete the task.
The huge quota was provided ample employment opportunities to vulnerable college
graduates under the financial crisis and was welcomed by the society. However, some criticisms
have been raised. For example, the wage subsidy lowered the market wage because the monthly
wage of NT$22,000 prevailed (May 11, 2009 United News), such program displaced labordemand for other kinds of workers (particularly older workers and part-time workers, April 9,2009 Free Times) and laid off originally employed college graduates (July 9, 2009 United News).
Private colleges displayed a higher willingness than public colleges to assist their graduates
participating in the program that resulted in a differential effect among different colleges.
Workers’ attitudes would vary. The result might be more effective if there were multi-levels of
wage subsidy for graduates of different majors.
Suppose there were no displacement effects, the CGPTP would have decreased the numberof unemployed workers by 33,500 persons and lowered the unemployment rate by 0.31%(33,500/10,917,000). The expected goal might be achieved to some extent because theunemployment rate had declined from the highest level in August 2009 (Figure 14). Additionally,
the average wage of the industrial and tertiary sectors declined from 2008 to 2009 (Figure 19).
These may not be ascribed completely to the CGPTP, but the program may have contributed
partly to these phenomena.
The Department of Education decided to extend the CGPTP because 80% of employers
claimed that they would continue to hire these subsidized workers and the unemployment rate wasstill higher than 5%. In the extended CGPTP, the subsidy will be reduced to NT$10,000 per headfor six months in maximum and a total budget of NT$1.8 billion will be appropriated.
To sum up, Chinese Taipei spent NT$36.25 billion (including the GWIP of NT$4.16 billion
and the CGPTP of NT$12.1 billion) on employment promotion in 2008-2009 after the financial
crisis (Laborer, No.155, April 30, 2010, p.7). In 2010, the CLA planned to spend NT$16.63
billion on employment promotion in 2010 (April 16, 2010 News) and the extended CGPTP would
cost NT$1.8 billion. Unfortunately, there was no grand total figure gathered for the whole nation
systematically and it was disciplined by the Control Yuan on May 5, 2010.
There are plenty of programs available at the same period which may fit for different
employers flexibly and cause a preferential choice among various programs by potential
employers. Hence some redundancy may be observed. Furthermore, consecutive short-term
employment promotion programs usually are detected and revealed as a long-term program andviolate the principle of a short-term program and cause some dependency phenomena(dependency of unemployed and employers on a government subsidy).

236

4.3 Foreign Workers Policy51
Treating foreign workers policy as part of ALMPs may be arguable, but they are usually
blamed in a recession for stealing nationals’ jobs (Simon 1989) and may be utilized as a reservedlabor force to counteract business cycles (Calavita 1994). Particularly, the huge number of(low-skilled) foreign workers in Chinese Taipei makes such policy important in fighting against
nationals’ high unemployment rate.
The number of foreign workers in Chinese Taipei decreased from 365,060 persons in theend of 2008 to 351,060 persons in the end of 2009, but the majority appeared in the
manufacturing industry (from 185,624 persons in the end of 2008 to 165,790 persons in the end of2009) (Council of Labor Affairs 2010). This was due to the market mechanism and intended
government policy. Regarding to the market mechanism, some employers would layoff foreign
workers before they layoff nationals while some would partly layoff foreign workers when theylayoff nationals. And some foreign workers would ask to go back to their mother economies
voluntarily due to fewer chances of overtime earnings52.
As for related government policy, before the financial crisis, enterprises in the
manufacturing industry might hire foreign workers for jobs of specific production procedures53
and a specific timeframe54. There were three quotas (20%, 18% and 15% of nationals) set fordifferent categories (A, B and C) of enterprises, respectively, while re-recruitments were notincluded, so the maximum limit was 35% of nationals hired. During the financial crisis, somelegislators suggested to hire nationals by priority and reconsider the foreign workers policy(Legislative Yuan 2009: 91-94).
Under such pressure, the CLA has adopted several adjustments to reduce foreign workers.
In January 2009, the CLA extended the grace period to hire foreign workers once employers had
obtained a permit of hiring from six months to one year. In February 2009, the requirement torecruit nationals in advance of hiring foreign workers was extended from 21 days to 30 days.
Starting from March 2009 (to the end of 2009), the CLA prohibited hiring foreign workers for
specific timeframe jobs and integrated the number of re-recruitment into the calculation of a quota
and lowered the maximum limit to be 20% of nationals hired.
Observing the monthly figures of foreign workers hired in the manufacturing industry, thehighest number (195,268 persons) appeared in October 2008 while the lowest number (158,728
persons) appeared in June 2009. It is inferred that, though both the market mechanism and thegovernment policy led to a lowered number of foreign workers, the government policy did not
51

We concentrate on discussing low-skilled foreign workers policy because their number surpasses significantly the numberof skilled foreign workers (foreign professionals), which was 27,319 persons in the end of 2008 and declined to 25,909
persons in the end of 2009.
52
Foreign workers depend on overtime earnings to save money because they usually have to pay lump intermediary fees.
53
Specific production procedures have been categorized as an abnormal temperature operation, dust operation, poisoned gas
operation, organic solvent operation, chemical processing, nonautomatic operation and other specific production procedures.
They are so called 3D (demanding, dirty or dangerous) or 3K (kitsui, kitanai or kikem) jobs.
54
Specific timeframe has been categorized as within the timeframe from ten o’clock in the evening till six o’clock in themorning, production operation work hours last at least one hour. It usually refers to jobs with three shifts per day.

237

react in time. In fact, the government encounters a dilemma in adjusting its foreign workers policy
because the CLA can collect the Employment Stabilization Fee (ESF) from employers who hire
foreign workers. The ESF is used mostly to finance ALMPs for the unemployed according to the
ESA.
4.4 Fiscal Sustainability
Fiscal conditions were important in offering unemployed benefits and financing particular
programs. For example, the central government controlled most budgets such that few local
governments could offer extra benefits to unemployed workers. Those local governments thatoffer extra benefits may be relatively minor because of insufficient budget. For example, Taipei
City government provides children an educational subsidy to involuntarily unemployed workers.
Kaohsiung City government provides Caring Allowance to unemployed workers. Taipei County
government provides a job-search transportation subsidy to unemployed job searchers.
To have a stable source, to finance programs of ALMPs (and the EI) is quite important as ahuge deficit over the long-term may cause a setback to economic growth and require the necessityof a budget shrink eventually. In Chinese Taipei, one of the primary sources of ALMPs is the ESF,
the collection of the Employment Stabilization Fee paid by employers in hiring (low-skilled)foreign workers. The ESF accounts for more than 10 billion per year and such mechanism maylead to a dilemma in reducing excessive (low-skilled) foreign workers and create an atmosphereof depending on foreign workers for the society. To reduce the dependency on hiring (low-skilled)foreign workers, a more balanced budget will be a better substitute of fiscal source. Nevertheless,the budget deficit in Chinese Taipei was 125 billion in 2009 and is expected to increase to 189
billion in 2010, which was 8.1% and 10.9% of the total budget respectively and was 0.97%(1,250/129,105) of GDP in 2009.
VI. Conclusion and Suggestions
This section summarizes features of policy resilience in Chinese Taipei as a conclusion andprovides some suggestions to enhance social resilience.
5.1 Features of Labor Policy in Chinese Taipei
Policy implications derived from features of the labor market in Chinese Taipei include thefollowing. Low female LFPR induces measures to promote female employment in the long-run,but declining male LFPR has not attracted equivalent attention and effort. Low-skilled foreign
workers have performed as a reserved labor force to some extent that they have been hired toalleviate labor shortage, but some of them were laid off during the financial crisis. Higher
unemployment rates encouraged the offer of UB in 1999 and the enactment of the EI in 2003.
Constantly high level of unemployment rates for vulnerable groups nourishes specific ALMPs on
targeted groups. Declining employment and a higher unemployment rate during the financial238crisis raised initiatives of various ALMPs.
In terms of variety, Chinese Taipei is no less than other economies because the Chinese
Taipei government learns from advanced economies. For example, the EI Act provides
unemployment benefits, and various ALMPs are adopted by discretionary decision.
Discretionary programs are short-term (up to one year) but new programs will be offered if theunemployment rate is still severe. However, the effectiveness of EI and the individual program of
ALMPs may be different with respect to features of labor demand, labor supply and institutional
factors. The coverage of the EI is related to the features of the Labor Insurance and is aroundfour-fifth of employees. Status of non-labor force and unemployed may not be discerned clearly inpractical operation because both do not join the Labor Insurance.
5.2 Features of Social Resilience in Chinese Taipei
Under the impacts of the financial crisis, declining labor demand, increasing unemployment
rate, and declining work compensation have become big challenges to the Chinese Taipei
government in promoting employment. In the process of employment promotion, four features ofresilience have been observed.
(a) High Proportion of SMEs
Chinese Taipei has a quite high proportion (more than 96%) of SMEs which hire asignificant portion of workers (more than 67%). For example, the number of SMEs was 1,234,749(97.70% of all enterprises) and hired 7,903,000 workers (69.20% of all enterprises) in 2008 (Table3). In the financial crisis, large enterprises suffered more than SMEs did. Yet the high proportionof SMEs in Chinese Taipei could absorb a significant amount of unemployed to alleviate thehappening of labor market disaster.

239

Table 3. Number of and Workers Hired by Small and Medium Enterprises

1980

Number of Enterprises
All
SMEs/ All
SMEs
Enterprises Enterprises-

Workers Hired (Thousand)All
SMEs/ All
SMEs
Enterprises Enterprises
4,215
-

1981

-

-

-

-

4,289

-

1982

701,839

711,326

98.67%

-

4,366

-

1983

696,438

706,526

98.57%

-

4,511

-

1984

719,440

731,61098.34%

-

4,709

-

1985

716,224

727,230

98.49%

-

4,761

-

1986

737,350

751,273

98.15%

-

5,000

-

1987

743,274

761,553

97.60%

3,603

5,350

67.35%

1988

773,511

791,592

97.72%

3,671

5,436

67.53%

1989

778,042

798,865

97.39%

3,752

5,567

67.40%

1990

794,834

818,061

97.16%

3,787

5,597

67.66%

1991

825,556

850,679

97.05%

3,869

5,666

68.28%

1992

871,726

900,801

96.77%

4,019

5,856

68.63%

1993

901,768

934,588

96.49%

4,145

6,009

68.98%

1994

932,852

969,09496.26%

4,305

6,160

69.89%

1995

991,615

1,012,212

97.97%

4,434

6,260

70.83%

1996

1,003,325

1,024,360

97.95%

4,353

6,286

69.25%

1997

1,020,435

1,043,286

97.81%

4,449

6,423

69.27%

1998

1,045,117

1,069,116

97.76%

4,536

6,555

69.20%

1999

1,060,738

1,085,430

97.73%

4,587

6,624

69.25%

2000

1,070,310

1,091,245

98.08%

4,664

6,745

69.15%

2001

1,078,162

1,098,185

98.18%

4,636

6,727

68.92%

2002

1,104,706

1,130,525

97.72%

4,682

6,771

69.15%

2003

1,146,352

1,171,780

97.83%

4,754

6,898

68.92%

2004

1,164,009

1,190,176

97.80%

4,903

7,131

68.76%

2005

1,226,095

1,253,694

97.80%

5,047

7,335

68.81%

2006

1,244,099

1,272,508

97.77%

5,186

7,542

68.76%

2007

1,236,586

1,266,050

97.63%

5,383

7,735

69.59%

2008

1,234,749

1,263,846

97.70%

5,469

7,903

69.20%

Source: Ministry of Economic Affairs, Small and Medium Enterprises Department, Small andMedium Enterprises White Paper, various issues.

240

(b) Role of the Employment Insurance
Unemployment benefits of the EI were extended in May 2009 due to the financial crisis andprovide UB for at least six months (up to six months for general insured and up to nine months forolder and disabled unemployed), plus 6 months of VTLA (so UB plus VTLA are up to 15 months),
NHIPS and ERA. In the future, an employment stabilization clause and emergency clause may
extend UB to 12 months under strict conditions. The EI coverage rate has been 82% while
self-employed and many workers in micro enterprises are not covered.
(c) Complementary Role of the Employment Services Act
The ESA plays a complementary role to the EI whose coverage is not comprehensive to all
workers. So the EI offers unemployment benefits to the insured while the ESA offers various
ALMPs to those whose EI benefits have expired and those who are not covered by the EI. In
particular, six months of VTLA under the ESA (so unemployment benefits of the EI plus the ESA
are up to 21 months) and various employment promotion measures can be offered to unemployedvulnerable groups. Such complementary role lets the CLA provide more variety of programs tofight against unemployment in the financial crisis.
(d) Huge Number of Low-skilled Foreign Workers
Huge number of low-skilled foreign workers in Chinese Taipei contributes a significant
amount of the Employment Stabilization Fee to the ESF and finance to various ALMPs topromote nationals’ employment. Additionally, foreign workers play as an absorber counteracting
to the business cycle such that national’s unemployment rate does not vary too much.
5.3 Suggestions
Potential obstacles of the EI or ALMPs in Chinese Taipei include availability of labordemand, preference of employers, workers’ attitudes, fiscal sustainability, and the framework of
regulations. Some amelioration may be considered as follows.
(a) With respect to the Employment Insurance
The EI Act shall be preserved as social insurance rather than as welfare to maintain its fiscal
sustainability. The premium may be amended to be experienced-rated in order to offer fairbenefits. Supposing that the extension of UB for unemployed older workers and the disabled by
the EI Act can be substituted by the extension of VTLA may be better because VTLA is more
active than UB. Also, for the first entry young unemployed workers without insurance records,
how to provide better help is also a concern. In the future, the EI Act and the ESA may be
integrated into the Employment Security Act and pave the way for a social security system(further integrating social assistance). Anyhow, social assistance benefits provided through the EI

241

Act had better be financed by the government (the U.S. does so in its Social Security Benefits) topreserve a sound fiscal condition.
Including employment stabilization and emergency UB extension clauses are good fordiscretionary actions because resilience is required for the emergent environment with sufficient
fiscal capability. However, according to past democratic experience in Chinese Taipei, any benefit
may be too lenient when fiscal capability allows. As for the stabilization clause, its qualificationof action promulgated in May 2010 may be too strict. Anyway, a new subsidy may be provided tonationals for migration (relocation) employment either domestically or overseas in order toenhance mobility and react better to globalization. Current regulation that accommodates
localization for reemployment shall be amended as well. Furthermore, more efforts shall be madeon promoting all workers in micro-enterprises to join the EI in order to enjoy the benefits offered.
(b) With respect to ALMPs
A variety of ALMPs may provide more choices to stakeholders, but it may cause confusion
as well. In the future, easily discernable names and contents shall be offered to promote
communication. Additionally, the government shall prepare for the worst situation and design
reaction programs in advance to avoid frequent amendments after programs have beenpronounced. Any department which intends to adopt programs of ALMPs shall consult with the
CLA in order to avoid serious defects. Furthermore, assisting the unemployed to go back to schoolfor advanced study can be included as an option of ALMPs in order to upgrade workers with alow educational level. Finally, budget distribution among governments can be reviewed to let
local governments play a more important role in implementing ALMPs in order to possess
flexibility.
(c) With respect to Immigration Policy
As for the ESA, the Employment Stabilization Fee shall be increased to some extent to
reduce the incentive of hiring foreign workers and collect more fees for financing reemployment
programs if foreign workers were hired.
The number of foreign spouses migrating into Chinese Taipei may affect the unemployment
rate because foreign spouses perform as if quasi-(low-skilled) foreign workers.

Hence thegovernment shall design a clearer immigration policy, which may better be implemented directlyby the Executive Yuan or the Bureau of Immigration rather than the CLA (or the Department ofLabor in the future) because it requires multi-faceted consideration.

