Comparative study of social expenditure in Japan and Korea
Shunsuke Hirono ，(Ham ILL Woo)
Doshisha

University

Graduate Student

1. Introduction
A purpose of this report is to make similarities and differences clear
between Korea and Japan by comparing social expenditure between the twocountries based on OECD Social Expenditure Database ( hereinafter called SOCX ).
First of all, I would like to explain a background about this study. There is acircumstance that pushed Korea’s fast-growing welfare state behind thebackground of this study ( Takegawa, 2005 )Korea has surprisingly expanded its social expenditure, whereas other
Asian countries, in contrast, decreased expenditure on social welfare since the
Asian financial crisis.
Although the rapid increase was temporary and the level of social
expenditure dropped as is explained later, there is no doubt their social
expenditure tends to increase even allowing for it. For this reason, Korea that was
not regarded as a subject to compare with Japan when it comes to a research on asocial welfare has now become an important subject for a comparative study( Uzuhashi，2009 ).
A comparative study about the two nations is recently attracting attention
because both countries have several things in common, being geographically closeeach other, having cultural similarities, and underdeveloped as a welfare state.
However, there appears to be only few discussions made so far about an empiricalcomparative study on the two countries.
In this respect, our study aims to make characteristics of two countries
more clear by use of SOCX. A feature represented by SOCX is a classifications ofdata by providers like “public expenditure”, “mandatory private expenditure”
and ”private expenditure” ,and data is available from the nine sections further
categorized such as Old age, Survivors, Incapacity-Related Benefit Family,1

Housing ,Unemployment”, Active labor market policy” and “Other policy area”.
(2) First of all we looked into a position of both Japan and Korea among
the OECD countries. (3) Next we compared Japan with Korea (4) For a comparisonof Japan to Korea, we looked into a total amount of social expenditure, and thesocial expenditures by categories. Next we sorted the expenditures of the twonations into universalistic ones and selectivistic ones to compare. We herebysummarize what have been made clear with the similarities and the differences
between Japan and Korea through these studies.

2. International position of both Japan and Korea
2-1

Position of Japan and Korea by providers

First we like to discuss an international position for social expenditures of the twonations. This chart shows percentages of social expenditure like public
expenditure, mandatory private expenditure and private expenditure respectively
to occupy in the GDP of OECD nations as of 2005(chart1).
The total amount of social expenditure that occupy in the GDP of Japan is
21.6% and this value is lower than an average value of OECD nations, 23.0%. On
the other hand, the total amount of social expenditure in the GDP of Japan as of2003 is 21.0% based on SOCX2008, whereas an average value of OECD nations is
26.2.
Meanwhile, a percentage of social expenditure to occupy in the GDP of
Korea is 9.3%, which is equal to the 29th place of the thirty OECD nations. The
levels of the two countries are considered to be lower than an average level when
the average value of OECD is a criterion. At the same time, the difference between
the two countries themselves is very large.
Compared by the latest data of SOCX 2007 for 2003, the value for Korea
has increased from 8.1% ( for 2003) to 9.3% ( for 2005), which means a decrease of
4.4% from the average value of OECD as “ Aggregated Date” has a lower averagevalue for OECD. Because the value increased is higher than of Japan, a difference2

