Unemployment would increase due to
COVID-19, but how serious will it be? 

Kilkon Ko, 

                                                                                     Prof, Seoul National University

 COVID-19 paralyzes economic activities and many expect massive unemployment. Interestingly, however, the Korean society does not talk much about the seriousness of unemployment except the sporadic warning based on gloomy official statistics such as unemployment rate or the uprising expenditure of unemployment benefits of the Korean government. 

 There seems a time-lag between the perception and real impact. As of May 13, Koreans do not look truly concerning unemployment and its impact compared to 2009 global financial crisis or 1997 Asian financial crisis. 

 Why do the Koreans maintain the calm attitude to unemployment? One plausible conjecture would be that the aggressive fiscal policy of the government provides rich liquidity, and the provision of unemployment benefits would ease the pain of unemployment at the moment. Another explanation is that the official statistics have not reflected the reality yet due to the time lag. For instant, many official statistics are about the situation in two or three months ago. As such, whenever the new statistics are released, we tend to forget that those numbers reflect, in fact, two or three month ago situations. The other factor would be related to political consideration. The Moon administration does not want to ruin its reputation of successful control of COVID-19 because of the economic crisis. It wants to use the unprecedented amount of budgets to support the needed and implement the government policies. This approach, however, conceals the huge burdens that the next generation will bear and could be criticized for short sighted. Hence, the government alleviates the pain of the present generation at the expense of the next generation's burden. 

The fiscal burden of the government is far more serious than we imagine and the omen has started at the beginning of the Moon administration. As shown in Figure below, we can find the uprising number of the unemployed since 2018(the 2nd year of the Moon administration). As of March 2020, around 618,346 received the unemployment benefits. The number expects to be increased in April and May as well.

The year-on-year change of unemployment benefit recipients shows the rapid increase of the unemployed. Compared to March, 2019, more than 103,631 received the unemployment benefits a year later.  

The budget stress according to the increasing number of unemployment benefit recipients is never negligible. In March 2020, around 934 million USD were spent and the number increased to almost a billion USD in April. Given that 2019 budget was 470 billion USD, the amount of expenditure for the unemployment benefits is very large. 

Despite such a uprising number of applications for unemployment benefits, the official unemployment rate looks better. The unemployment rate in March 2020 in Korea was only 4.2%, while the national unemployment rate is 14.7% in April 2020 in the U.S. The unemployment rate in March is even 0.1% point smaller than a year-ago figure. This awkward figure is because of misguiding policy of the Korean government in 2019. The government implemented budgets related to active labor market policy which provides a job opportunity by the government as quickly as possible.  Hence, there are many temporary jobs artificially created by the government and most participants are not the young but the old who retired. Finally, the number of temporary leaves are not counted as the unemployed. Looking at the number, it changes from 307,000 in December 2019 to 1,485,000 in April 2020. Such a skyrocketing increase of temporary leave will be reflected in the unemployment rate in future if a company cannot survive even after sending their employees for temporary leaves. 

Compared to the unemployment rate, the employment rate shows the better picture for understanding the impacts on the situation. Figure shows that the employment rate dropped almost 0.9% point in March 2020 compared to the same month of the last year. It was the largest year-on-year drop since 2011. 

Who bears the pain of the unemployment more? Figure clearly shows that the temporary workers had to leave the labor markets rapidly. The number of temporary workers dropped from 1.68 million in February 2020 to 1.65 million in March 2020. In case of the permanent workers, the number changes from 15.7 millions to 15.6 millions on the same period. The decrease of temporary workers mean that companies cannot maintain the  temporary workers under the austere economic situations. They tend to be fired easily than the permanent workers. 

The drop of employed wokers are found more in the small and medium size companies. As shown in the figure below, the drop of the employed is steeper in the companies hiring less than 300.

Retail and Recreation Mobility affected by increasing number of COVID-19 confirmed

It can be seen that when the new COVID-19 confirmed is large, the amount of retail and recreation movement has decreased dramatically. As the number of new confirmed case begins to decrease, it can be seen that the amount of retail and recreation movement is recovering again. As people perceive COVID-19 risks and adjust their economic activities accordingly, the COVID-19 risks should be end to improve the economy.