242

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Bureau of Employment and Vocational Training (2009) Employment Status Survey Report ofDisabled, December, BEVT of Council of Labor Affairs.
Calavita, Kitty (1994) “U.S. Immigration Policy Response: The Limits of Legislation,” in Wayne
A. Cornelius, Philip L. Martin and James F. Hollifield (eds.), Controlling Immigration: A
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244

Employment insurance system in Korea and recent revision1
Myoung Jung Kim∗

1. Introduction
The Employment Insurance System of Korea has been enforced since 1995. It prevents
unemployment, encourages the vulnerable and the jobless to stay in the labor market andsupports human resources development of companies. Korea could recover from massive
unemployment following the financial crisis of 1997 quite quickly thanks to the Employment
Insurance System, and the country is overcoming the global recession of recent years with theplan. The financial crisis that has started in the U.S.A. in 2008 affected Korean economy again.
The unemployment rate at the second quarter of 2009 reached 3.8% and the GDP growth rate on
the first quarter of 2009 fell to -4.3%. However the recent trends of the unemployment rate
(3.5％, the second quarter of 2010) and the GDP growth rate (7.2％, the second quarter of 2010)
seem to recuperate from the bottom It may be said that labor market policy of the Korean
government mainly on the employment insurance gave an effect to some extent. However, theKorean labor market still has a lot of problems, increasing of non-regular worker, aging of thelabor force, lack of the work life balance policy and difficulty of the labor market participation of
the woman, increase of the unemployment rate of the youth and so on. Therefore, it is necessary
for the Korea government to carry out more active labor market policy including the
Employment insurance system.
This paper is aimed at introducing the contents of the employment insurance system in
Korea and recent revision.
(1) History of EIS in Korea
It was in the early 1970s that the Korean Government began to discuss the need for an
unemployment insurance system to provide temporary financial assistance for the unemployed.
When the second oil shock and political turmoil hit the Korean economy in 1979, theeconomy recorded a negative economic growth rate, and the unemployment rate reached 7.5
percent in 1980. The high unemployment in the early 1980s forced the Korean government toconsider introducing the unemployment insurance system. But most Koreans were opposed to
introducing the unemployment insurance system because they believed it would weaken the job
search efforts of the unemployed, thereby resulting in a higher unemployment rate. Moreover,many people thought the time was not yet right mature for Korea to introduce the unemployment
1

The contents of this paper quoted and revised Employment Insurance White Paper 2009 and other references.
Myoung Jung KIM is a researcher of NLI research institute. He completed the course requirements of the doctor course of
the graduate school, division of economics, Keio University in 2006. His research focuses on the comparison analysis of thesocial security and the employment policy in Japan and Korea.

∗

245insurance system because the Korean economy was not strong enough to implement it. Hence,
the Korean government decided not to introduce the unemployment insurance system during the
1980s.
In the process of discussing the unemployment insurance system in 1981, however, Korea
achieved a very important social consensus on the direction of the Korean system. This was that
the Korean government should not seek to address unemployment with cash benefits. Rather, theimportant thing was to prevent unemployment itself through stable economic growth and an
efficient labor market system. In this respect, they agreed to name the future Korean system the
Employment Insurance System rather than the Unemployment Insurance System.
In 1990, the Korean government assigned several public research institutes to design a
specific area of the Seventh Five-Year (1992- 1996) Economic and Social Development Plan.
The Korea Labor Institute was in charge of designing labor policies for the year 1992-1996. It
recommended the government to introduce the Employment Insurance System and provided an
outline of the Korean system. The Government reviewed the proposal from the Korea Labor
Institute and held several public hearings. It later confirmed that most people supported the
proposal. On August 23, 1991, Korean government finally decided to introduce the Employment
Insurance System during the mid-1990s.
On March 9, 1992, the government decided to ask the Korea Labor Institute to design adetailed Korean Employment Insurance System. At the government's request, the Korea Labor
Institute launched the Employment Insurance Research Commission on May 18, 1992. The
Commission was composed of 28 scholars, and observers from the government, management
and labor were invited to participate in the discussion process of the Commission. The role of theCommission was to design the Korean Employment Insurance System in detail and carry out thenecessary research. The Commission studied the unemployment insurance systems andexperiences of many developed economies, as well as Korea's labor market conditions. After one
year of research and a series of workshops and seminars with representatives from thegovernment, labor, management and academia, the Commission presented its research findings
and policy recommendations to the government on May 18, 1993, under the name, Proposed
Employment Insurance System for Korea.

246

Table 1 Background
Revised contents
May.1992

The unemployment insurance research project group is set up in Korea Labor InstituteDec.1993

Employment Insurance Act establishedJul.1995

Employment insurance system introduced

Oct.1998

Application enlarged to all business office employing employees more than one

Nov.2001

Child support and Maternity allowance included

Dec.2002

Application enlarged to daily workers

Source: Employment Insurance System Internet Service, http://www.ei.go.kr/index.jsp
The government then collected opinions of various strata of society through public
hearings, created the Employment Insurance Bill based on the Commission's recommendations
and submitted it to the National Assembly in September 1993. The National Assembly passed
the bill unanimously on December 1, 1993, promulgating it on December 27, 1993. The
Employment Insurance Law was put into effect on July 1, 1995, and the unemployment benefits,
which require at least a year's contribution by the insured, became operational from July 1, 1996.

247

Table 2 Enforcement fiscal year and contribution rate of social insurancein Japan and Korea
Medical Insurance

Industrial Accident
Compensation Insurance

Employment Insurance

Japan

Korea

Japan

Korea

Japan

Korea

Introduce

1927

1977

1947

1963

1974

1995

Contribution
Rate

Union：7.317%
Government：
8.2%

5.08%

0.54%

0.70%

1.1%

1.15%

Public Pension

Nursing Care Insurance

Japan

Korea

Japan

Korea

Introduce

1941

1988

2000

2008

Contribution
Rate

Employees'
PensionInsurance：
15.35％

1.13%

Amount ofMedicalInsurance×
4.7％

9%

Notes: 1）Industrial Accident Compensation Insurance：weighted average、
2) It is different depending on the type of business.

Source: Machiko Osawa, Myoung-Jung Kim (2010) Globalization and Increasing Non-regular
Employment :A Comparison of Japan and Korea: The Japanese Journal of Labour Studies.
No.595.
It is considerably late at the introduction time of a social insurance system in South Korea
compared with Japan. The Korean government decided to set the contribution rates low to spreadthe system. As a result, the social system of low cost and low benefit is still maintained in Korea(Table 2).
(2) Structure of the Employment Insurance System
It can be said that the Korean Employment Insurance System is a compulsory social
insurance system. Therefore, all employers and employees in the covered enterprises should pay
an insurance premium regardless of their willingness, and they are entitled to receive grants orunemployment benefits from the Employment Insurance Fund.
Korean Employment Insurance System is composed of four sub-programs: Unemployment
Benefit, Job Stabilization Program, Job Capability Development Programs, and MotherProtection Program.
Unemployment Benefit aims to stabilize living conditions and promote early
reemployment of displaced workers by providing unemployment compensation. For those who
are taking vocational training for reemployment, who have found new employment in a
relatively short period of time, or who are actively seeking work, there are financial benefits in

248

EIS. This financial incentive system is to induce recipients of unemployment benefits toparticipate in retraining programs and actively seek new employment.
Job Stabilization Program seeks to prevent massive layoffs and expedite transfers,
reorientation and adjustment when sudden changes in the industrial structure or technology resultin extensive corporate restructuring, and to promote utilization of job seekers' skills and interests
by providing accurate information on the labor market.
Job Capability Development Programs seek to foster and stimulate lifelong vocational
training and job skill development. JCDP provides financial incentives to encourage individual
firms to invest in employee training, thereby improving labor productivity, employment stability,
marketability of workers and firm competitiveness.
Figure 1 Structure of the Employment Insurance System• Sickness Benefit• Payment Extended for Training• Individual Extended Benefit
Unemployment
BenefitJob- seeking Benefit• Early Re- employment Allowance• Job Capability Development Allowance• Allowance for Seeking Job in Remote Place• Moving Allowance

Allowance to promote
Employment
Job Creation AssistanceJob
Stabilization
Plan• Subsidy for Keeping Jobs
• Subsidy to Encourage Job Change• Subsidy to Encourage Re- Employment

Subsidy to assist
Job Adjustment

Aid to Construction
Workers• Subsidy to Encourage Employment of the Aged
• Allowance to Supplement Peak Wage Plan
• Subsidy to Promote Childcare Leave• Subsidy to Encourage Employment of the People Completing theTraining for Middle and Upper Middle aged Workers• Subsidy to Encourage New Employment

Aid to Childcare
Facilities in Work Places• Aid to the Job Capability Development Training• Assistance for Training Facilities and Equipments• Assistance to In- House Qualification Program

Aid to the JDCP by theBusiness Owners• Small and Medium Size Enterprise Job Training Consortium Program• Assisting Study Groups in SMEs
• Assisting SMEs Training to Improve Core Job Capabilities

Subsidy to
Encourage Employment
Employment
Insurance
SystemJob
Capability
Development
Programs

Aid to Small and Medium
Size Enterprises
Assistance to the
Employed Workers
Aid to the Training of the
Unemployed

Mother protection
program• Allowance for Education Fee• Student Loan for Workers• Loan for Training Fee• Subsidy for Qualification Test Fee• Training of Unemployed People who are changing Jobs
• Training for Priority Occupational Areas

Childbirth Leave Benefit

Childcare Leave Benefit

Maternity Protection Program was adopted in November 2001. Childbirth leave benefit isintended to ensure a minimum level of protection for pregnant workers before and after childdelivery (including miscarriage and stillbirth) and to support employment stability of women
workers by funding employee wages during the leave and thereby relieving their employers of afinancial burden. Childcare leave benefit is to fund employee wages while a working father ormother is on leave to take care of his/her child, in order to ensure that the employee sustains
employment while being absent from work for a parenting purpose. The structure of Korea's EIS
is shown in Figure 1.

249

2. Coverage and Contribution rate(1) Coverage
Employment Insurance System of Korea is a compulsory social insurance system. In
principle, all workers are to be covered by Employment Insurance System of Korea. All
employers and employees in the covered enterprises should pay an insurance premium regardlessof their willingness, and they are entitled to receive grants or unemployment benefits from the
Employment Insurance Fund.
When the Employment Insurance Act (“EIA”) was first promulgated, the UB applied tobusinesses or work places with 30 employees or more , and Employment Stabilization Plan
(ESP) and Job Capability and Development Programs (JCDP) applied to those with 70
employees or more, considering the various types of employment and administrative difficulties,
JSP and JCDP were extended to businesses and work places with five employees or morefrom 1 July in 1998, then all workplaces with 1 employee or more were be covered by EIS from
1 October in the same year. Further, the EIS had been extended to incorporated businesses in the
agriculture, forestry, fishery, and hunting sectors with five or less employees, and to construction
works of any size from previous coverage which included only those works with total
construction costs of 340 million won or more (however, construction works undertaken by anindividual with total construction costs of 20 million won or less are not included). From 1
January 2006 some self-employed people employing 5 people or less (including those who are
not employing anyone), selected on the basis of his/her income and other considerations, may
take advantage of the Act in regard to the JSP and JCDP with himself/herself as the beneficiary.
From 18 September 2008 the Act has been extended to construction works for buildings withtotal floor area of 100 m2 or less, and to renovation works for buildings with total floor area of
200 m2 or less. The process of expanding EIS is summarized in Table 3. However, certain
workers are excluded from Employment Insurance System.
Those are: ①Workers employed in companies with four or less employees in agriculture,
forestry, fishery, an hunting industries, ②Workers employed on construction with extremely
small scale, ③ Illegal foreign workers, ④ Government and private school employees, ⑤Part-time temporary workers, ⑥Workers employed in household services, ⑦Other persons
determined by presidential decree.

250

Table 3 Extended Coverage of Employment Insurance in Korea
CoverageType
95.7.1

97.7.198.1.198.3.1

98.7.198.10.1

04.1.1

Unemployment Benefits（Number of Regular Employees）

30
or more30
or more10
or more5
or more5
or more1
or more1
or moreEmployment Stabilization Program andSkills Development Program（Number of Regular Employees）

70
or more70
or more50
or more50
or more5
or more1
or more1
or moreConstruction Business（Total Construction Price in Million Won)

40,000or more44,000or more34,000or more34,000or more3,400
or more340
or more20
or more(2) Insured enterprises and employeesWith the expansion of EIS coverage, the number of employees and enterprises actually
covered is increasing. The actual number of covered employees that paid their EIS premiums andregistered at the public employment offices as insured employees was 4.2 million in 1995, 5.3
million in 1998, 8.1 million in 2005, and 9.4 million in 2008 (see Figure 2).

1,600

12,0001,400

10,000

1,200
8,000

1,000

unit:1000 enterprises

unit:1000 persons

Figure 2 Trends of Insured Employees and Enterprises

800

6,000

600

4,000

400
2,000

200
‐

0
1996

1997 1998 1999 2000 2001 2002
Actual number of insured employees

2003

2004 2005 2006 2007 2008
Actual number of insured enterprises

2009

When we look at the weight by size of business, we see enterprises with less than five
employees was high at 73.3%, while the more the scale of the enterprise becomes big, the more
a ratio to occupy in all enterprises lowers (see Table 4).
Table 5 shows the coverage rate of the Employment Insurance by Sex and Age, and Table
6 the details of the trend in the insured in difference industries.

251

Table 4 Trend of the insured and insured enterprises by size of businessDistinction
InsuredEnterprises

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

693,414806,962825,531845,910 1,002,638 1,148,474 1,176,462 1,288,138 1,424,330 1,385,298

Total
InsuredEmployees
Insuredless than Enterprises
30
InsuredEmployees

InsuredEnterprises

6,747,263 6,908,888 7,171,277 7,203,347 7,481,618 7,965,597 8,436,408 8,941,639 9,271,701 9,653,678
646,671758,105

775,398

790,735

950,830 1,093,023 1,123,939 1,231,373 1,363,722 1,321,033

2,698,595 2,908,387 3,065,153 2,960,023 3,224,133 3,419,124 3,583,529 3,845,206 3,981,777 4,175,814
32,60534,81436,19539,46937,19939,21537,21740,741

43,49546,41030～99
InsuredEmployees
InsuredEnterprises

1,096,996 1,105,230 1,177,615 1,198,683 1,202,713 1,302,212 1,360,679 1,451,734 1,507,162 1,569,506
11,927

12,101

12,311

13,96812,99014,104

13,343

13,951

14,876

15,481100～499
InsuredEmployees

1,347,329 1,346,776 1,393,392 1,433,684 1,442,824 1,533,872 1,591,233 1,650,132 1,724,782 1,755,488

InsuredEnterprises

1,288

1,161

1,041

1,114

1,055

1,362

1,270

1,304

1,427

1,497

InsuredEmployees

415,260

424,456

451,622404,937

423,815

498,543

501,021504,062

541,444

550,503

923

781

586

624

564

770

693

769

810

877

500～999

Insuredmore than Enterprises
1000
InsuredEmployees

1,189,083 1,124,039 1,083,495 1,206,020 1,188,133 1,211,846 1,399,946 1,490,505 1,516,536 1,602,367

Table 5 Trend of the coverage rate of the Employment Insurance by sex and age
unit:％、person
2004
2005
2006
2007
2008
100
100
100
100
100
Total
(467,730)(562,524)(609,691)(685,024)(835,140)
male
54.7
55.0
54.9
54.5
55.0
sex
female
45.3
45.0
45.1
45.5
45.0
below 19
0.2
0.2
0.1
0.1
0.1
20～29
29.1
26.9
25.5
24.3
22.8
30～39
30.3
29.1
29.1
28.6
28.5
age
40～49
21.0
21.3
21.6
22.0
22.7
50～59
15.8
16.8
17.7
18.4
18.9
60～64
3.7
5.7
5.9
6.5
6.9
parenthesized figures represent number of persons with qualification to a recipient