between Japan has decreased by 0.7%. This fact indicates the social expenditure of
Korea is increasing year after year.
The study on the expenditures by departments like public expenditure,
mandatory private expenditure and private expenditure shows positions of thetwo countries as follows; The percentages of public expenditure to occupy in the
GDP for 2005 are 18.6% ( Japan) and 6.9% (Korea). Both values are lower than the
average value of OECD 20.6%. The difference between Japan and Korea is large.
Sweden and France have the largest public expenditures, 29.4% and 29.2%
respectively.
U.S, Canada, and Iceland have larger amount of total social expenditurethan Japan, however, when it comes to public expenditure only, it is lower thanJapan. As far as these countries are concerned, private expenditure drives up
their ranking as is explained later in this study.
No data on mandatory private expenditure is available for not a few
countries in “ Aggregated Date”. An average value for the countries with data is
1.0%. Switzerland has remarkably a high value of 7.3%, which seems to haveraised the average to a large degree.
The average value of OECD without Switzerland is 0.7%. The values ofboth Japan (0.5%) and Korea ( 0.6%) are slightly lower than the average value.
They are not very low in fact. The percentage mandatory private expenditure of
Korea occupies of their GDP for 2003 by SOCX 2007 data is higher than the
average value of OECD. Considering a low portion of total social expenditure tooccupy in their GDP, this value of mandatory private expenditure is high. This is
explained in detail later, but it is because a private company has to pay aretirement benefit by law, which is grouped into this department.
Private expenditure has extremely a high percentage of GDP among
countries of so-called liberalism regime like U.S (10%), UK (6.8%) and Canada(5.5%) with the data for 2005. The Netherlands stands out with 7.7% among thecountries other than liberalism regime. The percentage of social expenditure tooccupy in the GDP of these countries is far higher than the average value of OECD.

3

Japan has 3.3% of private expenditure of its GDP, while Korea has 1.8% which is alittle lower than the above average.

Chart 1 Social expenditure by providers in OECD

countries(％／GDP)OECD Average
SwedenFranceBelgium
Germany
Denmark
Switzerland
Netherlands
Austria
NorwayUnited Kingdom
Finland
Italy
United States
Portugal
Luxembourg
Iceland
GreecePolandHungary
CanadaAustralia
Czech Republic
Japan
Spain
Slovak Republic
New ZealandIreland
Korea
Mexico
0.0

5.0

10.0

15.0

20.0

public expense

mendatory private expense

25.0

30.0

35.0

private expense

2-2 International position of Japan and Korea for expenditures by categories
Next we like to discuss an international position of both Japan and Korea
by looking into social expenditures by categories. This chart shows percentages ofsocial expenditures by categories to occupy in the GDP of OECD countries ( Chart
2).
As pointed out by Katsumata, social expenditures for both “ Old age” and4

“Health” have a large portion of spending in any country ( Katsumata, 2008). BothJapan and Korea have a very high percentage of expenditure for “ Old age” and“Health” in a total social expenditure with Japan in the second place and Korea inthe third place. This result matches with the hypothesis that an underdeveloped
country in a social welfare should spend more amount of money to cope withaging( Komatsu 2006).
On the other hand, a percentage of the social expenditure for aging to
occupy in the GDP of Sweden, Denmark and others, the countries of social
democratism regime, is relatively low. Contrarily, expenditures on “ family” and“Incapacity-related benefits” to occupy in the social spending accounts for a highpercentage for these countries.
The values for both Japan and Korea with respect to these categories arevery low( table 1), in other words, the social expenditure for “ Old age” and“preservation of health” with the two countries is at a high level among the OECDnations, but the spending for other categories is at a low level.
If a social expenditure for “ Old age” and “Health” is regarded as that for
generations after retirement, and other expenditure for generations still working,it can be said that more social expenditure is spent for generations after
retirement than for ones still working in both Japan and Korea. This feature iscontrastive to countries of so-called social democratic regime.
Table 1 High and low ratio categories in Japan and korea(in GDP,2003)

High ratio

Japan

Korea

Old age

Old age

Survivor

HealthHealthLow ratio

Incapacity-related

Incapacity-related

benefits

benefits

FamilyFamilyUnemproyment52-3 Position of Japan and Korea viewed from social expenditure by cash benefit
andbenefits in kind.

