The national basic livelihood security program (NBLSP) aims to guarantee a minimum standard of living for people in need and help them support themselves by providing them with necessary benefits. The budget for the NBLSP increased from around KRW 6 trillion in 2007 (KRW 6.6157 trillion) to around KRW 7 trillion in 2008 and to around KRW 8 trillion (KRW 8.7689 trillion) in 2013. The program has expanded in scope, but several issues have been cited including inadequate results, provision of a bundle of benefits, and lack of incentive to work on the part of NBLSP beneficiaries due to the heavy concentration of social welfare benefits on them. The NBLSP is evaluated in-depth in this report to fully understand the nature of the basic problems and discuss ways to improve it.
In this report, the NBLSP was evaluated in light of the application scope, the eligibility of beneficiaries, the method for calculating the minimum cost of living, the unit amount of each type of benefit, the work incentive system, and support programs for the non-entitled poor. Evaluation criteria include (1) the feasibility of the program to determine if its application scope and implementation approach are effective toward relieving poverty; (2) its execution efficiency to determine if it is carried out and produces results as intended; and (3) the rationality of its implementation system to verify if the NBLSP is well coordinated with other programs for the poor.
Evaluation findings are as follows:
First, with respect to the eligibility of beneficiaries, the scope of persons obligated to support an NBLSP recipient was found to be very broad; the criteria for determining their ability to render support were ill conceived; and the income conversion rate for property was high. Since it is stipulated that the persons obligated to support a recipient are the recipient's lineal relations (parents and children) and their spouses (daughters-in-law and sons-in-law), there may be cases where such support becomes difficult to sustain in the relationships between parents-in-law and daughters-in-law and between parents-in-law and sons-in-law. According to the current standards for the ability to render support, the person obligated to render support is deemed able to do so if that person’s actual income is more than 130% of the sum of the minimum cost of living of the recipient's household and that of his or her own household. Such a standard may plunge a recipient and his or her support provider into the poor strata together. In the current system to convert property into income, where the converted amount of property income is included in the recognized income, the recognized income is calculated under the assumption that property generates a given amount of income every month. When comparing the income conversion rate of financial holdings and market interest rates, however, it was found that the former was too high.
Second, the differences that were found in the cost of housing among large cities, small and medium cities, and agricultural and fishery villages were not taken into account in determining the minimum cost of living. In 1999, the minimum cost of living for a household of four persons in large cities was 6.2% higher than that in small and medium cities, and that in agricultural and fishery villages was 13.9% lower than that in small and medium cities. In 2010, that in large cities was 6.4% higher than that in small and medium cities, and that in agricultural and fishery villages was 8.8% lower than that in small and medium cities. In 2007, the share of housing costs in the minimum cost of living was found to be 7.1% in agricultural and fishery villages, which was 15.8%p lower than in large cities and 10.0%p lower than in small and medium cities.
Third, the budget for healthcare benefits was found to be on the increase despite a decline in the number of healthcare beneficiaries. This finding necessitated the review of the appropriateness of the NBLSP's implementation approach based on trend analysis of the number of recipients who need on-going high-cost medical services. While the medical expenses covered by healthcare benefits increased from KRW 4.2238 trillion in 2007 to KRW 5.1949 trillion in 2012 (annual average increase rate of 4.2%), the number of healthcare beneficiaries decreased from 1.853 million to 1.507 million over the same period (annual average increase rate of △4.0%).
Fourth, the work incentives for the benefit recipients who succeeded in finding work not through a self-support program were found to be insufficient. The self-support grants and special schemes for self-support are intended for the recipients who participate in self-support programs, and Heemang Kium Tongjang (Growing Hope Savings Account) and special schemes for in-work benefits are intended for the recipients who are employed in the ordinary labor market. Their application scope, however, is not wide enough. Furthermore, even though those who are exempt from work requirements (173,440 persons as of 2012, or 3.3 times as many as those required to participate in self-support programs) include the persons who participate in the ordinary labor market by their own efforts, no welfare-to-work scheme for such persons is in place, and this may reduce the possibility for them to get off benefits.
Fifth, the analysis showed that the granting of vast bulk of benefits of social welfare programs designed for low-income earners is concentrated on the NBLSP recipients, which likely reduces their incentives to find work and get off benefits. It was also found that in 2005, the ordinary income of a recipient's household was about KRW 60,000 more than that of a non-recipient's household. The ordinary income gap continued to increase: KRW 102,000 in 2006, KRW 52,000 in 2007, KRW 66,000 in 2008, and KRW 112,000 in 2009.
The government needs to seek policy alternatives to enhance the efficiency and effectiveness of the NBLSP by changing the eligibility requirements for recipients, rationalizing the unit amount of housing benefits, improving the implementation of medical benefit programs, granting recipients benefits based on their needs instead of granting them all types of benefits indiscriminately, setting the poverty line at a different level for each type of benefit, and by other such means. Moreover, the government should incentivise welfare recipients to become self-sufficient through work by improving the system to help them get off benefits through work and adjusting the priority of welfare programs for low-income earners.
To be specific, the criteria to determine the ability to render support should be changed such that a household is only obligated to render support if it can still maintain a middle-class quality of life after providing support. The income conversion rate of property used when calculating the recognized income of a recipient and a person obligated to render support needs to be adjusted periodically according to the market interest rates. Different unit amounts of housing benefits need to be applied to large cities, small and medium cities, and agricultural and fishery villages. Moreover, healthcare benefits need to be granted depending on the severity of illness rather than the ability to work. The government also needs to cease the practice of providing the NBLSP benefits in a bundle and instead administer each type of benefit based on recipients' needs in order to increase support for the non-entitled poor. To enhance work incentives, the government needs to consider transferring recipient support programs such as self-support grants to the earned income tax credit program in the long term. Giving first priority to the non-entitled poor should be considered in the administration of social welfare programs that provide the items included in subsistence benefits or housing benefits, and the benefits currently first granted to basic livelihood security recipients should also be granted to the non-entitled poor with the same priority.