252

253
64,84812,032Other public individual service

Other indusrtry

Total
4,280,430

53,023Entertainment,culture,sports

not classifiable

127,417

13,287

Health and & Social welfare

Education service

335,283

91,581

Real estate & lease

Business facility management service

394,093

82,711

Communication

Finance & insurance

405,786

Transportation

67,597

256,211

Sales

Food & accommodation

232,823

53,4932,062,832

15,990Construction

Electricity,Gas,and running water

Manufacturing

Mining5,267,658

20,826142,070

59,444

217,664

62,335456,025

151,376

378,562

83,500445,532

106,943457,208

364,157

53,6252,234,072

17,6706,054,479

21,588172,054

66,300247,583

96,408567,724

171,755

385,358

80,902

471,166

150,405

582,920465,937

55,1702,483,266

17,856

Table 6

6,747,263

95,342

194,140

75,930270,198

146,150

708,512

181,982

389,633

93,485492,611

167,599

664,576

508,81155,4402,665,078

17,985

6,908,888

96,777

205,562

82,545

299,441

161,251

772,955

186,850

377,860

86,140492,519

177,940

711,644529,516

56,5452,633,976

16,703

7,171,277

103,042

218,682

88,831

325,216

182,011823,207

188,737

386,099

86,937494,807

175,525

764,395

574,02157,1482,666,714

16,1487,203,347

108,543

226,067

90,882

348,184

192,562855,643

196,160

386,536

82,127477,619

159,956

755,805

562,957

58,6972,664,762

16,364

7,576,856

133,756

243,551

95,961

387,172

207,095

976,900

217,674

383,511

81,354

487,922

162,020

786,078

576,152

60,9752,733,536

16,250Trend in the insured in different industries

8,063,797

175,640

264,165

103,837

438,110232,652

1,072,161

234,145

387,079

83,506508,491

180,234

854,793585,551

62,4592,832,781

16,147

8,536,966

170,579

286,535

110,951

509,886

243,278

1,230,486

265,084

399,551

83,443534,065

196,454

898,381609,522

63,2462,884,464

16,391

9,063,301

181,448

307,763

117,316592,394259,934

1,367,426

279,428

416,996

84,245558,107219,542950,015

637,769

64,4852,972,191

16,023

9,385,239

1,948

200,033

304,278

122,385

674,813275,640

1,466,327

285,767

428,829

84,003

568,416

228,562

988,681644,483

64,474

2,993,314

15,067

(3) Contribution rate
When Korea introduced EIS on July 1, 1995, the contribution rate for the Unemployment
Benefits was 0.6 percent (0.3 percent from employees and 0.3 percent from employers) of thetotal payroll, that for the Employment Stabilization Program was 0.2 percent, and the Skills
Development Program has a differentiated rate based on the size of the firm between 0.1 percent
and 0.5 percent.
However, the financial crisis of Korea in November 1997 resulted in a high unemployment
rate and a sharp increase in expenditures for unemployment benefits and active labor market
programs. So Korea increased the contribution rate of each program from January 1, 1999. As of
1999, the contribution rate for the Unemployment Benefits is 1.0 percent (0.5 percent from
employees and 0.5 percent from employers), and that for the Employment Stabilization Programis 0.3 percent. The contribution rate for the Skills Development Program is between 0.1 percent
and 0.7 percent of the total payroll depending on the size of the firm.
The ESI contributions were lowered on Jan. 1, 2003 so as to make both employers andemployees feel less burdened. The contribution rate for the Unemployment Benefits went downfrom the previous 1.0 to 0.9 percent (0.45 percent from employees and 0.45 percent from
employers); and the rate for the Employment Stabilization Program decreased from the previous
0.3 to 0.15 percent. On Jan. 1, 2006, the contribution rates for the Employment Stabilization
Program and the Skills Development Program were integrated into a single rate. Consequently,
as of 2006, the integrated contribution rate is between 0.25 percent and 0.85 percent of the total
payroll depending on the size of the firm. Each program in Korea's EIS has its own rate ofcontribution. The sum of contribution rates in each program cannot exceed 3.0 percent of thetotal payroll. The contribution rate of each program is determined within the limit ofcontributions considering the financial situation of the Employment Insurance Fund and theprospects of economic and labor market situations.

254

Table 7 Contribution rate of Each Program
Contribution Rate(in percent out of total payroll)
Employees
Unemployment Benefits

0.45

Less than 150 employees
Employment
Stabilization
150 or more employees(priority enterprises)
Program ・Skills150～999 employees (exclusion of priority enterprises)
Development
Program1000 or more employees

Employers
0.45

-

0.25

-

0.45

-

0.65

-

0.85

3. Employment Insurance Plan
(1) Unemployment Benefits
Unemployment Benefit (UB) supports workers who lost their job by paying him a benefit
so that he/she can support himself/herself and their family. It helps the worker to find a new job
which is appropriate considering his/her ability and aptitude. UB also helps setting up the
employment policy by supplying the relevant government office with the information on
movements of the work force.
Unemployment Benefits are comprised of the Job-seeking Benefit (JSB) and Allowance toPromote Employment (APE). The former is the core of the unemployment safety net, designed tostabilize the livelihood of the unemployed and their families during unemployment, thereby
facilitating active and unobstructed job-seeking activities. The latter supports to foster andstimulate reemployment of the insured individuals receiving JSB by providing constructive andeffective job research assistance.
1) Job Seeking Benefit (“JSB”)2
JSB is the most basic and important payment among UB. It is paid to stabilize thelivelihood of the unemployed while he/she seeks a job. In order to receive JSA, the claimantmust satisfy the prescribed qualifying and eligibility requirements. The outline of the qualifying
requirements and eligibility conditions for JSB are as follows.
― The claimant's insured employment period should be at least 180 days out of the 18-monthbase period preceding the day of job separation.
― The claimant must register at the public employment office as a job seeker right after his/her
job separation, and request JSA within the 1-year feasible period.

2

JSB includes Sick Benefits(SB) and Extended Benefit(EB).

255

― The claimant is out of work but remains willing to and able to work, and is actively seeking
new employment to the best of his/her ability.
― The reasons for job termination should not be of a nature that would disqualify the claimantfrom receiving unemployment benefits, such as voluntary unemployment without good cause,
discharge for misconduct, etc.
JSB is paid in principle from the day after the date of leaving the job when the applicant isrecognized as having satisfied the requirements. The payment is made for the days whenunemployment is admitted up to the Prescribed Payment Period (as set down in section 48 in the
EI Act) during the Receiving Period of 12 months. The Prescribed Payment Period means thedays when a person can receive JSB for

one Receipt Qualification. It is currently set between

the minimum of 90 days and the maximum of 240 days. It is determined according to the age andinsured period of the person who is qualified to receive the JSB.
UB payment amount in year 2009 was 3,582.2 billion Won, showing an increase by 45.3%
from the previous year's payment sum of 2,466.1 billion Won. The number of beneficiaries was
1,273,432 showing a 32.4% increase from the previous year's 311,704.
Table 8 The insured period of JSB
before 2000.1.1
less
than
1year
below 25
age

after 2000.1.1

insured period
less
less
more
less than
than
than
than
10years
3years 5years
10years
30
60
90
120

insured period
less
than
1year

more

less than less than less than
3years

5years10yearsthan
10years

below 30

60

60

90

120

150

90

90

120

150

180

below 50

60

90

120

150

180

90

120

150

180

210

over 50

60

120

150

180

210

90

150

180

210

240

Table 9 Record of job seeking benefit (“JSB”) payment
unit:person,million won
Distinction
JSB

2005

2006

2007

2008

2009

Beneficiaries

Sum paid

Beneficiaries

Sum paid

Benef iciaries

Sum paid

Beneficiaries

Sum paid

Beneficiaries

Sum paid

684,863

1,602,614

753,713

1,833,3 20

838,487

2,116,268

961,718

2,46 6,164

1,273,432

3,582,156

The Benefit Qualified Person may receive the Sick Benefit (SB) in substitute for JSB
while he/she is not able to get employed for more than seven days because of sickness, injury, or
childbirth during the benefit payment period. As SB is paid instead of JSB, its amount is thesame as that of JSB, and may be paid up to the number of unpaid days during JSB payment
period. When SB is paid, it is regarded that JSB payment is made.

256

①Sick Benefits
The Benefit Qualified Person may receive the Sick Benefit (SB) in substitute for JSB
while he/she is not able to get employed for more than seven days because of sickness, injury, or
childbirth during the benefit payment period.
As SB is paid instead of JSB, its amount is the same as that of JSB, and may be paid up to
the number of unpaid days during JSB payment period. When SB is paid, it is regarded that JSB
payment is made.
SB payment in 2009 was 9.0 billion Won, increased by 2.1 billion Won from the 63 billion
Won paid in the previous year, and the number of beneficiaries was 248 people, reduced by 91
people (58.0%) from 157 people in the previous year.
Table 10 Sickness benefit payment record(unit:people,million won)Distinction

2005

2006

2007

2008

2009

Beneficiaries

502

225

217

157

248

Amount paid

5,839

5,785

6,326

6,896

8,966

②Extended Benefits
a. Payment Extended for Training (“PET”)
PET was designed to assist re-employment of the benefit recipients. Under this program,the head of the Job Center makes a direction to a benefit qualified person to receive job training
and, at the same time, the benefit qualified person is paid with an extended payment of JSB. PET
is paid during the training period not exceeding two years 100% of JSB.
The applicant, in order to receive PET, must satisfy the following requirements:→ It is regarded that receiving JCDT will help him/her get another job→ He/she does not have a national skill qualification certificate recognized in the National Skills
Qualification Act and his/her current skill has is not demanded by businesses→ He/she did not receive any JCDT during the last one-year period→ He/she could not get a job though he/she had applied more than three times for the jobs
recommended by the head of the Job Center (this requirement was introduced on 30 April 2008).
Payment amount for the PET in year 2009 was 166 million Won, showing an increase of
40 million Won (31.7%) compared to 126 million in the previous year.
b. Individual Extended Benefit (“IEB”)
Individual Extended Benefit is designed to assist the livelihood of the BQP who do notfind a job until JSB payment ends and has family to support. It is paid to the BQP up to 70% of
the JSB for the period extended up to 60 days.

257

The payment made as IEB in year 2009 was in the sum of 7,685 million Won, increased by
7,321 million Won (2,205.1%) compared to payment of 332 million Won in the previous year.
Table 11 Record of payment extended for training and Individual extended benefit
Distinction

2005

2006

2007

2008

2009

Beneficiaries

Sum paid

Beneficiaries

Sum paid

Beneficiaries

Sum paid

Beneficiaries

Sum paid

Benef iciaries

Sum paid

19

22

30

61

39

88

52

126

59

166

266

239

603

658

673

812

260

332

5,162

7,685

Payment
extend fortraining
Individual
Extende d
Benefit2) Allowance to Promote Employment (“APE”)①Early Re-Employment Allowance (“ERA”)
Early re-employment allowance (ERA) is designed to encourage the benefit recipients tolook for a job diligently. ERA is paid to a benefit qualified person who gets employed before
exhausting the prescribed payment period for JSB.
ERA is paid when the following requirements are all satisfied:→ It is certain that the employment would last more than six months→ The employment is not by his/her last employer or a person related to the last employer nor
the one that was promised before reporting the unemployment.
→ The applicant has not received ERA within two years before the employment date.
The amount of ERA paid in year 2009 was 517.1 billion Won, showing an increase of
125.5billion Won (32.0%) from 391.6 billion Won paid in the previous year.
Table 12 Payment record of early re-employment allowance(unit:people,million won)Distinction

2005

2006

2007

2008

2009

Beneficiaries

99, 925

121, 238

147, 694

174, 408

221, 399

Amount paid

143, 209

234, 116

310, 475

391, 613

517, 083②Job Capability Development Allowance (“JCDA”)
Job Capability Development Allowance (JCDA) may be paid to a benefit qualified person
on top of JSB when he/she receives job training as directed by the head of a Job Center.
JCDA is paid to a benefit qualified person when he/she receives job training as directed by
the head of the Job Center on the days he/she received the job training, etc., during the days
when JSB is to be paid (Rule 88 of the Rules). JSB is determined and noticed by the Minister ofLabor taking into account of the costs necessary to attend job training such as expenses for foodand travel. JCDA was paid to 166 people in the sum of 14.8 million Won.

258

Table 13 Payment record of job capability development allowance(unit:people,million won)Distinction

2005

2006

87
7

Beneficiaries
Amount paid

2007

139
13

2008

176
16

2009

176
23

166
14.8

③Allowance for Seeking Job in Remote Place (“ASJRP”)
The head of the Job Center may pay Allowance for Seeking Job in Remote Place (ASJRP)
when a benefit qualified person seeks a job in a remote place as advised by the Job Center, andthe amount to cover the expenses for the travel and accommodation relating to the job seeking
activities in the remote place.
ASJRP is paid when a benefit qualified person satisfies all of the following requirements→ The job seeking activity must start after expiring of the waiting period as set in Rule 49 of the
Employment Insurance Rules→ The expenses related to job seeking activities are not paid by the business owner the benefit
qualified person is visiting or, if paid, the amount paid by the business owner is less than theamount of ASJRP→ The distance between the benefit qualified person and the work place he/she is visiting for thejob seeking activity is more than 50 km.
Table 14 Payment record of the allowance for seeking job in remote place(unit:people,million won)Distinction
Beneficiaries
Amount paid

2005

69
2.53

2006

2007

46
1.62

2008

29
1

2009

68
2

55
2

④Moving allowance
A benefit qualified person may receive moving allowance (MA) when he/she moves homeupon employment or to receive job training, etc., as directed by the head of the Job Center.
Moving Allowance shall be paid when the benefit qualified person gets employed or getstraining after expiration of the waiting period and the head of the Job Center covering the benefit
qualified person's resident area acknowledges that moving of residence is necessary. However,Moving Allowance shall not be paid if the benefit qualified person's employment is for a period
less than one year.

259

Table 15 Payment record of moving allowance(unit:people,million won)Distinction

2005

2006

296
42

Beneficiaries
Amount paid

2007

347
50

2008

347
47

2009

376
100

468
330

(2) Job Stabilization Program
The Job stabilization program (‘JSP’) is designed to secure employment stability of
employees and to assist the businesses with their employment adjustments. The JSP is composedof four sub-programs: Job creation assistance program, Job adjustment assistance program,
Promotion of employment of the vulnerable, and employment promotion facilities assistanceprogram.
The JSP has expended: 267.7 billion Won in year 2005 in construction of the Job Centers’
own buildings and in activation of the Job Creation Assistance Plan; 608.2 billion Won in year
2006 upon promulgation of new plans, securing the infrastructure for job security such as
construction of Job Experience Complex, activation of the Subsidy for Promotion of New
Employment and the Assistance to Job Creation Program, making a 127.2% increase comparedto the previous year; 845.6 billion Won in year 2007 upon activation of the Subsidy for Job
Stabilization, increasing by 62.5% compared to the previous year; and 825.8 billion Won
recording a 23.4% reduction compared to the previous year as a consequence of expanding therequirements for the Subsidy for Promotion of New Employment application.
Figure 3 Amount of payments under the JSP over the years(unit:million won,％)

12000

9882

10000

8258
8000
6082
6000
4000
2677
1975
2000

1099
65

122

1996

1997

1257

1471

2000

2001

1179

1127

2002

2003

1410

0
1998

1999

2004

2005

2006

2007

2008

1) Support for Employment Creation
The support for employment creation was created by an agreement signed by the`government, the businesses, and labor on 10 February 2004, namely, “Social Pledge to Create
Jobs.” The purpose of the support for employment creation is to provide assistance to the260businesses that have created jobs through reduction of working hours and/or transition into theshift work system.
― Subsidy to assist the SMEs reducing working hours: 4 billion 959 million Won to 681 work
places in 2008.
― Subsidy for changing into shift work plan: 12 billion 106 million Won to 52 work places inyear 2008.
― Subsidy to SMEs for improving the work environment: 27 billion 762 million Won to 1,470
work places in year 2008.
― Subsidy to SMEs for employing workers with special knowledge and/or skills: 41 billion
938 million Won to 4,221 work places in year 2008.
2) Support for Employment Adjustment
The purpose of the support for employment adjustment program is to prevent
unemployment, and reduce the burden of management for the businesses by supporting job
adjustment of the struggling businesses.
①Subsidy for employment retention:
Subsidy for employment retention encourages employers to maintain employment andavoid laying off employees in the process of employment adjustment. An employer is qualified
for the Subsidy for Employment Retention when he/she satisfies all of the following conditions:- In the process of employment adjustment, layoffs are inevitable.
- An employer has guaranteed continued employment by taking proper measures for employment
retention.
- An employer has reported the employment retention plan to the public employment office, andthe measures for employment retention have been carried out according to the plan.
- Before and during the measures for employment retention are implemented, there should be no
reduction of employees.
The subsidy for employment retention paid 32 billion Won in year 2004, and 30 billion
Won in year 2008. However, it paid 310 billion Won in year 2009 because of the financial crisis.