At the end of this paragraph, we also want to discuss on a position ofJapan and Korea with repect to the social expenditure by cash benefit and benefits
in kind. We are explaining about a meaning to discuss social expenditure for cash
benefit and benefits in kind. Gøsta Esping-Andersen presented the folllowing
hypothesis in his research to classify welfare states into three groups . In short,the hypothesis is that the countries of corporatist regime have a high portion
benefits in kind.
What made Gøsta Esping-Andersen present this hypothesis is that afamily may play an important role as a caretaker in the countries of corporatist
regime. There is an opposite thought by Mifune against this hypothesis. Mifune
found ,with a database from OECD, that a percentage ofbenefits in kind wasincreasing in Germany and had it that a percentage ofbenefits in kind is nolonger low even in these countries ( Mifune 2002).
Our own opinion on this argument is as follows; First, Mifune’s thought isexactly right. Next table shows an average value for benefits in kind by countries
after the data for 2003 was sorted to each regime of liberalism, corporatist, andsocial democtratism (table 2).

Table-2 Social expenditure of benefit in kind /GDP by each regime(2003)

Regime or country

Expenditure of benefit in kind／GDP

Liberalism

9.0%

Social democratism

11.4

Corporatist

8.9

Japan

8.1

Korea

3.9

6

It is clear on this Table2 as pointed out by Mifune that the values ofcorporatist regime are not outstandingly low. There is almost no diference between
the average value of liberalism regime and that of corporatist regime.
On the other hand, there must be some allowance. The reason is although
the value for the benefits in kind is definitely increasing, the percentage ofbenefits in kind with corporatist regime is still low.
Furthermore, when it comes to a meaning of hypothesis that a percentage
of benefits in kind turns low because there is a big expectation to a family as awelfare caretaker, close attention should be paid to the benefits of “Health”. Thereseems to be certain limitations to claim that the hypothesis by Gøsta
Esping-Andersen is not reasonable because medical service is included in thebenefits in kind of “ Health” and other members of the family are responsible forthe benefits of medical care.
The social expenditure for “ preservation of health” occupies 8.0% and7.5% of the GDP of Germany and France respectively with especially a high valueof benefits in kind among the countries of corporatist regime ,and the first place
and the second place among OECD nations ( the average value of OECD is 6.0%).
In other words, the social expenditure for “ Health” largely contributes to the highvalues of benefits in kind of Germany and France, and it is considered that
medical spending is included in it.
In view of this, we may not be able to state very positively the hypothesisthat a percentage of benefits in kind are low because family members as
caretakers are largely responsible for welfare service in the countries ofcorporatist regime is no longer effective. In this study we like to assume for theabove reasons an amount of benefits in kind reflects, to some extent, a role played
by a family for a national welfare service.
According to this hypothesis, the following characteristics of Japan and
Korea are pointed out. The social expenditure of benefits in kind that occupies of
Korean GDP is extremely small and the percentage is far lower than the averagevalue of OECD countries, 8.4%. The value of Korea is the lowest in the OECD7

nations. The value of Japan is not so low as that of Korea, but it is lower than the
average value of OECD nations. If the above hypothesis is correct, it can be said
that a role by a family ( an expectation ) in the welfare service of both Japan and
Korea appears to be still important.

3. Comparative study of changes of social expenditures for Japan andKorea
3-1 Comparison of total social expenditure in GDP of Japan and Korea
We studied on an international position about Japan and Korea in theprevious paragraph. We like to try making some dynamic comparisons about thesocial expenditures of Japan and Korea in this paragraph. Next are thetransitional changes in the social spending with the two countries ( Chart 7).
Before making a comparison, we want to review what have been madepublic. First, Takekawa judged that Korea started to be a welfare state on the
ground of an abrupt increase of social expenditure since 1997. He also pointed out“ the current level of welfare statism of Korea is at the same level of Japan in
1970s” ( Takegawa 2006) .
With respect to Takegawa’s suggestion, Uzuhashi pointed out that hemissed growth dropping since the abrupt increase in 1997 ( Uzuhashi 2009). We
would like to focus on this issue, first about a difference of level of social
expenditure between Japan and Korea.
The year in which Korea had the highest level of spending was in 1998, a
percentage of which to occupy in their GDP was nearly 10%. This figure is a little
smaller than that of Japan in 1980. Since the value at the highest level is slightly
lower than that in 1980, Takegawa’s suggestion was correct as a whole.
On the other hand, what about an abrupt increase of social expenditure of
Korea in 1998 There is exactly an abrupt increase from 1997 to 1998. However, as
pointed out by Uzuhashi, the social expenditure once reached a peak in 1998
turned into consecutive decrease until 2002 and began to show a sign of increasing
again in 2003.

