[Exclusive] "Worrying About Money When Taking Parental Leave Is True"... Income Replacement Rate Only 40% [K Population Strategy]

(36) Parental Leave Benefits Have Not Increased Even by Inflation Rate
Dropped to 41.8% Last Year Since 2019
"Parental Leave Usage Should Be Encouraged Through Realistic Income Replacement Rate"

Editor's NoteThe key to solving South Korea's population problem lies within companies. A workplace culture that evaluates employees based on their work regardless of gender and a family-friendly environment are crucial to addressing the K-population issue. Although low birth rates result from complex factors, it is important to ensure that burdens at work do not become obstacles that make people hesitate to have children. Asia Economy plans to visit companies leading family-friendly policies to identify the factors that helped these systems stabilize, and to explore various solutions with companies that face practical challenges. Through this, we aim to encourage change starting from companies and analyze the government's role in enabling this. We listen carefully to voices emphasizing that company culture and atmosphere, which reduce psychological burdens more than financial support, are key, and propose alternatives from diverse perspectives.

In the first month of parental leave, the government-provided payment was found to be less than 40% of the usual monthly salary. Over the past five years, the parental leave pay relative to monthly income has shrunk every year. While wages have increased by an average of around 3% annually reflecting inflation, parental leave pay has been capped and has actually decreased compared to salaries. There are calls to adjust the income replacement rate to allow working parents to take parental leave without worrying about their livelihood.

According to data submitted by the Ministry of Employment and Labor to the office of Lee Ju-hwan, a member of the National Assembly's Environment and Labor Committee from the People Power Party, requested by Asia Economy on the 7th, the income replacement rate for parental leave compared to ordinary wages dropped from 49.4% in 2019 to 41.8% in 2023 (as of November). Ordinary wages exclude various allowances such as overtime pay from the actual monthly salary, so when comparing the replacement rate to the monthly salary, it is effectively less than 40%.

Over the past five years, ordinary wages increased by an average of 3.6% annually, but the average initial parental leave pay decreased by 0.6% during the same period. Parental leave pay has not kept pace with ordinary wages rising with inflation but has instead declined.

[Exclusive] "Worrying About Money When Taking Parental Leave Is True"... Income Replacement Rate Only 40% [K Population Strategy]

The income replacement rate for the first month of parental leave, calculated by comparing the average ordinary wage of domestic large corporations and medium and small enterprises to the average parental leave pay, has shown a decreasing trend over the past five years. It fell from 48.8% in 2020 to 47.6% in 2021, 46.5% in 2022, and again to 41.8% last year. By company size, last year the rate dropped to 38.1% for large corporations. Small and medium enterprises also recorded only 45.5%.

A man in his 40s, a sole breadwinner whom we met during this investigative report, said, "As a manager at a large corporation, I earn relatively a lot, but fixed monthly expenses such as living costs for a family of four, housing loan interest, and children's education fees are tight," adding, "I can't even consider taking parental leave with the government’s parental leave pay."

Especially, the ‘3+3 Parental Leave System’ introduced in 2022 significantly lowered the first month’s parental leave pay. The 3+3 system offers relatively low pay in the first month but raises the monthly cap on parental leave pay incrementally up to three months. When both parents who have children under 12 months old take parental leave simultaneously or sequentially, they can receive up to 2 million KRW in the first month, 2.5 million KRW in the second month, and 3 million KRW in the third month (each at 100% of ordinary wages). The system aims to encourage both parents to take at least three months of parental leave.

For example, a woman working at a large corporation who took parental leave last year received an average of 1.22 million KRW in the first month. She normally earns an average ordinary wage of 3.18 million KRW per month, so this amount is less than half. If her husband takes parental leave simultaneously, they can receive up to 2 million KRW under the 3+3 system, but if he does not, the pay is 80% of ordinary wages, up to 1.5 million KRW, and with the post-payment applied, it drops to around 1.13 million KRW for that month. The post-payment system pays 75% of parental leave pay during leave and the remaining 25% in a lump sum after confirming employment for more than six months after returning to work.