261

Table 16 Annual payments of the subsidies for employment retention(unit : million won)Distinction
Number of
Payment
Number ofrecipients
Amount paid

’00

’01

’02

’03

’04

’05

’06

’07

’08

’09

3,466

8,027

4,176

4,590

4,629

4,519

4,434

4,425

4,274

44,190148,499

257,431

152,384

119,127

104,124

97,962

92,54584,85688,012

941,674

29,39955,97732,72927,38832,04730,91933,56532,53330,642

310,224②Subsidy to encourage Job Change
The subsidy to encourage job change is paid to the business owner who; submits a plan toassist his/her employees with their change of jobs, has obtained approval of the plan, andprovides job change services in accordance with the plan.
The subsidy for the service to assist job change paid 1.4 billion Won in year 2004, 1.5
billion Won in year 2005, 1.5 billion Won in year 2006, 2.4 billion Won in year 2007, and 2.8
billion Won in year 2009.
Table 17 Annual subsidy payments under the job change assistance program(unit : million won)Distinction
Number of
Payment
Number ofparticipants
Amount paid

’01

’02

’03

’04

’05

’06

’07

’08

’09

5

21

16

31

28

38

21

29

49

679

7,408

583

2,696

1,440

1,845

1,875

1,482

1,537

43

432

641

1,428

1,514

1,522

2,441

1,531

2,792

③Subsidy to encourage re-employment
The subsidy to encourage re-employment program was designed to encourage
re-employment of the workers who were laid off when the businesses they had worked for wereexperiencing hardship but have become necessary again after economic recovery. This program
pays subsidies to the business owners who re-employ the workers who used to work for them.
The subsidy amount under this program is 400,000 Won (300,000 Won for big corporations) per
each re-employed worker for six months.
The subsidy to encourage re-employment paid 300 million Won in 2004, 800 million Won
in 2005, 900 million Won in 2006, 800 million Won in 2007, and 700million Won in 2008.
3) Support for Employment Promotion
The purpose of the support for employment promotion is to promote the employment of
the vulnerable such as the aged, long time job seekers, the disabled, and female household heads

262

who are particularly in a difficult position to find a job under the ordinary conditions of the labormarket.
①Subsidy to encourage employment of the Aged
The plan pays the subsidy to encourage employment of the aged. It is for the businessowners who employ the aged over a certain ratio, continue employing old people, or re-employ
the aged.
Table 18 Annual payments of the subsidy to encourage employment of the aged
(unit : million won)Distinction
Number ofbusiness
Number ofrecipients
Amount paid

2000

2001

2002

2003

2004

2005

2006

2007

50466

61790

66565

70793

63972

48760

48424

53691

54023

251870 270,902 308,874 266,119 218,072 229,092 259,357

273,945

41,62048,062

225,71136758

39,98046,236

41,29933,98836,02540,8802008

The subsidy was paid to 273,945 people in 50,023 businesses. A total of 48,062million
Won was paid. The amount paid as the subsidy to encourage continuous employment of retirees
shows a steady increase from its introduction in February 2004:1,223 million Won in 2005,
1,764 million Won in 2006, 2,492 million Won in 2007, and 2,626 million Won in 2008.
②Allowance to supplement the peak wage plan
The peak wage plan was introduced to turn around such trend and provide the aged withsecure employment as well as reducing the wage pressure on the businesses. This program pays
50% of the reduced amount of the wage of the workers taking part in the peak wage plan. It isprovided to a worker whose employer guarantees his/her employment to a certain age of over 56
and the reduction amount is more than 10% of his/her peak wage.
The payment amount is increasing. Only 9.8% of the budget was executed in 2006. The
allowance payment made in 2007 was 1 billion 538 million Won, being 19.5% of the budget of
7.9 billion Won. The allowances were paid to 584 workers in 214 work places in 2008, and theamount paid was 3 billion 32 million Won, taking up 90.2% of the budget. However, the numberof businesses with 100 or more workers that have adopted the peak wage plan has not increased
over the years. They were only 2.3% in July 2005, 4.4% in July 2006, and 5.8% of total work
places employing more than 100 workers.

263

Table 19 Annual payment of the allowance to supplement the peak wage plan
(unit : million won)Distinction

2006

2007

2008

2009

Work places

84
226
579

160
584
1,538

214
997
3,032

224
1,497
6,489

Workers
Amount paid

③Subsidy to promote childcare Leave
The subsidy is designed to assist the employers with the costs to maintain employment
while the female employees take childcare leave or work reduced hours to take care of theirbabies. The cost required to maintain employment includes premiums of social insurances andthe expenses related to employment of the replacement worker.
The subsidy is paid to the business owners; who give childcare leave to the employee or
reduce working hours of woman workers with a baby for the period exceeding 30 days, andemploy continuously a female worker for more than 30 days.
The subsidy for substitute workers has been paying the sum of 100~150,000 Won permonth per person since its promulgation on 25 February 2004. The payment amount has
increased to 200~300,000 Won per person per month on 1 January 2006 upon amendment to the
Employment Insurance Regulations.
Table 20 Annual payment amount of the subsidy to promote childcare leave
Distionction

2001

2002

2003

2004

Work places

542

461

802

1,330

Workers

3,136

2,227

3,877

4,561

Amount paid

2,804

2,836

5,255

6,733

2005

2006

2007

2008

2009

1,551
(55)
4,594
(58)
7,217
(64)

2,011
(194)
6,436
(466)
9,815
(392)

2,424
(435)
7,761
(796)
12,373(1154)

3,754(810)
11,780(1658)
18,378(2488)

4,771(1,109)14,439(1957)
23,896(3444)④Subsidy to encourage new employment
An employer should meet the following requirements, in order to be a qualified recipientof the subsidy to encourage new employment:― The employer has hired an insured worker who was registered at a public employment service
office, such as the Employment Stabilization Center, for a job-seeking purpose, while being
unemployed for a certain period of time. The qualifying period of unemployment depends on thenature of the unemployed worker, as shown in the table below; and― The employer did not displace any of his/her employees for the purpose of employment
adjustment, during the period from three months before newly hiring an insured worker to six
months after such new employment.

264

The subsidy amount is 150~600,000 Won per

employed worker per month. The subsidy

is paid for one year for each employment. The amount paid as the subsidy to encourage new
employment, which waspromulgated in October 2004, was: 800 million Won between

October~December2004, 84 billion won in year 2005, 172.1 billion won in year 2006, 218.7
billion won in year 2007, and 143.4 billion won in year 2008.
4) Aid to construction workers
The subsidy to stabilize employment of the construction workers was introduced in
February 2004 which promotes the construction workers’ joining the Employment Insurance.
This subsidy is paid to the construction work owner who employs a manager for employment
works who takes care of the jobs relating to the Employment Insurance such as the acquisitionand loss of the qualification to insure the Employment Insurance by the construction workers.
The subsidy amount ranges from 300,000 to 900,000 won per month depending on the volume of
the management work.
5) Aid to childcare facilities in work places
The aid to childcare facilities in work places is prepared to provide easy access of female
workers to childcare facilities. It provides support to the business owners who establish andoperate childcare facilities in the work places owned by his/her business. It was expected that
this program would reduce the burden of childcare from female workers and, as a result,contribute towards the employment and job security of the female workers.
①Subsidy to wages of the childcare teachers and others
The subsidy is paid to the business owner who sets up and operates, alone or together withother business owner(s), a childcare facility for his/her employees. The facility must be able toaccommodate more than five children.
The subsidy for wages of the childcare teachers and others was paid to 636 facilities in thesum of 12,610 million won.
Table 21 Annual payments of the Subsidy to wages of the childcare teachers and others(unit : million won)Distinction
Work places
Total
number of
beneficiaries
Amount
paid

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

357

340

322

345

401

449

537

607

636

751

3, 496

1, 5281, 511

1, 7002, 2622, 8633, 8544, 9185, 976

6, 8942, 4832, 4032, 4832, 9184, 1285, 9528, 106 10, 429 12, 610 14, 968② Loan or subsidy of the costs to establish childcare facilities in workplaces
This program gives a loan or subsidy to the business owners for the costs to establish
childcare facilities at their work places. The loan is up to 500 million won with an interest rate of265

1% (2% for big corporations) per annum and may be used to pay the costs of construction,purchase, lease, upgrade, and repairing of the childcare facility. The loan may be repaid by equal
installments over a five-year period starting after five years of a grace period. Further, free aid isgiven to cover the expenses relating to conversion of the facility and to consumables such as
tools and furniture. The aid amount is up to 100 million (200 million for organizations) won forconversion of the facility and 50 million won for tools and equipment.
The loan was given to six work places that had established new childcare facilities in thesum of 1,777 million won. The aid for conversion of facilities and purchase of tools and furniture
was paid to 31 work places in the sum of 2,351 million Won. It is expected that more endeavors
will be made to expand the childcare facilities.
Table 22 Yearly record of the loan for establishing the childcare facilities in the work places(unit : million won)Distinction
Loan

Number ofwork places
Amount
paid

2001

2000

2002

2003

2004

2

2

2

3

98

125

450

811

2005

1

2006

9

150 2, 657

2007

4

2008

9

511 2, 700

2009

2

6

300 1, 777

Table 23 Yearly payments of the free aid to establish the childcare facilities in the work place(unit : million won)Distinction
Loan

Number ofwork places
Amount
paid

2001

2000

2002

2003

2

1

-

136

94

-

2004

16

22

2005

20

2006

33

2007

21

2008

27

2009

31

1, 120 1, 221 1, 393 3, 245 2, 675 3, 229 2, 351(3) Job Capability Development Programs
The job capability development programs (the JCDP) are designed to assist the businesses
and the workers to meet such challenge and endeavor to develop the workers’ job capabilities.
The programs also include assisting re-employment of job changers or unemployed people
following restructuring, and enhancing the move of labor.
1) Aid to the Job Capability Development Training by the business owners① Aid to the Job Capability Development Training
a. Subsidy for training costs
Subsidy is paid to the business owners who provide job training to the employees for the
purpose of improving the employees’ job capabilities. The training may be carried out by the266

business owner or delegated to such institutions as the Corporate Training Center and otherdelegated training centers.
The subsidy for the Job Capability Development Training was paid to 3,654,216 people inthe sum of 382.581 million won in 2008, showing an increase of 354,019 people and 41,657
million won from the previous year.
b. Subsidy for paid training leave
The subsidy is paid to the business owner who gives his/her employee of more than one
year of (any employee working for businesses with less than 150 regular employees or the
corporations to receive prior assistance) paid leave so that the employee could attend job training,and pays the wage, which is the same as or more than the ordinary wage, and the cost theemployee needs to attend the training.
The number of recipients at work places with less than 300 employees in 2008 was 3,330,
showing a 116.1% increase from the previous year. The ratio of SMEs among the total recipients
had also increased by 21.6% from the previous year, making 35.7%.
c. Ceiling of the subsidy for JCDT and other training
The business owner can receive up to 100% of the individually calculated insurance
premium for Job Security Plan and JCDP he/she has to pay in the relevant year (240% for thepriority corporations).
When the business owner provides training to the workers employed by other than his/herown business, an additional subsidy of up to 80% can be paid. When the subsidy amount is lessthan the minimum subsidy amount set by the Minister of Labor, taking into account the size ofthe business and the nature of the industry, the subsidy amount is the minimum subsidy amount(currently 5 million Won).
②Loan for Training Facilities and Equipment
This loan is for business owners, business owners’ organizations, workers’ organizations,training corporations and institutions when they set up job training centers or purchase training
equipment. The loan amount is up to either 6 billion won or 90% of the cost required, whicheveris smaller. The details are as shown below.
― Interest rate
1% per annum for priority corporations, business owners’ organizations, big

corporations,participating SME training consortium
2% per annum for big corporations
4% per annum for workers’ organizations, training corporations and institutions Term-Up to 10
years (repayment by installment in five years after five years of a grace period)267

③Assistance to In-House Qualification Program
The purpose of the assistance to an in-house qualification program is to develop theworkers’ job capabilities and to promote the business’s technologies by subsidizing the costrequired to operate an in-house qualification program.
The payments under this program were 323 million won in 2008, showing an increase of
270 million won from the previous year.
Table 24 Payment records for Assistance to In-House Qualification Program(unit : million won)
Year

2002

2003

2004

2005

2006

2007

2008

Subjects

35

38

29

27

19

28

29

Amount paid

172

254

251

248

115

270

323

2) Aid to small and medium enterprises①Small and Medium Size Enterprise (“SME”) Job Training Consortium Program
SME Job training program provides a subsidy for the cost of building infrastructure andthe cost of trainings by the consortium comprised of SMEs and those institutions that are
equipped with good quality infrastructures such as facilities, equipment, and programs required
to carry out high quality job training.
The program was expanded by appointing 14 new organizations as the operators of the
SME consortium, and 281,000 workers belonging to 112,000 SMEs took part in trainings
provided under the JCDP in year 2008.
②Assisting Study Groups in SMEs
This program assists SMEs and Priority Corporations organizing study groups in order toincrease their workers’ job capabilities. The technique, consulting, and costs required for the
study group are assisted.
③Assisting SMEs Trainings to Improve Core Job Capabilities
This program provides the opportunities to the owners and employees of SMEs andPriority Corporations to receive the best quality trainings provided by prominent training
institutions free of charge, which they could not attend before because of high costs of the
programs.
3) Assistance to the employed workers①Allowance for Education Fee
The purpose of this program is to promote job capability development for workers in
SMEs and the non-regular worker.

268

The following people may apply for and receive allowances under this program:- Who belong to one of the following categories: Insured people of the Employment Insurance
who are about to leave jobs involuntarily during training or within one month from completionof training, insured people of the Employment Insurance of 40 years of age or older, workers
currently employed to businesses having less than 300 regular employees, fixed term employees,
short term workers, daily workers, deployed workers, and self- employed people who havejoined the Employment Insurance.
- Who has completed a course recognized as a JCDT course- Who has attended more than 80/100 of class hours of the course.
- Who has paid the education fee out of his/her pocket.
The allowance has a ceiling of 1 million won per annum.
②Student Loan for Workers
Workers, who are insured to the EI, enter or are attending educational institutions higher
than the Technical College as defined by the Technical College Act or Polytechnics establishedunder the High Education Act or the Education for Life Act. However, workers who receive afull amount of the school fee as a scholarship, subsidy, or loan are not eligible for the loan.
Total amount of the loan in year 2009 was 99,075 million Won, increasing by 11.3 billion
Won from the previous year.
Table 25 Amount of student loan given to workers
unit: won,1000 people
Types of confirmed recipientsYear

Loan amount

2002

52,186,786

2003

63,475,661

2004

74,798,812

2005

76,504,816

2006

81,641,937

2007

79,850,780

2008

2009

87,754,940

99,075,900

Confirmed
recipients

24,443

27,77230,97829,14928,342

25,22525,50729,424

Average loan
Study area
amount per
Science andpersonOthertechnology
2,135

2,286

2,415

2,675

2,881

3,166

3,440

3,367

Corporation
Priority Corp.

Sex

Big Corp.

Male

School typeFemale2 yearcourse4 yearcourseOther

12,182

12,261

14,878

9,565

14,234

10,20915,321

9,122

-49.8

-50.2

-60.8

-39.1

-58.2

-41.8

-62.6

-37.4

11,97015,802

16,234

11,53815,503

12,269

11,791

15,981

-43.1

-56.9

-58.5

-41.5

-55.8

-44.2

-55.2

-44.8

11,79819,18018,242

12,736

17,05913,91912,07018,908

-38.1

-61.9

-58.9

-41.1

-55.1

-44.9

-39

-61

10,622

18,527

11,62017,52916,15812,991

10,366

8,419

10,364

-36.4

-63.6

-39.9

-60.1

-55.4

-44.6

-35.6

-28.9

-35.5

10,372

17,97016,845

11,497

15,66812,674

8,971

19,371

-36.6

-63.4

-59.4

-40.6

-55.3

-44.7

-31.7

-68.3

9,013

16,212

14,686

10,53913,924

11,301

19,276

5,946

-35.7

-64.3

-58.2

-41.8

-55.2

-44.8

-76.4

-23.6

0

14,557

10,95014,377

11,13019,274

6,232

1
0

9,500
-37.2

16,007(62.8)

-57.1

-42.9

-56.4

-43.6

-75.6

-24.4

11,19818,225

18,797

10,626

16,713

12,71022,118

7,305

-38.1

-61.9

-63.9

-36.1

-56.8

-43.2

-75.2

-24.8

-

-

-

3

-

③Loan for Training Fee
This program provides loans to workers. The fee for trainings necessary for Job Capability
Development is being offered.
― Recipients: Employed workers who are insured to the EI.