8

Whereas, the percentage of social expenditure to occupy in the GDP ofJapan is increasing consecutively since 1990. What factors are driving up thesocial expenditures of the both countries?

We want to look into the social

spending of the two countries by categories in order to make this clear.
Chart 2

Change ofsocial expenditure by categories in Japan

14.0

12.0
OLDAGE
10.0

SURVIVORS

8.0

INCAPACITY‐RELATED BENEFITS (Disability, Occupational injury and disease,
Sickness)
FAMILYHEALTH

6.0

UNEMPLOYMENT
4.0

ACTIVE LABOUR MARKET PROGRAMMESOTHER SOCIAL POLICY AREAS

2.0

0.0
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Chart 3

Change ofsocial expenditure by categories in Korea

4.0

3.5

3.0

2.5
OLD AGESURVIVORSINCAPACITY‐RELATED BENEFITS

2.0

FAMILYHEALTH
1.5

ACTIVE LABOUR MARKET PROGRAMMESOTHER SOCIAL POLICY AREAS

1.0

0.5

9

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

0.0

As it is clear with Chart 2and 3 it is expenditure for the old age that
greatly contributes to the increase of social spending of the both countries.
However, more precisely, the factor to increase for the two nations is different. The
social expenditure of Japan was increasing from 1998 to 1999, during which periodof time the expenditure for the advanced age was increasing at the same time.
This was due to addition of new database called “ pensions of private enterprise
workers” which has not been available so far to the existing pensions that are
increasing year after year.
39% of growth when compared with 10.13% a total amount of social
expenditure to occupy in the GDP of Korea in 1998 and 6.08% in 1997. The
increase of 1/3 is for recovery from the economic crisis. Active labor policies
increased about three times and unemployment benefits increased nearly ninetimes from the previous year.
The total amount of public spending to occupy in the GDP of Korea in 1998 was
5.46% which is equal to an increase of 1.54% from 3.92% in 1997. Items
contributed to this increase of expenditure are old-age benefits 48.3%, active labor
policies 23% and unemployment benefits 10.1%.
“ This result suggests the increase is more of temporary discharge
allowance associated with an increasing number of unemployment. It is hard tosay a functional side as a role to be played by a nation to protect its people
sustainably from social risks has been firmly established ( Pek Ahn 2007 )“.
Public expenditure temporarily increased in 1990s mainly with old-age
benefits, family-support allowances, active labor policies, unemployment benefits
and public support. However, it was obvious an extent of increase began to fall as awhole at the start of 2000s. A distinctive thing is ; inspite of fall of increasing rate
for a total expenditure, the expenditures for specific social policies are still
increasing. It can be analyzed it is due to effectuation of the National Basic
Livelihood Security Act. Expenditure for public livelihood assistance in 2000
increased more than two times of that in 1998.

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3-2 Comparative study on “ selective benefits” and “ universal benefits “ between
Japan and Korea

We like to make a comparison about selective benefits and universal benefits
between Japan and Korea. Before a comparison, it should be made clear what thefundamental concepts are about universalism and selectivism ( Hiraoka andSatomi). Universalism is defined in the most limited sense as services without any
conditions. However, as long as there is no means test or income limitation evenwith age limit, it is practically regarded as a “ universal benefit”.
Meanwhile, a selective benefit requires a means test and specificqualifications. Public assistance is a typical example for this benefit.
What about a social insurance that requires contribution. As a matter offact, there are two different theories about a social insurance. Hiraoka insists it isa general idea a social insurance be included into a universal benefit. On thecontrary, Satomi proposes an social insurance be classified into a selective benefit
on the ground that it may exclude a low-income population.
In our study the following kinds of services and benefits based on theabove discussion are shown on the Chart.
(1) Services and benefits with a means test (2) Services and benefits with income
limitation (3)Services and benefits that require contribution (4)Others.
Data of social expenditure of Japan and Korea was classified based on(1)-(4) and the result is as per Chart 4 and 5. The benefits with defined
contribution ( = a social insurance) account for a very large portion for bothcountries. 92% of total data of Japan for 2003 and 82% of Korea for the same year
are occupied by the services and the benefits with contribution. Although thisitself appears like a characteristic to note with the two countries, it was
reasonably predictable. In this connection, data without it is shown here.
A noteworthy feature to be discussed first is about a selective benefit witha means test. A percentage of benefit with a means test to occupy in the GDP ofJapan has been consistently less than 0.2%( Chart 4). On the other hand, that of11

