Meeting the Social Policy Challenges Facing Korea

Abstract

Korea faces the fastest population aging among Organisation for Economic Cooperation and Development countries and increasing levels of income inequality and relative poverty. While economic growth will help address these challenges, growth alone is not sufficient, making it necessary to introduce policies to promote social cohesion. First, the National Pension Scheme and the National Health Insurance need to be improved. Second, Korea should develop well-targeted social programs and expand the earned income tax credit. Third, it is important to reduce labor market dualism, a major cause of inequality due to the large wage gap between regular and non-regular workers. Fourth, education reform is needed to lower the financial burden of tertiary education, reduce the heavy reliance on hagwon and increase spending on preprimary education. At the same time, it is essential to maintain a sound fiscal position by increasing tax revenues, primarily through indirect taxes and environmental taxes, to cover rising social spending. © 2012 Japan Center for Economic Research.