269

― Terms of Loan- Loan amount: All of the course fee of the JCDT (up to 3 million Won perannum)― Interest: 1.5% per annum― Repayment: by quarterly repayment one year after the one-year grace period.
④Subsidy for Qualification Test Fee
When a worker, who is insured to the EI, obtains two or more national qualifications, thecosts of the tests for the qualifications are subsidized.
The following are the contents of the subsidy.
― Test fees, text book purchases and training course fees (100,000 Won).
― Assistance may be given up to a couple of times if the worker acquires two or more national
skill qualifications.
4) Aid to the training of the unemployed①Training of Unemployed People who are Changing Jobs
This program provides the people who were dismissed from work where the EI applies
with the opportunities to take part in the training to acquire skills and knowledge useful to getanother job.
The subsidy for training for the job changing of the unemployed in 2009 was paid to148,963 people in the sum of 249,726 million Won, showing an increase of 88.8 billion Won(55.2%) from the previous year.
Table 26 Subsidy for training for the job changing of the unemployed(unit: million won)Distinction

2006

2007

2008

2009

Recipients

53,622

65,24270,565

148,963

Amount paid

128,486

152,604

160,899

249,726②Training for Priority Occupational Areas
It is expected that this program will:― improve national competitiveness by raising skilled workers required for key industries andstrategic industries of the country― improve employment opportunities and job security of teenagers who do not proceed tohigher education and the unemployed by providing them with the opportunities to receive JCDT.
The people who can participate in this training assistance program are:― Unemployed persons 15 years or older who have registered at the Job Center to find a job.
― Students in the third grade in the junior high school who are not planning to proceed to higher
education.

270

Participants of the training for priority occupational areas are increasing every year. The
allowance was paid to 20,530 people in the sum of 110,332 million won in 2009.
Table 27 Assistance to the training for priority occupational areas(unit: million won)Distinction

2005

2006

2007

2008

2009

Recipients

14, 743

21, 557

27, 072

22, 126

20, 530

Amount paid

83, 081

134, 614

149, 310

125, 487

110, 332(4) Maternity Protection Program
The Maternity Protection Policies contain comprehensive policies answering to such social
needs. They include prior and post childbirth leave, prohibition of overtime working andrestriction on the night and/or weekend shift of pregnant women, prohibition of hiring female
workers in hazardous and/or dangerous businesses, menstruation leave, and nursing hours.
1) Childbirth Leave Benefit
Benefit of leave before and after giving childbirth and benefit of leave on miscarriage or
stillbirth (together shall be called Childbirth Leave Benefit (CLB)) are paid to the insured who
satisfies certain requirements. It is an additional remuneration to an employed person.
CLB is paid when the following conditions are all satisfied:― The insured must have been given a childbirth leave as prescribed in section 74 of the Labor
Standard Act― The insured period of the worker must be 180 days or over on the date when the childbirthleave ends
― The insured person must apply for the benefit within 12 months from the date when thechildbirth leave ends.
Childbirth Leave Benefit was paid to 70,560 people in the sum of 178,477 million Won inyear 2009, showing an increase in the number of beneficiaries by 3.0% and the payment amountby 7.1% from year 2008.

271

Table 28 Annual payment record of Childbirth Leave Benefit(unit:people,million won)
PayeesAmount paid

2002

22,711

22,602

2003

32,13333,522

2004

38,541

41,6102005

41,10446,041

2006

48,97290,886

2007

58,368132,412

2008

68,526

166,631

2009

70,560178,4772) Childcare Leave Benefit
Childcare Leave Benefit was introduced in November 2001. A worker who had a baby
younger than three years of age (born after 1 January 2008) was able to take leave to take careof the baby for one year. Changes have been made to the program by amendment to the Act toEncourage Equal Employment of Men and Women made on 21 December 2007. After thechange, the childcare leave may be taken for two separate periods and the leave period may be
used to the end even if the worker’s baby reaches the age of three during the leave period.
Total leave period is one year.
Childcare Leave Benefit is for the worker who takes the childcare leave out of the
Employment Insurance Fund. It pays a total of 500,000 Won per month. Childcare leave periodused in year 2008 was 216 days by women and 191 days by men. Women took 25 days morethan men for childcare.
Childcare Leave benefit is paid when the following conditions are all satisfied:― The insured must have been given childcare leave for no less than 30 days as prescribed in
the Act to Encourage Equal Employment of Men and Women― The insured period of the worker must be 180 days or over on the date when the childcare
leave begins― The spouse of the insured, who is also insured, must not be given childcare leave for morethan 30 days in regard to their same baby
― The insured person must apply for the benefit from one month after the beginning of theleave and before 12 months after the end of the leave.
Childcare Leave Benefit was paid to 35,400 people in the sum of 139,724 million Won in
2009, increased by 21.5% in terms of beneficiaries and by 42.0% in the payment amount.

272

Table 29 Annual payment record of Childcare Leave Benefit(unit:people,million won)
PayeesTotal

MaleAmount Paid

Female

2002

3,763

3,683

78

3,087

2003

6,816

6,712

104

10,576

2004

9,303

9,122

181

20,803

2005

10,70010,492

208

28,242

2006

13,67013,440230

34,521

2007

21,18520,875310

60,9892008

29,14528,970355

98,431

2009

35,40034,898502

139,724

4. Revision of Employment insurance system in 2009
(1) The recent situation of the employment insurance system in Korea
The first half of 2009 showed a poor start falling into the negative growth rate compared tothe previous years under the influence of the financial crisis in late 2008, but the full-fledged
economic recovery was shown at the end of the year; showing signs of recovery and switched topositive economic growth plus an increase in imports and exports.
Most job reports of the labor market in 2009 were not good due to the impact of thefinancial crisis in late 2008. The number of employed was decreased by 72 thousand (-0.3%)
with the employment rate of 58.6% with a decline over the previous year by 0.9%.
Non-economically active population had increased by 447 thousand (2.9%) and the unemployedby 119 thousand due to the economic recession. Respectively, the unemployment rate had
increased by 3.6%, 0.4% p.
In particular, the decrease in employment was visible mainly for non-wage workers. In thecrisis, 247 thousand wage workers increased over a 319 thousand non-wage worker decrease andthe decrease (-259 thousand) of the self-employed, which are vulnerable to a crisis, was the mostprominent. Different aspects could be seen as a 383 thousand increase in commercial wage
workers and a 22 thousand increase in temporary workers compared to a 158 thousand decrease
in daily workers. The number of the young employed decreased largely compared to the previous
year due to increasing uncertainty of the economy and reluctant hiring by companies and theemployed at the age of 30s were also reduced a lot due to struggling construction andmanufacturing businesses.
The unemployed were 889 thousand and it increased by 119 thousand (15.5%) over theprevious year and the unemployment rate increased by 3.6%, 0.4% p. The unemployment benefit
applicants increased greatly with their number passing above one million and its growth rate was273

also high with 28.0% in 2009. It could be interpreted that the increase in the unemployment
benefit applicants was due to the increase of the unemployed and it seems that the unemployed
number is on the increase because of the economy.
In 2009, the number of the employment insurance insured has steadily increased with 9
million and 654 thousand (compared to 382 thousand of the previous year’s, increased by 4.1%)
with a greater increase margin and it’s on the steady increase in spite of the recession. In terms ofgender, female is (235 thousand, 7.0% compared to the previous year), in terms of age, thenumber of the insured elderly (60 years or older) and of elders (ages between 40 to 50) increased(14.6%, 8.4%p compared to the previous year) while the younger insurers (under 29 years ofage) was on the decrease (-2.6%).
In 2009, employment insurance recipients were 5 million and 177 thousand (7.8% increaseover 375 thousand of the previous year’s) and it showed the steadily increasing trend with acontinuous growing margin. Regarding gender, females were (262 thousand, 12.6%), for age, theholder numbers among the elderly (60 years or over) and of the elders (ages between 40 and 50)
increased (18.5%), 59.5% compared to the previous year’s) and the young (under 29) holder
numbers decreased by (-3.0%) and the creasing gap was narrowed slightly. For each industry, theholder numbers increased among ‘public administration, defense and social security
administration industries' and 'health and social services industry and manufacturing industries'(318 thousand and 49 thousand respectively) and there was a decrease of 54 thousand (-4.8%) in
the manufacturing industry.
In 2009, a number of people who lost the employment Insurance was 4 million and 723
thousand (compared to 313 thousand of the previous year, 7.1% increase) and the number issteadily growing but its increase gap was narrowed slightly. In terms of gender, females were(187 thousand, 9.9%), regarding age, the number of people who lost their insurance among theolder (over 60) and of the elders (ages between 40 and 50) increased (compared to 25.3% of theprevious year, 53.4%) and the number of young (under 29) people lost their insurance was on thedecrease (-4.9%). For each industry, the number of people who lost their insurance increased in'public administration, defense and social security administration industries' and 'health andsocial services industries' (248 thousand and 35 thousand respectively), and 59 thousand (-5.4%)
decreased in the manufacturing industry. Specifically, the public administration, defense andsocial security industries had high numbers of increased new holders (248 thousand, 140.4%)
and loss of holders (318 thousand, 165.7%) compared to the previous year.
(2) The main features and the results
1) Launch of the Employment Insurance Commission
In the meantime, the government has been revising the main points on the employment
insurance in the employment policy committee according to「the basic employment policy act」
but has made the employment insurance commission to perform its function by revising 「the274employment insurance law」. The employment insurance commission is the undisputed operatingorganization regarding the employment insurance and its 1st meeting was held on last July 1
after its official launch.
The employment insurance commission consists of four persons (total 16 persons) for eachof employee representatives, user representatives, the government representatives and public
service representatives with the secretary of Ministry of Employment and Labor as the chairman
for rational management by converging opinions of the working groups and user groups. In 2009,a total of two meetings were held to vote for the employment insurance committee by laws, 2009
employment insurance fund management plan and the employment insurance law change plans,etc.
2) Installation of the Employment Insurance Evaluation Center
In 2008, the employment insurance law was revised to raise effectiveness of theemployment insurance business through systematic assessments and evaluation results conductedby external specialized agencies to establish assessment and feedback systems and it was agreed
to build and operate the employment insurance evaluation center from 2009.
It was prepared to specify the employment insurance evaluation center, but this did notwork out as the external conditions were not met and therefore the assessment of 2009
employment insurance business was carried out as the previous method of selecting an external
specialist agency without specifying the employment insurance evaluation center.
The assessment of 2009 employment insurance business was carried out by separating thegeneral assessment and in-depth assessment, and the general assessment was conducted toprepare for the external evaluation including fund operation assessment (equipment division)
carried out every year and the in-depth evaluation was carried out regarding outside issues
pointed out by the National Assembly and necessary projects requiring system improvement for
the general evaluation results.
3) Creation of the special filing period「A law of special measures to promote reporting formation of insurance relationships interms of the employment insurance and the accident compensation insurance」was passed in thenational assembly in December 2008. Accordingly, a special filing period was set from 1 May
until July 30 2009 and small businesses and their workers, not signed up for the employment
insurance, received exemption benefits for the past non-payments by voluntarily signing up forthe insurance during this period among the small businesses.
4) Social safety net expansion secured for the global financial crisis
In 2009, the government had supported the job sharing as a nationwide movement andsupported it intensively as loans support for living costs of the unemployed by changing theemployment insurance fund operation plans.

275

The government secured social safety net expansion by supporting income for theunemployed workers through the job sharing and provided funding to support maintaining theemployment through job shifting conversion, and raised the level of new employment subsidy
support to strengthen support for vocational training for vulnerable groups including theunemployed and to stimulate employment for them.
5) System improvement efforts to consider the effectiveness of the employment insurance
business
In 2009, system improvement plans were devised for the purpose of employment stability
and stimulation for facilitating the employment insurance business to enhance the employment
stability and maintenance of business requirements, and to promote women's employment for
creating short jobs, etc. In details of the new employment stimulus subsidy, it prevented businesslosses by setting the highest limit of supporting scale and it promoted women's participation in
the labor market by establishing an unlimited contract for short-term job creation projects. Social
conflicts were resolved by reasonably adjusting fraud activity restriction standards regarding
employment stability businesses and by strengthening support for vulnerable groups througheasing the requirements for individual support. Finally, outside opinions of the effectiveness ofbusiness was positively reflected by greatly rearranging the early reemployment allowancesystem. The system was to prevent risks of business losses by setting strict payment
requirements and standards and to increase the effectiveness of the project by reasonably
adjusting the number of the payment days.
6) Unemployment payment for the self-employed temporary signing up plan submitted to
the national assembly
Self-employment businesses are sources of economic vitality and it has the great impact on
the national economy and the labor market as the new job creator but its social security net islacking compared to other workers. Since the global financial crisis, self-employed businesses
have been increasingly going out of business and this has been undermining the overall
economy's growth potential, and therefore a discussion about the social safety net took place.
"T/F for the self-employed employment insurance plan" was established and operated by
Ministry of Employment and Labor with participation from the relevant departments andorganizations. After several rounds of meetings by sufficiently converging stakeholders' opinions,
measures were confirmed for the employment insurance unemployment benefits regarding theself-employed. The government finalized amendment to the employment insurance law andsubmitted it to the national assembly on December 29, 2009.
7) Vocational ability development system conducted nationwide as a pilot scheme
The government has expanded training options for trainees, improved the quality of
training by easing market entry barriers and restrictions in the training market and strengthened
connection with employment support services with in-depth consultation and providing276

information to enhance training performance and effectiveness of resource allocation, andtherefore the government has expanded the pilot scheme of the vocational ability development
system, which was operated in Daegu and Gwangju areas from September 20, 2008, across thenation. As a result of the pilot operation, the training course has become a modular training
period, an average training period per person is 2.7 months and this is reduced by twice
compared to the previous training period for the unemployed, 5.1 months. In addition, 280
billion won investment was made for the unemployed training and 119 thousand people weretrained in 2009 but the vocational ability development system has provided employment training
opportunities to more people with less budget of 57 billion investment for 116 thousand (annual
number of persons basis).
8) Promotion of spreading peak wage system and preserved allowance system
The peak wage system and the preserved allowance system were planned to be operated
temporarily until 2008 in the hope that the wage system was to be reformed over a short periodof time when the peak wage system was introduced in 2006. However, in the situation withgrowing concerns about social problems due to the worsening ageing society and the retirementof baby boomers, the government announced to expand support for businesses to spread the peak
wage system and it was switched to a permanent system through the employment insurance law
enforcement order.

(3) Main achievements and features of the employment insurance fund
1) Policy directions of 2009
The goal of the employment insurance fund operation in 2009 was to prevent
unemployment through the employment insurance programs, to promote employment, toenhance vocational skills development, to strengthen the role of the social safety net throughstability to the lives of unemployed workers and job search assistance, and to support the active
labor market policy. The detailed policy directions were set as follows.
First, unemployment prevention with a job security fund, employment opportunities for theactive labor market policies to promote employment with strengthening the support forvulnerable groups including irregular and small business workers, and for reducing the numberof unemployed youth.
Second, expand skills development opportunities for the most vulnerable workers
including irregular and small business workers through specialized training programs for theseworkers.
Third, effectively support the individual self-directed worker for development ofvocational skills through the consumer-oriented market-friendly professional development
system (vocational competency development system suppository).

277

Fourth, the livelihoods of workers unemployed through unemployment compensation andearly support by helping facilitate the return to the labor market due to high oil prices expected toactively respond to the uncertain economic situation.
Fifth, to enhance career interruptions for women's employment and expand support forcustom jobs and promote job security for the elderly should continue to be supported.
Sixth, strengthen support for region-specific employment creation innovation of
employment services by establishing a cooperation network between the public and the private
sectors.
Seventh, strengthen capabilities of employment stability and employment insurance
networks, including building a comprehensive professional experience hall for the advancementof employment support services to continuously promote the expansion of infrastructure.
2) Detailed achievements and features for each project①Employment insurance coverage and tax
With respect to applying the employment insurance, the number of insured businesses
decreased to 139 down by 2.7% compared to 142 of the previous year’s by the end of 2009 dueto the economic downturn and the number of insured people increased to 9.65 million up by
2.8% compared to the previous years. This figure is increased by 247.5% compared to 400
thousand in 1998 in terms of number of insured worksites and by 83% compared to 5.27 million
in terms of number of insured people.
To make the employment insurance management work related to insured people effective
and to enhance prevention effort for missing reports, the voluntary subscription special reportperiod (May 1 2009~July 30 2009) was run with exemptions given to non-insured worksites andworkers, even though they should have been insured for the employment and compensation
insurances, and this contributed to improving signing up for the insurance.