Korea exceeds 0.3%, which the National Basic Livelihood Security Act in 1999
have most likely influenced.

Chart4 Selective and universal benefits in Japan(2003)
Meanstested

income rest
1%

other

contributed

1%

7%

91%

Chart4

Selective and universal benefits in Korea(2003)
Meanstested

income rest

other

contributed

3%
5%
8%

84%

There has been consistently a high percentage of unrestricted services andbenefits with Japan. The percentage is high during 1989 - 1999 in particular.

12This was due to a growth by active labor policies like “ public availability policies”.
Whereas, services and benefits with a means test consistently keep a highpercentage with Korea. The value jumped highly during 1997 - 1999 , and then fella little bit but still keeping a high level. What made them at a high level is thesocial expenditure associated with employment policies. After all, a percentage ofuniversal services and benefits is relatively high for both countries with our own
classification as used in this study, but we have to be careful of the following
things;First, a majority of the services and benefits for both countries are theones with contribution. Secondly, though a percentage of services and benefits
more universally available without a means test or conditions is high, a high levelof public employment policies are included in these.

4. Conclusion
We have looked into the possible characteristics about the social
expenditures comparing Japan and Korea in this study. We hereby like tosummarize what we have found and what remains to be done.
Following things have been made clear after studying an international
position of Japan and Korea. The percentage of total social expenditure to occupy
in the GDP of Japan and Korea is low. However, a difference between the twocountries is large. Next, both countries have extremely a high portion of social
expenditure for the advanced age. On the contrary, the percentage of social
spending for the physically disabled, and families is very low. This means moresocial expenditure is used for retired generations than for active generations.
In the study of benefits in kind and benefits in cash, it was made clearthat the social expenditure by means of these two is small for both countries. The
low percentage of benefits in kind suggested a possible chance of replacing family
functions with welfare services.
Following things have been made clear with the changes of social
expenditure of Japan and Korea. First, a percentage of social expenditure once

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abruptly jumped in 1998 is becoming lower. What made so was due to a temporary
benefit to the retired people and it is too early to look on that point of time as “ atake-off for a welfare state”.
Secondly, it is obvious the social spending is increasing in Korea sincethen in spite of the facts explained in the previous sentences. This is most likely
because of the National Basic Livelihood Security Act that went into effect in1999.
Following things were also made clear after classification of social
expenditure of Japan and Korea into services and benefits of selectivism anduniversalism respectively. One thing is most of the services and benefits in bothcountries require contribution. Another thing is Korea has more selective benefits
than Japan. This difference is becoming larger owing to the National Basic
Livelihood Security Act.
It is unrestricted services and benefits in Japan and services without ameans test in Korea that has a high percentage other than these services andbenefits. However, these two countries have a high percentage of social
expenditure associated with employment policies in common.
As a result of these findings, following things can be said about the twocountries; (1) an social insurance is situated in the center of services and benefits(2) more social spending is used for the retired generations than the active
generations. (3) a family is positioned as a caretaker of welfare service.
What remains to be done are as follows; first, changes of social
expenditure about Japan and Korea should be explained more precisely. Secondly,
we made a classification and took the statistic of social expenditure about Japanand Korea, but these need to be in more detail in a future study.

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