Employment insurance fund posts 592 billion won deficit as unemployment benefit payouts hit record high

Warning signs are flashing over the financial health of South Korea's employment insurance fund after a surge in payouts pushed unemployment benefit disbursements above 17 trillion won for the first time in history. The fund recorded a deficit of 592 billion won ($428 million) last year, and its effective reserves — excluding government borrowings — stood at just 79.6 billion won ($57.5 million).

According to the Ministry of Employment and Labor's fiscal year 2025 settlement report on the employment insurance fund, released Sunday, total project spending from the fund reached 20.9405 trillion won last year, up 12.3 percent, or 2.2949 trillion won, from 18.6456 trillion won the previous year. It was the first time spending had exceeded 20 trillion won since 2021, when it hit 21.0577 trillion won at the peak of the COVID-19 employment shock.

The employment insurance fund is a dedicated pool of money used to finance job stability programs, vocational skills development and unemployment benefit payments. It is funded through insurance premiums, levies, reserves and investment returns.

The sharp rise in spending last year was driven by a jump in outlays from the unemployment benefit account, which hit a record 17.4833 trillion won.

Of that total, direct unemployment benefit payments accounted for roughly 13 trillion won, while maternity and parental protection benefits made up approximately 4.3 trillion won. The increase was attributed to deteriorating employment conditions in the manufacturing and construction sectors, as well as an expansion of maternity and parental protection benefits.

The surge in unemployment benefit account spending has left reserves effectively depleted. The account showed a nominal reserve balance of 1.7275 trillion won at the end of last year, but once borrowings from the Public Fund Management Fund are excluded, the effective reserve position is a deficit of 5.9933 trillion won — meaning the account is in effect being kept afloat by government loans.

The Employment Insurance Act requires the fund to maintain a buffer equivalent to 1.5 to 2 times annual unemployment benefit spending as a cushion against mass unemployment or economic downturns. Last year's reserve ratio fell to just 0.1 times that level, well below the statutory guideline and worse than the 0.2 times recorded in 2024.

The fund's overall balance also fell into the red. Total revenue came to 20.3485 trillion won against expenditure of 20.9405 trillion won, leaving a deficit of 592 billion won.

Concerns about the fund's fiscal sustainability are deepening amid a recent slowdown in the labor market. According to the Ministry of Statistics, the number of employed people stood at 29.12 million in May, down 40,000 from the same month a year earlier — the first year-on-year decline in 17 months. Fewer workers means lower premium revenue while unemployment benefit outlays rise, placing further strain on the fund's finances.

The Board of Audit and Inspection had earlier flagged the issue in an audit report, warning that the fund's long-term viability was in doubt given its limited capacity to respond to a large-scale employment crisis.

The government formed a task force on employment insurance reform in November last year to explore ways to restore fiscal soundness, but has yet to announce concrete measures. Options under discussion inside and outside the government include separating the funding source for maternity and parental protection benefits, restructuring the unemployment benefit payment system and raising insurance premium rates.

"We are discussing ways to improve the employment insurance system through the task force," a Ministry of Employment and Labor official said. "We plan to announce related measures as soon as the discussions are concluded."