In addition, newdiscovery and application efforts were made through establishing the search system by linking
data between the National Tax Service data and related organizations.
Regarding the collection of insurance payment, insurance payment rates were 97.1%,
increased by 0.7%p compared to the previous year’s, the collected insurance payment was 4
trillion 216 billion and 400 million won increased by 5.4% over the previous year’s and thecollected insurance tax amount was 222.9 billion won by the end of 2009 and this showed an
achievement of a 13.8% decrease compared to the previous year’s through providing
convenience to businesses in tax payment, efficient tax payment administrations andstrengthened management for taxed insurance amount.
②Strengthened support for employment retention to spread job-sharing
In early 2009, the economic downturn became worse due to slowing sluggish domestic
demand and exports under the influence of global economic crisis in the second half of 2008 andthe bad employment condition escalated as the employment number decreased and278

unemployment number increased. Some large companies in industries such as automobile
manufacturing production scaled back or closed temporarily and because of this, the number ofclosed small and medium suppliers increased dramatically, and the employment instability
increased among employees with expected huge scale employment adjustments, etc. Accordingly,
the employment retention fund system was greatly improved and run in the aspect of theemployment insurance to fully support prevention of unemployment and job security through job
sharing. The employment retention fund system amendment plan is included not only indirection of the economy of 2009 but also in the main policies, its main details are as follows.
First, the job retention measures to minimize the burden on companies to raise the level offunding, job retention and mitigation requirements were supported (act enforcement amendment
on March 12, 2009, and implementation rule amendment on April 1 2009).
Second, the employment insurance fund plan was modified by monitoring trends of theimplementation of management plans for job retention and job retention action plan funding on adaily basis, and an amount expected to be limited to the supplementary budget was obtained
through a full budget.
Third, to avoid the situation where the system is not used as the company does not know
about it, a variety of promotions were carried out including radio advertisements and distributed
brochures (60 thousand copies) and, especially a lot of effort was being made to increase theutilization of the system for small and medium enterprises.
Fourth, in consultation with related ministries, maintaining employment and providing
support measures for companies with preferential treatment was performed.
* (Small and medium business policy fund priority) funding for small business policy, priority
support for companies supporting the employment retention fund in supporting small andmedium business policy fund priority support (SMBA), etc.
It is estimated that employment maintenance subsidies would play the leading role in 2009
for stabilizing employment and overcoming the employment risks in the unprecedented risks ofthe global economy and employment. Job retention grant in 2009 was 310 billion and 200
million won for 14,000 companies, and 941 thousand people and this was a 10-time increased
amount compared with 30.6 billion won in 2008.
③Enhanced support for vocational training for the unemployed
Since the second half of 2008 in the aftermath caused by the global financial crisis to
respond to large-scale unemployment and widespread unemployment in the budget to expand
training, vocational training, one month earlier than in previous years was conducted.

Inaddition, a special training has been established at polytechnic universities to help theunemployed youth who are struggling to find jobs in the situation of economic crisis. In
particular, a new project was introduced for providing loans to ease the burden of the livelihoodof the unemployed take part in vocational training with a low interest of (2.4%).

279

④Unemployment benefit
The unemployment benefit has expanded its function as a social safety net for livelihood
support for the unemployed since the unemployment benefit system was introduced in 1995.
Worsening economic situation, especially after the second half of December 2008, as theunemployment benefit applicants were increasing, the unemployed benefit of 116.4 billion won
was paid to 1 million 301 thousand people through securing a supplement of 1 trillion 538 billion
and 300 million won in 2009, and the number of recipients of unemployment benefits has also
increased steadily through expansion of various systems in the meantime.
Since January 1 2004, after the unemployment compensation system has been applied tothe daily workers, the number of daily workers, recipients of unemployment benefits has risen
substantially each year. (3,635 people in 2004 → 26,215 people in 2005 → 40,200 people in2006 → 54,769 people in 2007 → 82,939 people in 2009 → 139,236 people in 2009)⑤Employment support project for low birth rate, aging women and the aged
* Changes in parental leave and subsidies: ('04), 6.7 billion won → ('05) 7.2 billion won → ('06)
9.8 billion won → ('07) 11.2 billion won → ('08) 15.9 billion won → ('09) 20.4 billion won.
* Alternative recruitment subsidies (supported since '07): ('07), 1.2 billion won → ('08) 2.5
billion won → ('09) 3.4 billion won.
Women workers numbering 70,560 who gave birth received maternity leave payments of
178.5 billion won and 139.7 billion won was given to 35,400 as parental leave payments formaternity and childcare leave, and administrative leave during the period of employment of
women workers were promoting stability and livelihood support. Especially, activity rate of theemployees on maternity leave was 50.2% in 2009 and this was increased by 7.7%p compared to2008.
Employees’ child care burden was eased by installing and running (Labor Welfare
Corporation commissioned) public childcare facilities (16 locations) in small and medium
businesses intensive areas and high-quality child care services were provided. Free conversion
costs and equipment costs (27 locations, 3.2 billion won) and building installation and rent costs(2 offices, 300 million won) were supported for the employers installing child care facilities. In
addition, labor costs and child care teachers (173 places, 12.6 billion won for 1,921 people) were
supported to businesses running childcare facilities.
Also, in preparation for an ageing society, new start programs were established to support
the field training program for the elderly and the peak wage system support was widened throughthe customized peak wage system consulting services for free advice and support for the elderlywith an employment subsidy to establish a basis for the elderly to work for a long time, while
even trying to improve social awareness through promotional activities for the elderly including
an Age campaign, etc.
* Peak wage conservation benefits: ('08), 997 people, three billion won support → ('09) 1,497
people, 6.5 billion won support.

280

* Peak wage system consulting support: ('08), 35 corporations and labor organizations, 1.5
billion won support → ('09) 33 companies and labor organizations, 1.5 billion won support.
* Number of elderly employment subsidy beneficiaries increased: ('07) 259,357 people → ('08)
273,945 people → ('09) 274,849 people.
"Women newly back to work centers" were set in 72 locations in collaboration with
Ministry of Gender Equality to promote employment for the unemployed women due tochildcare and household responsibilities in 2009 with providing comprehensive employment
support service linking the ｢group counseling training programs ↔ job training and housewife
internships ↔ careers advice and pot-management after employment｣. Ministry of Employment
and Labor has supported 3 billion and 285 million won to 10,955 trainees by operating a group
counseling program and promoted women's participation in economic activities throughpost-employment management support with career advice.
5. Conclusion
To resolve the worsening situation of the labor market due to the economic downturn, eacheconomic organization of the labor, private, public and governmental sectors in Korea reached amajor agreement last February 23, 2009 and the social atmosphere of sharing work has been
spread nationwide.
The Korean government has strengthened political public relations of sharing jobs to
spread it as a nationwide movement on the one hand, and has expanded support for companies
and workers to give substantial benefits to the participating companies. In particular, the support
was raised for the participating companies in the job sharing with job retention efforts bykeeping the wages for the workers from getting reduced income due to their shorter working
hours and holidays, etc.
In addition, the vocational training for the unemployed has been strengthened to improvetheir working abilities and to raise a necessary functional and professional workforce for the
future industry by allocating a supplementary budget for training former and newly unemployedstaff and strengthening training for the core competencies between large and small-medium
enterprises for their coexistence and cooperation. The Korean government has made efforts by
expanding unemployment benefits and benefit plan requirements to improve the individual
extension of unemployment benefits and social security employed in crisis situations to support
the livelihoods of vulnerable groups in the program. They have expanded loans for the training
cost of living for the unemployed to focus on the training during the training period.
The Korean government carried out various policies as above to avoid a massunemployment situation during the financial crisis. However, the possibility of losing a job for
non-regular workers who are used to having a bad working condition and low income level isgetting higher. The ratio of the non-regular worker in Korea reached 34.9% in 2009. After losing
their job, generally their chance of reemployment is not good during the recession period. It is281

true that a large portion of that group of workers is still outside of the Employment Insurance
system, so they are not getting most of the benefits from the system despite the high demand forthe benefits. The Korean government passed protective legislation in 2007 targeting non-regular
workers and is trying to mitigate growing job insecurity. However, the result does not yet appear.
Thus it is necessary to improve the labor policies for the non-regular workers and to involve
them into the safety net system. Korea government should carry out a more active labor market
policy including an unemployment insurance system.

282

Employment Insurance andActive Labor Market Programs in Japan
Naoki Mitani∗

1. Introduction
The purpose of this paper is to show the actual status of Employment Insurance Scheme andActive Labor Market Programs in Japan as well as their historical developments and to shed somelight on the related issues under the structural changes in the labor market, in order to share theJapaneseexperiences

with

other

economies

which

are

seekingtointroduce

anunemployment/employment insurance scheme or to improve it to augment the social resilience.
In the context of the global economic crisis, the Japanese economy fell into its deepest
recession in the post-war era. Output contracted by around 6% in 2009, reflecting a plunge inexports and tight financial conditions. Accordingly, employment had to be adjusted and theunemployment rate soared. Thus, it is an important task to evaluate how Employment Insuranceand Active Labor Market Programs responded to this crisis and contributed to the social
resilience.
Second, the Japanese Unemployment/Employment Insurance has a history of over 60 years.
The historical developments might be interesting especially for those economies in East Asia
which plan to introduce the Unemployment Insurance.
Third, it would be also suggestive to shed light on the current issues of Employment
Insurance Scheme in face with structural changes in the labor market, such as how to integrate
non-standard employees into the safety net of employment.
The structure of the following sections is as follows. In the second section, the policy
response to the crisis is discussed. In the third section, the features of the Japanese labor market
are shown. The fourth section discusses the historical developments, institutional aspects, andissues relating to unemployment benefits of Employment Insurance. The fifth section shows theActive Labor Market Programs. The final section concludes.
2. Impact of the crisis on the labor market and policy responses
Unemployment rate (in seasonally adjusted series) has soared to the historical high 5.7% in
July 2009 from 3.7% in December 2007. It decreased somewhat to 5.1% by the end of 2009. The
number of the unemployed reached to 3.76 million (in seasonally adjusted series) in July 2009.

∗

Naoki Mitani is Professor of the Graduate School of Economics, Kobe University. Born in 1949. M.S. (Mathematics),
University of Tokyo (1974). Doctor of Economics, Kobe University (1997). Officer at the Ministry of Labor (1974-1983,
1987-1989). Administrator at the OECD (1983-1987). Associate Professor at Faculty of Economics, Kobe
University(1989-1996), Professor at Faculty of Economics, Kobe University (1996-1999).

283

Compared with other OECD countries, the increase in unemployment rate was relatively
small although the output plummeted sharply after the beginning of the crisis. Chart1 shows the
GDP growth rate and the changes in the unemployment rate in five OECD countries. Whereas thereal GDP decreased by 7.7% from the first quarter of 2008 to third quarter of 2009, theunemployment rate increased by 1.3 percentage points to 5.1% during the same period in Japan.
Among the five countries, Germany shows the least rise in the unemployment rate. The UnitedStates and United Kingdom experienced relatively larger rises in the unemployment rate in spiteof the smaller reductions in GDP than Japan. The main reason for the relatively smaller rises in
the unemployment rate in Japan and Germany is the large labor hoardings in these countries.

Source: OECD

The deterioration of the Japanese labor market under the crisis was associated with large
shedding of temporary workers or non-standard employees. The salient feature of the current
recession is that the number of non-standard employees decreased for the first time. Chart 2 shows
the changes in the number of standard employees and that of non-standard employees over theprevious year from 1989 and onwards. The number of non-standard employees increased during
the previous three recessions, while the number of standard employees decreased during the
1997-1999 recession and thereafter. After the Lehman shock in September 2008, the number of
non-standard employees began to decrease only in the first quarter of 2009, whereas the numberof standard employees began to decrease quickly. But the number of non-standard employees
decreased by 470,000 persons (or 2.7%) over the previous year in the second quarter of 2009,
much more largely than that of standard employees which decreased by 290,000 persons (or0.8%) over the previous year in the same period.

284

According to the survey1 conducted by the Ministry of Health, Labour and Welfare, theaccumulated number of the non-standard employees who lost (or are going to lose) their jobs
between October 2008 to September 2009 is 282,181, which consists of contract workers (49.7%),
dispatched workers (16.3%), workers from subcontract firms (3.4%) and others (30.6%). The
reasons for the loss of jobs are “expiration of contracts” (52.0%), “break of contracts” (42.3%)
and “other reasons” (5.7%). Most of these workers (83.4%) worked (or are working) in the
manufacturing sector before the job loss. This suggests that the de-regulation of the worker
dispatching undertakings in 2004, which allowed firms in the manufacturing sector to employ
dispatched workers with a contract duration less than one year (in 2007, the maximum contract
duration was extended to three years), accounts for an important part of the large shedding of
non-standard employees. Some of them lost their residence, together with their jobs, which wasoffered by companies. The proportion of the non-standard workers who lost their residence was
6.1% in December 2008 and it declined gradually to 2.1% in June 2010. It should be noted that
97.7% of the separated non-standard employees were insured by Employment Insurance and90.9% were estimated to be qualified for unemployment benefits.
In response to the crisis, the Japanese government took various employment measures asfollows2.

1
This survey has been conducted each month through the hearing by the Public Employment Security Office to the firms inthe district. The number is based on the June 2010 issue.
2
The following is based on OECD (2009b).

285

Measures to stimulate labor demand
public sector job creationz

public sector job creation was expanded for nursing, medical care, agriculture, environment,
energy, tourism and the local community.
reductions in non-wage labor costsztemporary reductions in employer contributions to unemployment insurance schemes
short-time work arrangementszextension to coverage of short-time working to workers with less than six months of
unemployment insurance coveragez

temporary increase in subsidy paid to employers for short-time working.

z

temporary introduction of short-time work subsidies for firms maintaining employment by
reducing over-time work in reaction to a sudden and temporary decrease in demand.

Re-employment measures and training
job-search assistance and activation measureszplanned increase in PES staff and counselors in FY 2009.

z

increase in re-employment benefit for unemployed who find work quickly for three years.

training and work-experience programs and business start-up incentiveszextension of trial employment program to older unemployed over 65 years.

z

provision of income support loan to unemployed not eligible for unemployment benefits toallow them to participate in training programs

Income support for job losers and low-income earnerszeasing of employment insurance contribution requirement for fixed-term workers

zextend benefit duration for hard-to-employ job seekers for three yearsz

temporary creation of a living allowance for unemployed without access to employment
insurance to take part in vocational trainingz

temporary subsidies for employers who continue to provide housing to dismissed workers
and additional advice through PES for job losers with housing problems
Among these measures, the most important was the Employment Adjustment Subsidy

scheme (EAS). The number of the establishments which applied was only 1,707 in December
2008, but it rose to 84,672 in October 2009. The number of the workers under this program
reached to its peak 2,534,853 in April 2009 (Chart 3). The ratio of the workers under the program
to unemployment was ranging around 60%～70％.

286

Chart 3 Number of Workers and Establishments under Employment
Adjustment Program
Number of Workers(left scale)
Unemployment(left scale)
Number of Establishments(right scale)(thousands)
4000

90000

3500

80000

3000

70000
60000

2500

50000

2000

40000

1500

30000

1000

20000

500

10000

Dec‐09Oct‐09Nov‐09Sep‐09Aug‐09Jul‐09Jun‐09Apr‐09

May‐09Mar‐09Jan‐09Feb‐09Dec‐08Oct‐08

Nov‐08

Sep‐08Jul‐08Aug‐08Jun‐08Apr‐080

May‐080

Source: Ministry of Health, Labour and Welfare

The number of unemployment benefits recipients soared to 1.01 million in June 2009 anddecreased to 0.67 million in May 2010 (Chart 4). The ratio of unemployment benefits recipients tothe insured reached to 2.9% in June 2009 and then decreased to 2.0% in May 2010. The
proportion of unemployment benefits recipients among the unemployed was 29.1% in June 2009and decreased to 19.1% in April 2010.

