Support for Unpaid Wages to Increase, but Funding and Cross-Ministerial Action Needed [New Administration Policy Issue]

Unpaid Wages Reached 2.0448 Trillion Won Last Year
Likely to Increase Further This Year
New Administration Plans to Expand Labor Inspection Personnel
Wage Advance Payments to Be Increased
Wage Advance Budget Set at Only 680.2 Billion Won This Year
"Seeking Ways to Improve Recovery Rate and Secure Funding"

The new administration has announced plans to strengthen the national subrogation system in order to reduce the amount of unpaid wages, which has increased to over 2 trillion won annually. The government intends to expand the size of wage advances paid directly to workers in place of employers, and to establish a dedicated organization to recover these payments from employers. However, securing sufficient funding to implement these measures remains a significant challenge. There are also calls for a swift, cross-ministerial response, including a comprehensive survey on the actual state of wage arrears.

As the new administration begins its term, the importance of addressing wage arrears in the field of employment and labor is growing. This is because there are projections that the amount of unpaid wages, which reached a record high of 2.0448 trillion won last year, could increase even further this year.

As of the cumulative total in April, unpaid wages for this year have already reached 785.5 billion won. This represents an 82.04% increase in just two months, rising from 431.5 billion won in January and February. If this growth trend continues, a simple calculation suggests that unpaid wages could reach 2.3565 trillion won this year, a 15.24% increase compared to last year.

With both exports and domestic demand sluggish, this year's bleak economic outlook is amplifying concerns. Recently, the Organisation for Economic Co-operation and Development (OECD) lowered its forecast for South Korea's GDP growth rate this year from 1.5% to 1.0%. Major domestic and international institutions, including the Bank of Korea (0.8%), are even predicting growth in the 0% range.

The number of workers who have lost jobs in industries with high levels of wage arrears, such as manufacturing and construction, and are receiving job-seeking (unemployment) benefits is increasing. In April, the number of job-seeking benefit recipients (703,000) and the total amount paid (1.1571 trillion won) were the highest since April 2021, during the COVID-19 pandemic. Given the poor business climate, concerns over wage arrears are inevitably growing.

The new administration has declared its intention to "usher in an era of zero wage arrears through enhanced labor supervision." The plan is to increase the number of labor inspectors, grant special judicial police powers to local government officials to overcome the limitations of labor supervision, and expand the size of wage advances to cover all unpaid wages and severance pay within the three-year statute of limitations for wage claims.

Additionally, a dedicated organization will be established to recover wage advances, and sentencing standards for employers responsible for wage arrears will be strengthened. The government also plans to impose joint liability on both primary contractors and subcontractors for wage arrears, and to expedite the recovery of wage advances by applying procedures used for collecting national tax delinquencies. To address the main cause of increasing wage arrears?unpaid severance pay?the government will promote mandatory enrollment in retirement pension plans for all workplaces.

Experts have noted that, since there have been ongoing discussions on the need to expand labor inspection personnel and strengthen investigative authority in the field, the implementation of these policies is expected to help address the issue. However, they emphasized the need for rapid action, given the sharp increase in wage arrears amid the economic downturn. There are also calls for a cross-ministerial response.

Lee Jongsoo, a guest research fellow at the Korea Labor and Society Institute and a certified labor attorney, said, "Wage arrears are a social disaster," adding, "Despite this, there has never been a proper, comprehensive survey of the actual situation." He continued, "The three parties?labor, management, and government?must work together to conduct a thorough survey and accurately identify the structural causes of wage arrears," and stressed, "For this, a whole-of-government response to wage arrears is urgently needed."

Securing funding is also a major challenge. Last year, the amount paid out in wage advances reached a record high of 724.2 billion won. If wage arrears increase this year compared to last year, the amount paid out in advances will inevitably rise as well. Moreover, since the new administration plans to expand wage advances, a substantial amount of funding will be required, but this year's budget for wage advances, including the supplementary budget, is only 680.2 billion won. Last year, it was impossible to make payments with the existing budget alone, so additional funds had to be injected.

An official from the Ministry of Employment and Labor explained, "Wage advances are a way to support workers affected by wage arrears by recovering from employers, so they are a type of debt that must be repaid by the employer." He added, "Because the recovery rate (in the 30% range) is low, discussions have begun under the new administration about establishing a dedicated organization, and we are reviewing how to set it up."

He also stated, "If we process recoveries according to the procedures for collecting national tax delinquencies, we can simplify the process and encourage repayment by employers responsible for wage arrears." He added, "We are seriously considering how to secure more funds, including ways to improve the recovery rate."

Since most cases of unpaid severance pay occur at small businesses, and it is difficult to mandate the conversion to retirement pensions at smaller workplaces, this issue must also be addressed. In the April issue of the Monthly Labor Review published by the Korea Labor Institute, senior research fellow Gil Hyeonjong explained, "Many workers who experience wage arrears under the severance pay system are employed by small businesses, and often experience relatively small amounts of arrears."