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Development Overview

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Overview of Korea’s development experience

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Development Overview
Social Development Social Welfare

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Social Welfare

Social welfare gains attention

Toward the end of the 1970s, the government-led, growth-first strategy that had been pursued since the 1960s began to produce various social problems. The improvement in income distribution stopped or was partially reversed as the government actively promoted capital-intensive industries at the cost of macroeconomic stability (Il SaKong, 1993, p.18).

The poor, in particular, were affected by rising inflation. With the improvement in general living conditions, public attention was drawn to the income gaps between rich and poor and between different regions of the country. These developments highlighted the need for larger and more effective welfare programs.

The Chun Doo-hwan administration that came into office in 1980 announced a radical departure from past economic and social policies. It placed priority on promoting private initiatives and stabilizing inflation. It also set out as a goal “the establishment of a welfare society.”1) The revised 1980 constitution made firm commitments on the state’s responsibility to provide a social safety net and this was followed by the enactment of major laws on welfare programs. Welfare spending jumped in the early 1980s (Figure 6-36).

In 1981, a pilot project was started to provide a community-based health insurance program to residents in rural areas, while the company-based health insurance program was extended to firms with 100 or more employees. Coverage was then extended to companies with 16 or more employees in 1982 and 5 or more employees in 1988.

Meanwhile, the community-based program was extended to all rural residents in 1988 and to all urban residents in 1989. This resulted in the creation of a universal health insurance system (Table 6-9), a feat that was accomplished in only 12 years, the shortest time it has taken anywhere in the world (Deutsche Gesellschaft für Technische Zusammenarbeit, 2005; Ensor, 1999).2)


Table 6-9. Participants in the National Health Insurance Program


The Livelihood Protection Act, which provided public assistance, was revised in 1982 to expand the types of assistance that could be offered to the destitute, with the aim of providing better access to education and jobs.

The introduction of the Act on the Welfare of the Elderly in June 1981 created the legal basis to offer welfare benefits to the older population. Starting from 1982, people aged 65 or older received discounts on the use of mass transit, museum admissions and visits to public baths and barber facilities. A free medical diagnosis program for the elderly was introduced in 1983.

In 1987, a pilot project was launched to provide welfare services to older persons forced to stay at home. Two years later, the government began an allowance payment program for the elderly. This involved paying 10,000 won a month to 76,000 heads of households who were aged 70 or older and who were receiving some form of assistance. Regulations on nursing homes for the elderly were introduced in 1988 and those governing senior citizens’ community centers in 1989.

The National Pension Scheme (NPS), covering workers in firms with 10 or more employees, was implemented in 1988. In 1992, the compulsory coverage was expanded to firms with 5 or more employees. It was expanded further in 1995 to farmers, fishermen and the self-employed in rural areas, and finally in 1999 to the self-employed in urban areas. This completed the move toward a universal public pension scheme.

Welfare services for the disabled were expanded as well. Between 1985 and 1987, a program was implemented to modernize welfare facilities for the disabled. A Comprehensive Welfare Program for the Disabled Persons was launched in 1986, and a pilot program to register the disabled for services was carried out the following year.3)

In 1989, the government launched a program to increase the housing stock and supply rental housing to low-income households in response to the sharp rise in housing prices and rental costs. The program continued until 1992 and the housing supply ratio4) jumped from 70.9 to 79.1 percent between 1989 and 1993.5)

The Act on the Employment Promotion of the Handicapped was passed in 1990 and implemented the following year with the goal of providing jobs for the disabled and encouraging their social integration. The law required that public enterprises and private-sector firms with 300 or more employees employ the disabled until they accounted for 2 percent of the total workforce. This was an important step in providing economic support to the handicapped.

The Pre-school Age Children Care Act was enacted in January 1991 to expand childcare facilities, improve the protection and education for children, and support children in families in need of assistance. In 1998, the government stopped requiring that childcare facilities be certified before going into operation, but instead only be registered with the authorities. This was to encourage the expansion of childcare facilities. The system was, however, changed back to the certification system in 2004.

Another important development in this period was the introduction of the Employment Insurance System (EIS) in 1995. With this, Korea came to have all four types of major social insurance programs.

The EIS is comprised of two programs, one being the traditional unemployment benefit program and the other a group of ALMPs such as wage subsidies, vocational training and employment services. The idea was that preventing unemployment through ALMPs was as important as providing relief measures to the unemployed. Initially, the unemployment benefit program covered firms with 30 or more employees and the ALMPs those with 70 or more employees. The coverage was expanded rapidly in 1998.

To summarize, the period from 1980 to the mid-1990s witnessed an important change in the stance toward welfare policies, with the introduction of two social insurance programs -the NPS (1988) and the EIS (1995)-and the creation of universal health insurance (1989). The Livelihood Protection Program and welfare services for the disabled, children and other vulnerable groups were expanded. These changes accelerated the growth of welfare spending.

Nonetheless, welfare spending amounted to only 3.5 percent of GDP in 1997. Only those workers at firms with 30 or more employees were covered by the unemployment benefit program of the EIS. The old-age pension of the NPS was not available to retirees because it required at least 15 years of prior contribution while the NPS had been introduced less than 10 years earlier.6) The public assistance and welfare services provided limited benefits and the delivery system was not well organized. The economic crisis of 1997 exposed the weaknesses of the Korean social security system and played a catalytic role in its subsequent enlargement.

Source : SaKong, Il and Koh, Youngsun, 2010. The Korean Economy Six Decades of Growth and Development. Seoul: Korea Development Institute.

NOTE


1)The government policy objectives laid out by the Chun administration included establishing a welfare state; developing democracy; building a society based on justice; reforming the education system; and promoting culture.
2)It took 127 years for Germany, the first country to introduce a national health insurance program in 1854, to expand coverage to all German citizens. In the case of Japan which introduced health insurance much later with a more advanced economy, it took 36 years.
3)These programs were undertaken with the view that Seoul would host the Paralympics Games as part of the 1988 Summer Olympic Games. Korea recognized the importance of this event in light of the growing international movement to support the human rights of the disabled.
4)Housing supply ratio = number of houses÷number of households.
5)See Table 2-13 in Chapter 2 for a long-term trend of the housing supply ratio.
6)In 1997, there existed about 150,000 beneficiaries of the disability pension, the survivors’ pension, or the special pension for the elderly. The last type of pension benefit is granted to those who were aged between 45 and 60 in 1988 when the NPS was introduced and have contributed for at least five years before retiring at the age of 60 or older. Since then, pension beneficiaries have increased in number and totaled 2.8 million in 2009

References


· SaKong, Il, Korea in the World Economy, Institute for International Economcs, 1993.

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