3. Features of the Japanese labor market
Salient features of the Japanese labor market are as follows.
First, long term employment practice is prevalent, especially in large firms. Table 1 shows
the average tenures with current employers in six OECD countries. The average tenure for both
sexes is longer in Japan, Germany, France and Italy than the United States and United Kingdom.
The male tenure is the longest in Japan, followed by France and Italy. It is much shorter in the287United States and the United Kingdom. However, the Japanese female tenure is much shorter thanin West European continental countries. It is slightly longer than in Anglo-Saxon countries.
It should be also noted that the average tenure has rather lengthened in Japan over the lasttwenty years.
Table 1. Average Tenures with Current Employers in Selected OECD Countries
Japan（year）

USUK

Germany

France

Italy

1988

1998

2008

2008

2008

2008

2008

2008

Both sexes

10.6

11.6

11.6

7.1

8.3

10.8

11.6

11.3

Males

12.2

13.1

13.1

7.5

8.7

11.5

11.6

11.6

Females

7.1

8.2

8.6

6.8

7.9

10.1

11.5

10.8

Source： Japan: Ministry of Health, Labour and Welfare, Basic Survey on Wages

Structures, United States：BLS, Current Population Survey, January Supplement, 2008, Other
countries：OECD.Stat
Second, OJT (On the Job Training) is relatively more intensive, especially in large firms.
With the perspective of the long term employment relation, both employers and employees tend toinvest intensively in firm specific human capital, and share the return to the investment or the rent.
This in turn results in long term employment. Thus, the long term employment practice iscomplementary with intensive OJT. This is reflected in the relatively steep slope of age-earnings
profiles (Hashimoto and Raisian (1985), Mincer and Higuchi(1988)). The skill formation isconducted mostly in the form of OJT as well as Off-JT( Off the Job Training). Typical workers inlarge firms accumulate the skills to detect the problems and solve them on the site, by
experiencing various jobs in the workplace and through occasional Off-JT to learn the relevant
knowledge. Thus, even production workers tend to acquire fairly high intellectual skills throughlong term OJT (Koike (1996)). This practice of intensive OJT is also complementary with firms’
high propensity to hoard their skilled workers during the recession. Nonetheless, it is mostly
limited to standard workers in large firms.
Third, the number of non-standard employees is increasing rapidly, especially among young
workers, as well as female workers and older workers. In fact, the proportion of non-standard
employees among all employees excluding executives of corporations rose from 19.7% in 1987 to
35.5% in 2007. Among non-standard employees, the proportion of regular non-standard
employees, whose terms of contract are more than one year or unlimited, rose relatively faster(Chart 5). Such structural change is found not only in Japan but also in other OECD countries,
especially in Western European continental countries. It is pointed out that the polarization of thelabor market is mostly due to the structural changes such as technological changes (especially
ICT), and the globalization of the economy, as well as the severe EPL (Employment Protection
Legislation) in these countries. Nonetheless, in Japan, the proportion of non-standard employees288is increasing rapidly among youth and Japan has never experienced such deep dualization orpolarization of the youth labor market since the mid-1950s, just before the High Growth Period.
Thus, the social and economic systems so far have not been adjusted enough to such structuralchanges. The most important aspect of non-standard employment is that it does not provide young
workers with enough training opportunities. In general, intensive OJT is rarely offered tonon-standard employees. Consequently, age-earnings profile is flat. In addition, non-standard
employment is fixed term or temporary. Moreover, it has been revealed that in Japan, those who
are obliged to take non-standard jobs on the graduation from schools tend to be employed in
non-standard jobs for a long period (state dependency). Thus, non-standard young employees tend
to suffer from a poor economic situation as well as poor employment stability for a long period
and it is pointed out that this may cause a low fertility rate and the future poverty problem.

4. Employment insurance
4.1 Historical developments
The Unemployment Insurance Act was enacted in 1947 as one of the series of the postwar
preparation of the labor legislation. In the same year, the Employment Stability Act was enacted.
The main policy issues in this period were the recovery of the economy after World War Two andto cope with the increasing number of the unemployed. However, the function of the Public
Employment Stabilization Offices (PESO) and the Unemployment Insurance did not meet enoughwith the necessity, because of the disorder of the labor market and the particularity of theunemployment in the post-war period, as well as the immaturity of the institutions. The PESO was289

very busy over placing the laborers separated from the mining industry and the US Forcestationed in Japan. The UI scheme has just begun, with the number of the benefit recipients being
only 27,000 persons in 1948. In face of the large number of displaced workers due to thedeflationary policy, the Law of Emergent Relief Measure for the Unemployed was enacted in1949. The law stipulated the Relief Program for the Unemployed, in which the local governments
employed the unemployed in public employment such as road construction and maintenance,drainage maintenance projects, or public building maintenance. Though the aim of the law wasattained immediately, the intended effects phased out. In the early 1950’s, the displaced workers
were temporarily reemployed in the public employment program in the regions where
disproportionately large displacement took place. But an unexpectedly large flow of older workers
with little employability, the needy self-employed and newly entrant women entered into theprogram and piled up thereafter.
The high economic growth began in the mid-1950s. The employment in the industrial sector
increased and absorbed the large flow of new graduates from junior and senior high schools andworkers from the agricultural sector in rural areas. The active labor market programs in this period
were (1) placement of new high school graduates, and (2) measures for structural unemployment
such as those for the unemployed who left US forces stationed in Japan, mining industry, and the
middle aged or older workers who lost their jobs and migrant workers from the agricultural sector.
These measures consisted of employment subsidies to the employers who employed targeted
unemployed workers, housing allowances for the migrants who found jobs in remote areas, andtraining associated with placement, etc. On the other hand, the number of workers who
participated in the Relief Program for the Unemployed increased sharply. Most of them werepreviously self-employed or not in the labor force. They might become job-seekers because it wasdifficult to continue their traditional small businesses under the rapid industrial changes. In 1971,
the new introduction to the Relief Program for the Unemployed was stopped. Thus, theemployment policy changed dramatically from the traditional measures to provide temporary
employment and absorb the unemployed into various programs such as a public employment
program. In 1966, the Employment Measures Act was enacted to cope with structural
unemployment. This Act systematized and extended to all industries the measures that emerged in
the process of transformation of the industrial structure. It also regulated procedures for mass job
reductions, including dismissal, and later led to policies strengthening employment security.
In 1974, the Employment Insurance Act was enacted. The main purpose of the
Unemployment Insurance was “to stabilize the standard of living and employment of workers byproviding necessary benefits for workers who are unemployed”. The Employment Insurance Act
added another one “to facilitate their job-seeking activities, as well as to prevent unemployment,
redress the employment situation, increase employment opportunities, develop and improve thecapacity of workers, and promote their welfare, so as to contribute to their employment security”.
In order to implement the above purpose, the Employment Insurance Act stipulated that the290Employment Insurance may, in addition to granting benefits for unemployment, undertake thefollowing four services; services for the improvement of employment, services for the humanresources development, services for the welfare of employment, and services for the stabilizationof employment.
Initially, the Employment Insurance was planned to integrate the Active Labor Market
Programs to the Unemployment Insurance Scheme in order to reduce the structural unemployment
which persisted even under the full employment situation before the First Oil Price Shock. It wasalso planned to systematize and develop the stopgap labor market programs so far partiallyconducted in face of the structural changes due to the rapid economic growth and the symptom of
the ageing of the population. In reality, the First Oil Price Shock occurred in 1973, when theinitial Employment Insurance bill was aborted at the Parliament. But, as the economic turbulence
increased, employers’ associations and labor unions urged the government to take necessary
measures and the employment adjustment subsidies, which had not been considered so importantand appeared only at the end of the services for the welfare of employees in the initial bill of
Employment Insurance, attracted these groups abruptly, because under the employment
adjustment subsidy program the employers would be paid the half (for large firms) or two third(for small and middle firms) of the allowance for absence from work which the employer paid,
when the firm was obliged to contract its business because of the economic downturn. The
renewed Employment Insurance bill was quickly voted on and the Act was enacted in December
1974. Thus, services for employment stability (the fourth services) were newly created in the Act
and among them the employment adjustment subsidy became one of the most important measures.
The employment stability fund was created in the budget to finance the subsidy with mobility.
The structural changes, due to the strategies taken by firms after the Oil Shock such as
drastic lean management, changes in undertakings, and introduction of new technologies, might
give rise to large structural unemployment. To meet this situation, lots of measures were taken bytrial and error in the Employment Insurance, especially in the four services. These measures weresystematized, arranged and put together in 1980. In the 1980’s, unemployment benefits scheme
was reformed, reflecting the financial problem in the service granting benefits for unemployment
due to the increase in the unemployment rate stemming from the structural changes in both supply
and demand sides of the labor market. On the other hand, measures for the elderly weredisproportionately reinforced mainly in services for the improvement of employment.
Ujihara (1989) pointed out the problems regarding the Employment Insurance Scheme inthis period as follows. First, the four services were created in order to complement the service
granting unemployment benefits and keep its sound finance by mobile and flexible application of
measures, in the awake of sudden unemployment problems. This purpose was attained
successfully to some extent in the second half of the 1970’s. But once the measures were created,
they tended to remain even after the necessity disappeared. Second, the measures in four services
should be complemented by other policy measures, because the financial effects of the former

291

were limited as employers considered the whole costs and benefits of these measures. Third, theadministrative procedures were conducted by the employees at the PESO. Thus, as the benefits
scheme became more complicated, the administrative burden on the employees of the PESO
became heavy and troublesome.
A financial upset in autumn 1997 triggered a sudden recession. As the unemployment rate
began to soar at the beginning of 1998, the government incorporated measures for employment
into its comprehensive economic measures of April 1998. And five consecutive employment
packages were put in force from 1998 to 2002. Ohtake (2004) points out three principal courses ofaction in the measures in this period. First, they involve an expansion of the traditional policy ofmaintaining employment. A typical example includes raising the rate of subsidies for
Employment Adjustment subsidy. Second, they are based on traditional policy involving the useof public works to absorb the unemployed and maintain employment. Third, they involve a new
type of employment measure involving subsidies for job creation, such as the wage subsidies forfirms newly hiring middle-aged and older workers, and new or extended subsidies for small andmedium-sized enterprises that require human resources for new business conversions.
In addition, two new measures in this period are noteworthy. The one is the introduction of
the Education and Training Benefits System, commencing in December 1998. This is
epoch-making because it is a direct subsidy for individual workers, in contrast to previous labormarket training measures which had been executed mainly through subsidies to organizations incharge of training. It can be seen as a kind of voucher system, because the subsidies are paid after
completion of vocational training. The other is the measures for youth. They had been scanty,
compared with other OECD countries, partly because the unemployment rate for youth had been
relatively low. But under the long economic recession, the youth unemployment rate soared andthe ratio of non-standard employees increased. Employment measures for youth were taken for
the first time in 1999, though modest at the start. Thereafter they are expanded gradually.
A series of employment measures were implemented from 2002 to 2003, based on theComprehensive Measures to Accelerate Structural Reform. The plan identified three principal
policy targets. The first concerns responses to unemployment resulting from the liquidation of
non-performing loans. The second concerns job creation. The third concerns re-vitalization ofdemand-supply adjustment in the labor market through private-sector involvement and responses
to diverse forms of employment.
4.2 Institutional Aspects
The current Employment Insurance Scheme consists of granting benefits for unemployment
and two services; services for stabilization of employment and services for developing humanresources (Chart 6). Services for stabilization of employment are mainly those granting
employment adjustment subsidies. Services for developing human resources consist of subsidies
for training by employers and management of public training facilities, etc. The number of the292insured workers was about 37,840,000 and that of covered undertakings was about 2,020,000 in
fiscal year 2008.
The qualifying conditions to be insured are as follows;z

The scheduled hours worked per week must be 20 hours or more.

zMust be expected to be employed for more than 31 days (The minimum expected length of
employment for short-time workers and dispatched workers was shortened from 1 year to 6
months in 2009, and from 6 months to 31 days in 2010.)z

Must be employees younger than age 65.

zVoluntary coverage for employees in agricultural, forestry, and fishery establishments withless than five standard employees.

z

Exclusions: Seasonal workers whose term of employment is four months or less.

z

Special systems for seamen and civil servants.

Chart 5Outline of the Employment Insurance Scheme

2,261 billion yen

Job Applicants’ Benefits

Job Applicants' Benefits for the
General Insured

Unemployment Benefits

1,794 billion yen

Source of funds:
Equal contributions of both
employees and employers

Job Applicants' Benefits for
the Elderly

Job Promotion Benefits
134 billion yen

Job Applicants' Benefits forSpecially Insured Persons in
Short‐term Employment

8.0/1000 of salaries andbonuses for each
as well as the National
Treasury
1,191 billion yen

Two Services
Source of funds : contributions of
only employers
3.0/1000 of payroll

Study and Training Benefits
6.2 billion yen

Job Applicants' Benefits for
Insured Day Laborers

Employment Continuation
Benefits
327 billion yen

Employment Continuation
Benefits for the Elderly

Services for Stabilization of
Employment (Employment Adjustment
Subsidies)Child Care Leave
Benefits

Services for Developing Human
Resources

Nursing Care
Leave Benefits

Source: The revised budget of the fiscal year 2009

Job applicants’ benefits are classified to job applicants’ benefits for general persons, job
applicants’ benefits for the elderly, job applicants’ benefits for specially insured persons inshort-term employment, and job applicants’ benefits for insured day laborers, according to thetargeted job applicants.
Job Applicants’ Benefits for General Insured Persons
Job applicants’ benefits for general insured persons consist of the following:(i)

Basic allowance;(ii)

Skill acquisition allowance;293

(iii)

Lodging allowance;(iv) Injury and disease allowance.
The qualifying conditions for the unemployment benefit (basic allowance) are as follows;zMust have at least 12 months of insurance during the last 24 months before unemployment(at least six months of insurance during the last 12 months for specific qualified recipientsand the qualified recipients who are separated for specific reasons, see the next paragraph forthe definitions).

z

Must be registered with the Public Employment Security Office and be capable of, andwilling to, work.

z

Unemployment must not be due to voluntary leaving, serious misconduct, refusal of asuitable job offer, or nonattendance at vocational training (otherwise, the benefit may belimited to one to three months).
The rigid procedures to approve these conditions are implemented to avoid the moral hazardof job applicants.
The duration of benefits varies with age, tenure and reasons of separations, etc. (Table 1). In
any case, it is designed to avoid frequent receipt of benefits that the longer the tenure of theinsured, the longer the duration of benefits is. The specific qualified recipients are those who are
obliged to be separated through bankruptcy or dismissal (excluding dismissal due to significant
cause imputable to the accused themselves), etc. The qualified recipients who are separated forspecific reasons are those who are separated because their fixed term labor contracts are notrenewed or for other compelling grounds. The latter category of conditions to receive benefits fora longer duration was added in the Act amended in 2009 to ease the hardships of the unemployed
who were non-standard workers.

Table 1 Duration of benefits (basic allowances)
Duration of benefits for(3)separated workers(2) separated(1) separated workers having specified recipient
workers not falling having difficulty finding
qualification or specific reasona job
under category (1)Age (years old)
Tenure (year) Under 30 30-34 35-44 45-59 60-64
Less than 1 90 days 90 days 90 days 90 days 90 days
1-4
90 days 90 days 90 days 180 days 150 days
5-9
120 days 180 days 180 days 240 days 180 days
10-19
180 days 210 days 240 days 270 days 210 days
20 or over−
240 days 270 days 330 days 240 days
Source: Ministry of Health, Labour and Welfare

All ages
90 days
90 days
120 days
150 daysAge (years old)
Under 45150 days
300 days
300 days
300 days
300 days

45-64
150 days
360 days
360 days
360 days
360 days

The premium of Employment Insurance is the payroll multiplied by the insurance premium
rate in Table 2. The premium rate is 6/1000 for the insured worker and 9.5/1000 for employers in294

general industries, of which 6/1000 is the contribution to unemployment benefits and 3.5/1000 isthat to Two Services. The premium rate is higher in agriculture, forestry and fisheries, Sake
brewing industry and construction. The premium rate is raised in FY 2010, reflecting the tightbudget of the Employment Insurance due to the large increase in job seekers under the current
financial crisis.