Lee Chaejeong
In this report, the NBLSP was evaluated in light of the application scope, the eligibility of beneficiaries, the method for calculating the minimum cost of living, the unit amount of each type of benefit, the work incentive system, and support programs for the non-entitled poor. Evaluation criteria include (1) the feasibility of the program to determine if its application scope and implementation approach are effective toward relieving poverty; (2) its execution efficiency to determine if it is carried out and produces results as intended; and (3) the rationality of its implementation system to verify if the NBLSP is well coordinated with other programs for the poor.
Evaluation findings are as follows:
First, with respect to the eligibility of beneficiaries, the scope of persons obligated to support an NBLSP recipient was found to be very broad; the criteria for determining their ability to render support were ill conceived; and the income conversion rate for property was high. Since it is stipulated that the persons obligated to support a recipient are the recipient's lineal relations (parents and children) and their spouses (daughters-in-law and sons-in-law), there may be cases where such support becomes difficult to sustain in the relationships between parents-in-law and daughters-in-law and between parents-in-law and sons-in-law. According to the current standards for the ability to render support, the person obligated to render support is deemed able to do so if that person’s actual income is more than 130% of the sum of the minimum cost of living of the recipient's household and that of his or her own household. Such a standard may plunge a recipient and his or her support provider into the poor strata together. In the current system to convert property into income, where the converted amount of property income is included in the recognized income, the recognized income is calculated under the assumption that property generates a given amount of income every month. When comparing the income conversion rate of financial holdings and market interest rates, however, it was found that the former was too high.
Second, the differences that were found in the cost of housing among large cities, small and medium cities, and agricultural and fishery villages were not taken into account in determining the minimum cost of living. In 1999, the minimum cost of living for a household of four persons in large cities was 6.2% higher than that in small and medium cities, and that in agricultural and fishery villages was 13.9% lower than that in small and medium cities. In 2010, that in large cities was 6.4% higher than that in small and medium cities, and that in agricultural and fishery villages was 8.8% lower than that in small and medium cities. In 2007, the share of housing costs in the minimum cost of living was found to be 7.1% in agricultural and fishery villages, which was 15.8%p lower than in large cities and 10.0%p lower than in small and medium cities.
Third, the budget for healthcare benefits was found to be on the increase despite a decline in the number of healthcare beneficiaries. This finding necessitated the review of the appropriateness of the NBLSP's implementation approach based on trend analysis of the number of recipients who need on-going high-cost medical services. While the medical expenses covered by healthcare benefits increased from KRW 4.2238 trillion in 2007 to KRW 5.1949 trillion in 2012 (annual average increase rate of 4.2%), the number of healthcare beneficiaries decreased from 1.853 million to 1.507 million over the same period (annual average increase rate of △4.0%).
Fourth, the work incentives for the benefit recipients who succeeded in finding work not through a self-support program were found to be insufficient. The self-support grants and special schemes for self-support are intended for the recipients who participate in self-support programs, and Heemang Kium Tongjang (Growing Hope Savings Account) and special schemes for in-work benefits are intended for the recipients who are employed in the ordinary labor market. Their application scope, however, is not wide enough. Furthermore, even though those who are exempt from work requirements (173,440 persons as of 2012, or 3.3 times as many as those required to participate in self-support programs) include the persons who participate in the ordinary labor market by their own efforts, no welfare-to-work scheme for such persons is in place, and this may reduce the possibility for them to get off benefits.
Fifth, the analysis showed that the granting of vast bulk of benefits of social welfare programs designed for low-income earners is concentrated on the NBLSP recipients, which likely reduces their incentives to find work and get off benefits. It was also found that in 2005, the ordinary income of a recipient's household was about KRW 60,000 more than that of a non-recipient's household. The ordinary income gap continued to increase: KRW 102,000 in 2006, KRW 52,000 in 2007, KRW 66,000 in 2008, and KRW 112,000 in 2009.
The government needs to seek policy alternatives to enhance the efficiency and effectiveness of the NBLSP by changing the eligibility requirements for recipients, rationalizing the unit amount of housing benefits, improving the implementation of medical benefit programs, granting recipients benefits based on their needs instead of granting them all types of benefits indiscriminately, setting the poverty line at a different level for each type of benefit, and by other such means. Moreover, the government should incentivise welfare recipients to become self-sufficient through work by improving the system to help them get off benefits through work and adjusting the priority of welfare programs for low-income earners.
To be specific, the criteria to determine the ability to render support should be changed such that a household is only obligated to render support if it can still maintain a middle-class quality of life after providing support. The income conversion rate of property used when calculating the recognized income of a recipient and a person obligated to render support needs to be adjusted periodically according to the market interest rates. Different unit amounts of housing benefits need to be applied to large cities, small and medium cities, and agricultural and fishery villages. Moreover, healthcare benefits need to be granted depending on the severity of illness rather than the ability to work. The government also needs to cease the practice of providing the NBLSP benefits in a bundle and instead administer each type of benefit based on recipients' needs in order to increase support for the non-entitled poor. To enhance work incentives, the government needs to consider transferring recipient support programs such as self-support grants to the earned income tax credit program in the long term. Giving first priority to the non-entitled poor should be considered in the administration of social welfare programs that provide the items included in subsistence benefits or housing benefits, and the benefits currently first granted to basic livelihood security recipients should also be granted to the non-entitled poor with the same priority.
Lee Chaejeong