Korea Drafts 11.2 Trillion Won Extra Budget to Boost Jobs

(Bloomberg) -- South Korea's finance ministry has drawn up an 11.2 trillion won ($10 billion) supplementary budget to help meet President Moon Jae-in's effort to increase jobs and incomes.

If passed by the parliament, the finance ministry plans to use 4.2 trillion won of the spending package to create 86,000 new jobs, 71,000 of them in the public sector, including positions for police officers, firefighters, assistant teachers and social workers.

The focus in the private sector will be generating more jobs at small and mid-size companies. The remaining 7 trillion won will go into welfare, improving working conditions, raising wages, and local subsidies, and is projected to produce 24,000 jobs indirectly, the finance ministry said in a statement.

“We're at least going in the right direction," said Lee Sangjae, an economist at Eugene Investment & Securities Co. in Seoul. "But the problem is how do we create jobs in the private sector, not the public sector.” Lee added that Korea doesn't have the option of weakening its currency to boost industry, as Japan did, because there would be a backlash from the Trump administration.

The package is aimed at helping the unemployed, particularly young people, but also the elderly and women, said Park Chun Sup, the deputy minister for the budget office at the finance ministry. “If more jobs are created, we believe it will lead to an increase in wages, which can help solve the problem of low domestic consumption,” he said at a briefing held in Sejong on June 2.

Clear Mandate

While Moon's election victory last month gives him a clear mandate to create jobs, passage of his plan through parliament is not guaranteed, given that his Democratic Party holds just 40 percent of seats. The ministry plans to submit it to the legislature on June 7.

Only six of 12 economists polled by Bloomberg last month were confident that the new administration would manage to pass its budget plans.

Read more: Budget hurdles in parliament.

South Korea's Kospi index fell 0.1 percent at 11:34 a.m. while the Korean won advanced 0.3 percent.

Youth unemployment has worsened considerably in South Korea in recent years. The jobless rate for those aged 15 to 29 was 11.2 percent in April , rising 0.3 percentage point from a year earlier and more than double the rate for the whole working population.

“Moon's administration said it will mainly create regular jobs, and if that's the case, creating 110,000 jobs either directly or indirectly will be hard," said Moon Jung-Hiu an economist at KB Investment & Securities Co. in Seoul. "But if it's temporary jobs they're talking about, then that many jobs may not be a problem.”

To emphasize how important it is to improve the lot of job seekers, President Moon has installed an electronic bulletin board on the wall in his office showing key markers in the labor market. He also established a jobs committee, which he chairs.

The extra budget will be funded mainly from national tax revenue and won't rely on issuing government bonds, according to the finance ministry.

To contact the reporter on this story: Hooyeon Kim in Seoul at hkim592@bloomberg.net.

To contact the editors responsible for this story: Brett Miller at bmiller30@bloomberg.net, Henry Hoenig