The above photo is not directly related to the article. Photo by Hyunmin Kim kimhyun81@

As the income replacement rate for the first month of parental leave decreased, the number of parental leave users did not increase significantly and remained stagnant. Since applying the 3+3 system, the average income replacement rate for the first month of parental leave in 2023 (January to November) was 45.5% for small and medium enterprises and 38.1% for large corporations. The average parental leave pay was 1.25 million KRW for both genders; men in small and medium enterprises (priority support companies) received 1.36 million KRW, women 1.19 million KRW, while men in large corporations received 1.37 million KRW and women 1.22 million KRW.

The increase in parental leave users was also modest. The number of parental leave users was 105,165 in 2019, 112,038 in 2020, 110,555 in 2021, 131,084 in 2022, and 117,040 as of November 2023, maintaining a level in the low 100,000s.

However, since the 3+3 system pays the lowest amount in the first month, theoretically the maximum pay cap increases in the second and third months. The income replacement rate in the second and third months is expected to rise somewhat to the 50% range for small and medium enterprises and the 40% range for large corporations. However, in the fourth month of parental leave, the cap decreases again to a maximum of 1.5 million KRW (80% of ordinary wages).

Dads flock to parental leave with 2.5 million KRW cap

The number of parental leave users increased sharply in 2022 compared to the previous year, rising 18.57% from 2021. Male parental leave users increased by 30.45%. This was largely due to the ‘Dad Parental Leave Bonus System,’ which expired on December 31, 2022. Known as the ‘Dad Special,’ this system guaranteed a cap of 2.5 million KRW (100% of ordinary wages) for the first three months of parental leave. Although introduced in 2019, parental leave usage did not increase significantly initially due to low awareness. After the introduction of the 3+3 system, it became known that the first month’s cap was 500,000 KRW lower than under the Dad Special, which appears to have caused a surge in parental leave usage. Under the Dad Special, the income replacement rate for the first month of parental leave for men in small and medium enterprises rose to 54.7%.

The income replacement rate is a key factor in deciding to take parental leave. Alongside creating a culture and atmosphere where employees can take parental leave without hesitation, it is important to provide at least enough financial compensation so that parents can care for their children without worrying about money.

After the Dad Special ended, the number of parental leave users decreased by 10.71% in 2023 compared to 2022. Particularly, smaller companies showed higher sensitivity to parental leave pay. In 2022, the last year the Dad Special was applied, parental leave users in workplaces with fewer than 10 employees increased by 25.09% compared to the previous year, and those in workplaces with 30 to fewer than 100 employees increased by 21.42%. In large corporations with 300 or more employees, the change in user numbers was relatively small. Workplaces with 300 to fewer than 1,000 employees saw a 17.32% increase, and those with 1,000 or more employees saw a 15.06% increase.

Upgraded 6+6 system still limited by 2 million KRW first-month cap

The government decided to apply the 6+6 system, an enhancement of the 3+3 system, starting this year. For children under 18 months old, if both parents take parental leave for the first six months, the pay cap is expanded to a maximum of 4.5 million KRW (100% of ordinary wages). This doubles the period compared to the 3+3 system, aiming to create an environment where both parents can participate more fully in childcare.

However, experts expressed concern that despite the upgrade, the first month’s cap remains the same as the 3+3 system at 2 million KRW, which is still insufficient. Since average annual salaries generally rise with inflation, if the first month’s parental leave pay remains capped at 2 million KRW, the income replacement rate will inevitably decline over time. Except for some large corporations, it is practically difficult to even take one month of parental leave, and the fact that the first month’s income replacement rate barely reaches 40% greatly reduces the incentive to take parental leave.

Professor Song Da-young of the Department of Social Welfare at Incheon National University said, "In reality, men rarely take parental leave for up to three months," adding, "There needs to be a system that allows people who want to make the most of even just one month of leave to receive pay without suffering losses." She further noted, "The costs in the first and third months of raising a child are not significantly different. Rather than giving more money as the period extends, it is more appropriate to distribute pay evenly."

Lee Ju-hwan, a member of the People Power Party, emphasized, "Taking parental leave effectively halves income," and stressed, "To overcome the low birth rate problem, it is essential to address the issue of realistically adjusting the income replacement rate for parental leave pay."