Seongnam’s youth dividend: basic income, and the tail that wagged the dog

Posted on : 2017-05-21 09:55 KST Modified on : 2019-10-19 20:29 KST
Financial benefit for young people in one city creating momentum for national policy discussion
 Aug. 2016. The Ministry of Health and Welfare intervened to stop the program.
Aug. 2016. The Ministry of Health and Welfare intervened to stop the program.

“The youth dividend didn’t change my life in a huge way. But it did help me buy tastier snacks for my dog Jackpot, which I adopted from the dog pound. I was also able to cook an egg with my ramen noodles, and when I was tired of life and in the mood for a drink, I could sometimes get a snack, too.” - an individual surnamed Kim, from Seongnam, Gyeonggi Province

“The dividend isn‘t a charitable donation - it’s redistribution. Furthermore, the dividend doesn‘t say anything about consumption. There are some people who talk about the moral hazard of the dividend. I think that’s like saying that if you give alms to a beggar, they‘ll buy booze with it. Taking the attitude of a benefactor and trying to determine the beneficiaries’ morality and future actions is just charity,” - an individual surnamed Ahn, in the Pangyo neighborhood of the Bundang District of Seongnam

These are some of the impressions given by young people who received an unexpected “basic income” from Seongnam in Gyeonggi Province, which enacted South Korea’s first “youth dividend” in Oct. 2015. A little more than a year after the policy was enacted by the city, which has a population of 970,000, it has become established as one of South Korea’s leading policies for youth welfare. While stubborn opposition from the central government has brought the program all the way to the Constitutional Court, where it awaits a ruling, the program will go down as the “tail that wagged the dog.”

 on Seoul City Hall
on Seoul City Hall

During a press conference on Oct. 1, 2015, Seongnam mayor Lee Jae-myung announced that he would launch a program to pay a youth dividend in “local currency” (gift certificates for the Seongnam area) worth 250,000 won (US$220) a quarter, or 1 million won a year, to people between the ages of 19 and 24 who were registered in Seongnam and who had been living there for at least three years. “If the national pension is a reward, a sort of ‘senior dividend,’ for old people who have worked hard their whole lives, the youth dividend represents a ‘pre-investment’ in young people who will be working hard in the future,” Lee said.

“Young people‘s problems can’t be resolved through private charity. It’s the responsibility of the government, and it must be resolved through direct government policies aimed at the continuing development of our society,” Lee said.

As expected, the youth dividend triggered fierce debate. Conservatives slammed the policy as a populist measure aimed at swaying the 2016 general election. “During the 2012 presidential election, then Saenuri Party presidential candidate Park Geun-hye promised to give 200,000 won a month to everyone 65 and older. It’s not right to have a double standard in which it’s welfare when a ruling party presidential candidate does it and populism when an opposition party mayor does it,” Lee countered.

Amid growing controversy, the Ministry of Health and Welfare announced on Dec. 11 of the same year that, following a review of Seongnam’s youth dividend system, it had concluded that the system was unacceptable. The current Basic Social Insurance Act requires local governmental bodies that wish to establish or change a social welfare system to first deliberate with the Minister of Health and Welfare about whether the new system will overlap with central government policies.

In the end, Seongnam asked the Constitutional Court to settle the dispute over jurisdiction, claiming that the central government was causing excessive harm to local government. And on Jan. 20, 2016, it implemented the youth dividend program over the central government‘s objections.

Last year, 17,426 young people in Seongnam received a total of 10.15 billion won worth of Seongnam gift certificates. The gift certificates can be used at traditional markets, small retailers, restaurants and other businesses in the city. After allocating 11.29 billion won to the program, Seongnam paid 2.62 billion won to 10,482 of the 11,290 people who are eligible for the youth dividend in the first quarter of this year. In a survey of 2,866 people who received the youth dividend in Apr. 2016, 96.3% said that it “helped their lives.”

The youth dividend that Seongnam went to great lengths to adopt has had a major impact on the youth welfare policy of local governments around the country, as well as on the new Moon Jae-in administration. While most of these new programs require recipients to be looking for work (a fundamental difference with Seongnam’s youth dividend, which is essentially a basic income), these programs are regarded as serving as a foundation to increase young people’s real income.

A poster for Seoul Metropolitan Government’s youth allowance program
A poster for Seoul Metropolitan Government’s youth allowance program

Next month, Seoul will launch its youth activity assistance program (called the “youth allowance”), which has been in limbo for 17 months because of a dispute with the central government. After the city program paid 500,000 won (US$440) in cash for one month to 2,831 young people in Aug. 2016, the Ministry of Health and Welfare intervened directly to stop the payments, which they said overlapped with other programs. On May 7, the Ministry notified Seoul that it approved the youth allowance because the city had faithfully incorporated four requests, including specifying the standards for selecting recipients. Next month, Seoul will select 5,000 residents between the ages of 19 and 29 to receive 500,000 won each month, for up to six months.

Starting this August, Gyeonggi Province is planning to pay 1,200 unemployed individuals between the ages of 18 and 34 a subsidy for job-seeking young people. Gwangju is implementing its own youth allowance program, while Busan, Daejeon and North Gyeongsang Province are all planning to distribute “job search assistance cards” to young people who meet certain requirements.

President Moon Jae-in has also promised to create a program modeled on the youth dividend that will give young people a financial incentive to find work. The program would pay 300,000 won a month for nine months to people between the ages of 18 and 34 who are not enrolled in employment insurance and who can demonstrate that they are looking for work by participating in public employment services operated by the central and local governments.

“It’s estimated that there are more than 665,000 young people below the age of 24 in the country. To pay each of them 1 million won a year, we would need about 660 billion won (US$585 million). [Former President] Lee Myung-bak lowered the top corporate tax rate to 22%, and if we increase that to 25%, which is the average in OECD member states, we can increase tax receipts by an average of 4.6 trillion won a year. That means it‘s entirely possible for the youth dividend to be applied around the country using central government funding,” Lee Jae-myung said.

By Kim Gi-seong, south Gyeonggi correspondent

Please direct questions or comments to [english@hani.co.kr]

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