Table 2 Premium of Employment Insurance(as in April, 2010)

General Services
Insured person
6/1000
Employer
9.5/1000of which contribution to UB
6/1000contribution to Two Services
3.5/1000
Total
15.5/1000
Source: Ministry of Health, Labour and Welfare

Agriculture, forestry& fisheries, Sake
Construction
Brewing Industry
7/100010.5/1000
7/10003.5/1000
17.5/1000

7/100011.5/1000
7/10004.5/1000
18.5/1000

The daily amount of the basic allowance is an amount obtained by multiplying the daily
amount of wages by a rate ranging from about 50 percent to 80 percent (the rate is higher, thelower the wages are). The daily amount of wages is obtained by dividing by 180 the total amountof monthly wages (excluding bonus, etc.) paid during the last six months before the separationfrom employment.
Job Applicants’ Benefits for the Elderly
As mentioned above, the qualification condition to be newly insured excludes workers aged
65 years old or over. The person, who is already insured and is aged 65 years or over, receives alump-sum payment of job applicants’ payments for the elderly when he is unemployed.
Job Applicant Benefits for Specially Insured Persons in Short-term Employment
When persons employed seasonally and persons who are normally engaged in short-term
employment (term of employment is less than one year) become unemployed, a special lump sum
payment is made.
Job Applicant Benefits for Insured Day Laborers
There is a special system for day laborers, who are defined as persons who are paid by theday, or persons who are employed for a fixed period of employment of 30 or less.
4.3 Features of the Japanese Employment Insurance Scheme
Compared with other OECD countries, features of the institutional aspects of the Japanese
Employment Insurance scheme are as follows3.
(1) The qualification conditions to be insured include the lower limit of the expected duration of
employment in addition to scheduled weekly hours worked and ages, etc.
3This part is based on Higuchi(2010), who made an international comparison of six OECD countries: Japan, United States,
United Kingdom, Germany, France and Sweden.

295

(2) Regarding the qualification conditions to receive UB, the payment is stopped when thebeneficiary is re-employed, even if the hours worked are short and the wages are low in Japan. In
other countries, payment is made for the partially unemployed.
(3) Employment Promotion Allowance is paid as an incentive for early re-employment when thebeneficiary is employed before the expiration of the duration of UB in Japan.
(4) The replacement ratio is lower for the beneficiaries whose former wages were higher in Japan,
while in other countries, it is the same regardless of the former wages. In Japan, the replacement
ratio is constant for the whole period of payment, while in some countries, it decreases as theduration of UB becomes longer.
(5) The replacement ratio in Japan is not so low, as the gross wages before tax reduction are used
to calculate daily wages and the UB is exempted from tax.
(6) There is no unemployment assistance scheme, which assures the income for the unemployed
after the expiration of UB duration or those unemployed with no qualification for UB such as
some non standard employees, even though the payment is lower.
(7) The proportion of UB beneficiaries among the unemployed (in the ILO definition) is relatively
lower in Japan, compared with other countries4. It should be also noted that the proportion isdecreasing gradually from 39.8% in FY1995 to 22.1% in FY2008. This is partly accounted for by
the increase in the unemployed persons whose previous employment status was non-standard
employees.
4.4 Public expenditures on labor market programs
Chart 7 shows the public expenditures on labor market programs (in ratio to GDP) in
selected OECD countries on average for the period from 2003 to 2007. Several features areobserved. First, Japan’s ratio is much smaller than France and Germany, and as small as United
Kingdom and United States. Especially, “out-of-work income maintenance and support” is muchsmaller in Japan. Second, “Training” is much smaller in Japan than France and Germany. Third,“PES and administration” is somewhat smaller in Japan than France, Germany and United
Kingdom, but larger than United States. These observations suggest that the labor market policies
are disproportionately concentrated in passive measures in Japan5 as well as in the United States.

4

According to Higuchi (2010), Germany (87%), France (82%), United Kingdom (60%), United States (43%) are muchhigher than Japan (23%).
5
Higuchi (2003) points out that one of the factors behind the relatively low public expenditures on ALMP is the large
dependence on the public expenditures on infrastructure as an employment promotion measure during recessions after theWorld War II.

296

Chart 7 Public Expenditures on Labor Market Programs in Five OECD Countries(in percentage of GDP, average for 2003‐2007)
4
3.5
3
2.5
2
1.5
1
0.5
0
Germany

FranceJapan

UnitedKingdom

United States

90: Early retirement
80: Out‐of‐work income maintenance and support
70: Start‐up incentives
60: Direct job creation
50: Supported employment and rehabilitation
40: Employment incentives
30: Job rotation and job sharing
20: Training
10: PES and administration
Source: OECD

4.5 Unemployment benefits
Unemployment benefits (UBs) are provided so as to protect individuals against the risk of
unemployment. UBs offer replacement income to workers experiencing unemployment spells
after having lost their employment.
Theoretical studies predict that the receipt of UBs negatively affects job search intensity andincreases the reservation wages of job seekers and a large body of empirical studies support thestandard prediction that greater generosities (higher level or longer duration) of UBs increase theduration of unemployment (Atkinson and Micklewright (1991), Krueger and Meyer (2002),
OECD(2006), Kohara(2002, 2004)). Nonetheless, increased generosity of UBs during recessions
may be necessary for the unemployed to find jobs under greater difficulties of finding jobs. It is
pointed out that careful integration of UBs and ALMP, combined with close monitoring of the job
search, can be effective in dampening disincentive effects brought about by generous UBs(OECD(2006)). In this regard, it is appreciated that the government increased recently the amount297

of the employment promotion allowance, which the UB recipient can receive if he is employed
early.
Furthermore, recent studies investigate whether UBs increase labor productivity byenhancing labor reallocation. Some empirical studies find a positive effect of UBs on labor
reallocation. For instance, Boeri and Macis (2010) study the effect of reforms that introduced forthe first time UB schemes in countries that previously did not have any such scheme. Using alarge number of countries that had UBs throughout the period as a control group, they find that the
introduction of benefits significantly increases between-industry job reallocation, although theestimated effect fades over time. OECD (2010) shows also the positive effects of the generosity of
UBs on reallocation of workers, based on the difference-in difference OLS estimate.
4.6 Non-standard employees and Employment Insurance
Given the increasing share of non-standard employees, the Government extended theeligibility of Employment Insurance and eased qualifying conditions for UBs. The minimum
expected length of employment for non-standard employees to be insured was shortened to six
months from one year in 2009, and to 31 days from six months in 2010. The minimum total
length of insurance for non-standard employees to be qualified for UBs was shortened to six
months from 12 months in 2009. The duration of UBs for those non-standard workers, who areseparated because their fixed term labor contracts are not renewed, became also as generous as the
specific qualified recipients as those who are obliged to be separated through bankruptcy or
dismissal in 2009.
In spite of the effort of extension of eligibility of Employment Insurance, there remain acertain category of unemployed workers and non-standard workers who are not covered, such as
new school-leavers without a job. Thus, a new type of safety-net is now searched for this categoryof workers6. For instance, “Fund training” discussed below provides those who are not eligible for
employment insurance benefits with training and living support during training. Or, some sort ofsocial assistance may be necessary. In that case, the comprehensive measures should beconsidered in combination with other anti-poverty schemes.
5. Active Labor Market Programs
Chart 8 shows the budget for various ALMP. In general, they tended to decrease from theend of the 1990’s to 2007. After the beginning of the crisis, the budget for EAS jumped to 667
billion yen in FY 2009 and 745 billion yen in FY 2010. The actual expenditure of EAS was about
654 billion yen in FY2009, which was ten times as large as the last peak of 65.7 billion yen in FY
1994.

6

Study Group of Employment Policy (2010).

298

billion yen

Chart 8 Budgets for various ALMPs
1,000

Employment Adjustment Subsidies
900

Child care leave allowances, Subsidy for
regularization of youth employment, etc.

800

Subsidy for labor mobility
700

Job creation

600
500

Support for SME to secure human ressources

400

Training

300

Local employment development

200

Employment Measures for the elderly

100

Support for persons with difficulty finding
employment

0
1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Source: Ministry of Health, Labour and Welfare

5.1 Employment Adjustment Subsidies
Employment adjustment subsidy (EAS) is intended to preserve existing jobs at firms
experiencing temporarily low demand due to changes in the economy, changes in industrial
structures or other economic reasons, by encouraging temporary closure of a part or all of
operations or temporary transfer of workers to other firms (shukko).
More concretely, the firm must satisfy the following three conditions to receive thesubsidies.
(1) it must be covered by Employment Insurance.
(2) it must satisfy one of the following two conditions;(i) the average sales or the average output for the recent past three months decreased by 5%
over the previous three months or the same period of the previous year.
(ii) the average sales or the average output for the recent past three months decreased by 10%
over the same period of the previous year and the current balance for the last period is a deficit.
(3) it closes temporarily a part or all of business (and conducts training during absence from work)or transfer workers temporarily (shukko).
The amount of subsidies is two third of daily wages or compensation for temporary closureof business and 4,000 yen is added if training is conducted during the suspension. It is two third of
the wages which the sending employers paid in case of temporary transfer to other firms.

299

The maximum duration is fixed as 300 days for three years.
EAS is a kind of public short-time program (STW) widely used in OECD countries. It is
subject to deadweight and displacement effects that reduce their cost effectiveness. Deadweightloss occurs when EAS is paid for jobs that employers would have retained even in the absence ofthe subsidy, implying that this spending is a pure transfer which does not limit total job losses.
Displacement effects can be said to occur when EAS preserves jobs that are not viable without thesubsidy, even after business conditions recover. If these subsidies are maintained they lockworkers in low productivity job matches and thus represent a barrier to job creation by firms withthe potential to grow and efficiency enhancing labor mobility7. These potential efficiency costs
are likely small during a recession, but they become more of a concern as the recovery takes hold.
OECD (2010) conducted an econometric analysis on the effects of STW on employment,
hours worked and wages during the 2008-09 recession, using the data for the period 2003 Q1 to2009 Q3 for 19 countries and four industries (manufacturing, construction, distribution andbusiness services). According to the results of the analysis, (1) there is a clear evidence that STW
schemes helped preserve permanent jobs during the economic downturn, while also increasing
average hours reductions among permanent workers, (2) there is no evidence that STW schemes
had a significant impact on the employment and average hours of temporary workers, (3)short-time work does not have a significant effect on the responsiveness of average wages to
output, although the point estimate that real hourly wages are more strongly downward responsive
to output declined in the presence of STW schemes is plausible; (4) the absolute jobs impact isestimated to have been particularly large in Japan and Germany. Short-time work is estimated tohave reduced the loss of permanent employment by almost 400,000 in Japan and by over 200,000
in Germany.
Thus, EAS has contributed significantly to preserve permanent employment during the
2008-09 recession, while it has had little impact on employment of temporary workers. The policy
response to the crisis has been towards placing a greater emphasis on expanding STW
participation by easing the qualification conditions. This seems reasonable since many more
viable jobs are at risk in a steep recession, while the social cost of locking workers in unviablejobs is temporarily lower since there is little prospect they could move quickly into moreproductive jobs. However, this may come at the expense of lower employment and job
reallocation in the medium run, especially if support for temporary closure of operation is
maintained for too long into the recovery.

7

Griffin (2010) contends that EAS reduces steady-state labor productivity by encouraging labor hoarding, and in some case,preventing the exit of least efficient establishments. By contrast, Chuma et al. (2002) found some positive effects on
employment.

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5.2 Training Policies
Employment Insurance Scheme has measures encouraging the job-seekers to take public
vocational training. When a qualified recipient takes a course of public vocational training, etc., asdirected by the Chief of the Public Employment Security Office, a skill acquisition allowance ispaid for the period of said course and further, in that case, the basic allowance may be paid to theperson for a period in excess of the prescribed duration of benefits.
The educational training benefits are paid to the insured workers or those who have been
separated from employment take and complete educational training designated by the Minister of
Health, Labour and Welfare as job related educational training necessary for employment security
and promotion of job placement, to cover a part of the expenses which the persons paid to
educational training institutions.
Public vocational training courses are (1) training for the separated (job-seekers, free), (2)training for workers, and (3) training for new school-leavers (charged). Both central government
and local governments have training institutions. A part of training for the separated is entrusted
to private training institutions.
Emergency Training-Employment Support Fund was created to provide those who are noteligible for employment insurance benefits with training (called as “Fund training”) and living
support during training. Training and living support allowances are paid as living support during
training to a person who is not eligible for unemployment benefits, if he meets certain conditions
and is trained as directed by the Public Employment Security Office. This measure is intended tosupport those job seekers who are new school leavers or separated from non-standard employment
and are not eligible for unemployment benefits.
5.3 Employment policies for older workers
Employment continuation allowances are paid to older workers who continue to be
employed after the mandatory retirement if wages drop largely8. This measure will be abolishedgradually from 2012, since the Act Concerning Stabilization of Employment of Older Persons
postulates that employers should provide older workers with employment opportunities after
mandatory retirement age.
Various measures were implemented to encourage firms to employ middle-aged and older
workers such as subsidies.
5.4 Measures for Work-Life BalanceChild Care Leave allowances (50% of the wages) or Nursing Leave allowances are paid to
the workers who take child care leave or nursing leave and continue to be employed.

8
To be eligible for the allowances, the insured person (1) must be aged 60 years old or over and younger than 65 yeas old,(2) must have an insured period of 5 years or over, (3) the wages must be less than 75% of those at 60 years old, and (4) has
not received UI benefits after 60 years old.

301

5.5 Employment measures for youth
Faced with the severe youth unemployment problems, various employment measures foryouth have been introduced since the end of the 1990’s.
z

Trial Employment for YouthThis is a subsidy to the firms which employ workers younger than 40 years old for threemonths as a trial to see whether they have aptitude or ability enough to be employed further.

zSpecial Subsidy for Standardization of Employment of YouthThis is a subsidy to the firms which employ the young workers introduced by PESO as
standard employees.

z

Job CaféThis is a kiosk-type career service center for young people.

z

Job card
This is a document in which a worker’s training and work experiences are recorded in orderto facilitate the job matching and the career formation, etc.

6. Concluding Remarks
So far, Employment Insurance in Japan has played the expected role fairly well during the
2008-09 recession. EAS preserved a large number of permanent jobs, along with Germany which
has shown good job performance by the use of STW (OECD (2010)). EAS is considered to beefficient when the adverse shock is sharp and covers all industries like the current one.
Nonetheless, to avoid adverse effects on labor reallocation necessary for medium-term structuralchanges, the rigorous application of the eligibility rules is needed as the recovery progresses.
Second, the 2008-09 recession has revealed the instability of employment and the housing
problems accompanied with unemployment among non-standard employees, whose employment
share is increasing rapidly especially among youth. Comprehensive employment policy is needed
to cope with the issue of non-standard employees, including the reform of UBs as well as theeffective ALMP. If workers with a high unemployment risk who repeat employment andunemployment frequently are added to the insured of EI, the premium is necessarily raised. If it is
not acceptable for other insured persons, either the premium should be determined depending on
the risk of unemployment or the unemployment assistance scheme is needed to be introduced withthe government general budget. In the latter case, it is necessary to implement measures to avoid
moral hazard such as the frequent check of active job search activities or the inclusion of theparticipation to training into the qualification conditions for the benefits (Higuchi(2010)). In thisregard, it is desirable to perpetuate the Emergency Training-Employment Support Fund measure9,
which supports the training and the living of the non-eligible unemployed.
Third, it should be noted that passive and active measures are complementary. The negative
effects of UBs on the search effort or duration of unemployment are mitigated by adequate ALMP,
9This measure is currently of a fixed term of three years.

302

especially activation measures. In addition, it would be also worth considering to adjust the UBs
to the wages in the external labor market, since the wages offered to middle-aged job seekers are
generally much lower than those in their former jobs, given the steep age-wage profile in Japan(Ohtake (1999)).
Fourth, ALMP is efficient when it is complemented by other measures. For instance, theextension of mandatory retirement age could be realized not only by subsidies of ALMP but also
by the legislative reform.
Fifth, public employment creation measures have a risk to call in un-intended workers suchas the self-employed or those from not in the labor force and the useless and undesirable program
may last for a long time.
Sixth, since five successive Employment Packages in 1999, new measures have been
implemented. It is necessary to evaluate these measures scientifically as well as to learn theexperiences in other OECD countries.

303

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