SEJONG, April 5 (Yonhap) -- South Korea's government on Thursday proposed 3.9 trillion won (US$3.69 billion) in extra budgetary funds to boost the country's dire youth unemployment problem, which it warned could lead to a catastrophic situation.
Despite various measures taken in the past, youth unemployment has consistently worsened, due mainly to structural changes in the country's industrial, educational and labor markets. This in turn has led to many young people to put off marriage, which thereby leads to the very low birth rate.
The finance ministry said it will submit the supplementary budget proposal to the National Assembly for approval on Friday.
The ruling Democratic Party holds 41 percent of the 293 parliamentary seats.
The ministry stressed that some 2.6 trillion won will be financed by rolled-over tax surplus, with the remainder to come from funds run by state companies. It added that there are no plans to sell Treasurys to fund the extra budget.
A large chunk of the proposed budget, estimated at 2.9 trillion won, will be used to subsidize the hiring of new regular workers at smaller firms, with a variety of tax incentives to be given to new workers and smaller-sized firms that hire them.
The remaining 1 trillion won will be spent to help those who lost their jobs in the wake of massive restructuring in the shipbuilding and the automaking sectors, according to the ministry.
Under the measures to be implemented, 9 million won will be directly given to every new regular worker at smaller firms every year, which the ministry says is equivalent to one-third the annual salary of full-time employees at large firms. The financial support will last for three years, it added.
The allowance is aimed at narrowing the wage discrepancy between large and small companies, which has been cited as a key reason that young jobseekers are hesitant about starting their careers in smaller firms. Many who start off their careers at smaller firms quit in the first couple of years.
Also, a newly hired regular worker will be exempted from income tax for five years, and low-interest loans will be made available to young workers at smaller firms to help them cover part of their residential costs, the ministry said.
The government, moreover, plans to increase hiring by public firms to 28,000 from its earlier target of 23,000 to help raise employment among young people.
The measures also include generous tax incentives and loans to startups for upwards of five years.
The finance ministry estimated that some 950 billion won worth of tax incentives will be provided annually.
During a press briefing on Tuesday, Finance Minister Kim Dong-yeon said such measures will help increase the employment of young people.
"The measures will have the effect of raising wages and employees' overall financial conditions," Kim said. "Also, smaller firms' productivity will improve."
The government hopes that with the pledged support, the nation's youth unemployment would be reduced to below 8 percent by 2021, and up to 220,000 jobs will be newly added through 2021.
As of the end of December, the unemployment rate for people between 15 and 29 years of age came to 9.2 percent, nearly three times higher than the national jobless rate of 3.3 percent.
In this photo provided by the finance ministry, Finance Minister Kim Dong-yeon (2nd from L) speaks during a press briefing on the proposed extra budget in the administrative city of Sejong on April 3, 2018. (Yonhap)In this photo provided by the finance ministry, Finance Minister Kim Dong-yeon (2nd from L) speaks during a press briefing on the proposed extra budget in the administrative city of Sejong on April 3, 2018. (Yonhap)
The move comes as President Moon Jae-in has called for an all-out effort to create new quality jobs for young people and warned that the high jobless rate among youth is a national disaster.
Creating quality jobs, especially for the young, was one of Moon's key election pledges. The president has promised to add 810,000 new jobs in the public sector during his single five-year term, which ends in May 2022.
The proposed extra budget is the second of its kind under the Moon Jae-in administration. Last year, the Moon administration formed an 11 trillion won supplementary budget that aimed at creating more quality jobs.
The 1 trillion-won extra budget earmarked for corporate restructuring-hit regions will help those who have lost or may lose jobs in cities such as Gunsan.
Thousands of workers in the country's shipbuilding and automaking sectors are being let go as these industries try to cope with a protracted slump.
U.S. auto giant General Motors Co. is seeking to reduce its workforce here in a bid to reduce costs at a time of depressed sales. The Detroit-based company earlier unveiled a plan to close its underutilized factory in Gunsan, 274 kilometers south of Seoul, by May, dealing a blow to other businesses in the city. Gunsan was already reeling from setbacks caused by the shutdown of a shipyard run by Hyundai Heavy Industries Co. last year.
"The measures, including tax incentives, were designed to minimize the impact on such regions and eventually raise economic vitality," Kim said.
Earlier in the day, Gunsan was designated as an emergency response zone to provide job support and tax incentives as the southwestern city is expected to suffer from high unemployment numbers.
Over 2,500 workers at GM Korea, equivalent to about 15 percent of its workforce, have applied for a voluntary retirement package this year that has been offered by the automaker as part of a broader restructuring program.
Meanwhile, investment banks project that the proposed extra budget would help raise the country's economic growth by some 0.1 percentage point.
South Korea's economy, Asia's fourth-largest, grew 3.1 percent last year, accelerating from the previous year's 2.8 percent expansion, on the back of robust exports and recovering private spending.
It was the first time since 2014 that the economy grew by more than 3 percent.