[Seoul-type Guaranteed Income] Seoul City Pilots 'Guaranteed Income' Project... Creating a Sustainable Selective Welfare Model

Accumulating Data from the Ansim Income Pilot Project to Build a New Welfare System
Supporting 500 Households in the Bottom 25% Income Bracket...Covering Half of the Gap Below Median Income
Expected to Complement Low Employment Rates with Basic Income and Confirm Income Redistribution Effects

[Asia Economy Reporter Lim Cheol-young] #Since 2013, the UK government has been implementing a so-called universal tax credit system that provides monthly income-based tax credit amounts to households below the median income. This is an attempt to integrate basic social welfare systems into a universal tax credit to build a sustainable welfare system. So far, the weekly income of the bottom 10% low-income group has increased by ?2.40, and it has shown effects such as health improvement, crime reduction, and improved educational achievement.

#Germany The German Institute for Economic Research (DIW) and the 'My Basic Income Association' have been jointly conducting a 'Basic Income Pilot Project' from August 2020 to December 2024. They plan to provide 1,200 euros (approximately 1.61 million KRW) monthly to 122 adults aged 18 and over and compare them with a control group of about 1,300 people. Since it is run by the private sector, funding is secured through donation sponsorships.

As governments, local authorities, and private sectors worldwide increasingly engage in various welfare experiments to alleviate widening class disparities, Seoul City is also launching a so-called 'Safe Income' experiment aimed at reducing income inequality. Seoul City is preparing a promotion plan through a dedicated task force and is accelerating consultations with the Ministry of Health and Welfare and the Seoul Metropolitan Council to start a pilot project early next year.

According to the Basic Income Research Institute at Stanford University in the United States, various forms of income experiments have been completed in 39 locations worldwide, and experiments to accumulate data are currently underway in 17 locations. The reason for the surge in new welfare experiment cases worldwide is the judgment that income polarization is likely to worsen as unskilled workers are marginalized due to the Fourth Industrial Revolution, represented by artificial intelligence (AI) and robots.

Moreover, the ongoing global disasters are increasing concerns. Since the 2008 global financial crisis, the number of irregular workers has surged worldwide, but no significant alternatives have been found. The COVID-19 crisis has compounded this, pushing low-income groups into extreme situations. In fact, the quintile ratio of equivalized disposable income was 4.64 in the fifth quarter of 2019 but increased to 4.72 in the fourth quarter of last year within just one year. In July and August alone, a man in his 50s who had been living in his car in Nowon-gu, Seoul, died, and families receiving basic living security benefits also died in Gangseo-gu and Jungnang-gu.

Starting next year, Seoul City's 'Safe Income' focuses on sustainable selective welfare. Although it is perceived as a concept opposing the existing 'basic income' debate based on universal welfare, the view that it can be gradually complementary is gaining strength, as it is a welfare model that alleviates the financial burden of the government or local governments while guaranteeing a certain level of income for the lower-income class.

Accordingly, Seoul City noted that except for Alaska in the United States, which has special conditions with abundant natural resources and a small population and provides an annual 'Permanent Fund Dividend' of about 1 to 2 million KRW, universal basic income experiments have not been practically conducted. It also focused on the limitations of experiments such as the Finnish Social Insurance Institution's (2017?2018) monthly payment of 740,000 KRW to unemployed people and Ontario, Canada's monthly payment of 1.25 million KRW. The Finnish Social Insurance Institution's two-year experiment did not show a significant difference in employment rates compared to the control group, and Ontario's three-year plan was halted after one year due to budget shortages.

Ha Young-tae, Director of Welfare Policy at Seoul City, explained, "The basic income experiment, which provides uniform support to all subjects, was meaningful in that economic stability led to mental stability and increased life satisfaction, but it had a large financial burden. It was difficult to realize in the short term and had limitations in producing meaningful employment-related results, so it needs to be supplemented in other ways."

Kim Nak-hoe, former Commissioner of the Korea Customs Service, and Byun Yang-ho, former Director of Financial Policy at the Ministry of Finance and Economy, diagnosed in the 'Economic Policy Agenda 2022' that "Compared to major countries such as France and Germany, Korea's poverty rate is relatively high, while the poverty improvement rate is significantly low at 10.3%. While it is desirable to improve income distribution for all citizens, policy priority should be given to income security for the poor."

Seoul City plans to prepare a broad 'Safe Income' pilot project plan and continue consultations with the central government. The pilot project plan involves a budget of 6.886 billion KRW annually and will target 1,500 households. The core plan is to select 500 low-income households in the bottom 25% (below 50% of median income) and provide 50% of the shortfall from the median income in cash. The city also plans to evaluate the data and effects of the remaining 1,000 households included in the experiment. Recently, after internal and external discussions, Seoul City added a monthly payment plan for single-person households with assets below 326 million KRW and income below 50% of the median income.

The central government and others also sympathize with the broad framework of the Safe Income experiment, regardless of political factions. In particular, the Ministry of Health and Welfare, the main ministry in charge, is reported to have evaluated that the policy experiment is expected to yield results in accumulating social security system data for Seoul City. Seoul City aims to supplement the shortcomings of the universal basic income experiment, such as the poor employment rate of low-income groups. Director Ha Young-tae stated, "Although the Safe Income experiment targets low-income groups, the target and guaranteed amount are significantly improved compared to existing systems. We believe it will be an opportunity to confirm both poverty alleviation effects and income redistribution effects through benefit payments."