South Korea will extend the job-retention program for aviation, tourism and other “special protection” categories for another two months but cut off the lifeline for a majority of other businesses at the end of September.

Economists expect a sharp rise in unemployment and even a wave of bankruptcies once the job subsidies end for the more than 70,000 companies, which represent 92 percent of all businesses on state support.

The labor ministry is expected to make the new plan official next week.

Seoul unleashed massive subsidies in March to make companies forego layoffs following the coronavirus outbreak. Under Korean law, companies are required to subsidize at least 70 percent of the wages of furloughed workers. The government, which has normally covered 67 to 75 percent of the subsidies, upped its contribution to 90 percent to help companies sustain payroll during the pandemic.

The benefits were originally issued for a maximum 180-day period, meaning that the subsidies will start expiring in September for companies not granted extensions. In the case of a company that signed up for a grant in May, the 90-percent subsidies would be applied only up to September, after which they would be reduced to the original 75 percent.

The government decided to extend the benefits to 240 days for particularly hard-hit industries, including airline, travel, hospitality, performing arts and duty-free, making the program available until the end of November.

The subsidy program had 77,210 applicants as of Tuesday, with businesses in the special sectors accounting for 6,400, or 8 percent of the total, according to the labor ministry.

“The special industries have been directly hit by the coronavirus, with their downturn having more to do with social than individual causes,” said a labor ministry official. “While other sectors have also been affected by the virus fallout, continuing to subsidize all of them would be too big of a burden.”

The program cost the government 1.01 trillion won ($853.3 million) this year as of July 30, an all-time high. Costs for full 2019 had reached just 66.9 billion won.

Due to surging applications following the COVID-19 crisis, the state has already stretched the related budget to 2.16 trillion won from the initial 35.1 billion won. But even this many prove inadequate to cover the 15 billion won in grants that have been doled out every day since June.

Experts warn that sustaining the program can distort the economy by producing zombie companies and keeping delinquent companies alive.

The manufacturing sector is poised for mass restructuring, with the number of unemployment insurance applicants falling by the most last month since the 1997 Asian financial crisis. In July, about 3.51 million Koreans signed up for unemployment insurance in the manufacturing sector, down 1.8 percent from the same month a year ago.

By Kim Tae-joon and Kim Hyo-jin

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]