Hisam Kim examines the effects of after-school classes on the demand for private tutoring and academic performance of Korean students. The government has pursued a policy since the 1970s of trying to equalize the quality of schools nationwide at the secondary level. Intense competition for high academic achievement and places in the best universities has given rise to a major private tutoring industry in recent decades. About three-quarters of all students in primary and secondary education receive at least some private tutoring. The cost of such tutoring was estimated by the OECD in 2007 at 2.2 percent of GDP, or about 8.8 percent of average family income. Access to high-quality tutoring and ability to pay greatly vary by area and by income. In an effort to reduce the financial burden and the resulting gaps in educational achievement, the government introduced the after-school class program in 2006. These classes provide not only academic subjects but also specialized subjects such as arts, sports and computer training. The government subsidizes the costs in such a way that the more-privileged families pay fees that are modest relative to the cost of private tutoring, and low-income and less-advantaged families pay nothing.
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Diane Whitmore Schanzenbach
Diane Schanzenbach provides an overview of recent trends in education policy in the United States, from kindergarten to the twelfth grade (K–12). She broadly discusses the input-based policies and market-based incentives to improve student achievement. The author begins with the major goal of education policy in the United States, which is concerned most with narrowing the gaps in educational attainment and skill levels between more advantaged and less advantaged students, notably those across racial groups and by socioeconomic status. Although the research base for education reform has expanded, the author observes that there is no overwhelming evidence in favor of a single policy change and that, at present, the literature is characterized more by disagreements than by consensus. Possibly the most straightforward policy in terms of implementation is to increase the funding available to schools. Studies of the results of such untargeted funding have produced mixed results, and many policymakers have concluded that such increases do not clearly lead to better student performance. As a result, policies have shifted toward targeted increases for specific inputs or for introducing market discipline to ensure that funding increases are used productively.
Bong Geul Chun and Hanwook Yoo
Bong Geul Chun and Hanwook Yoo examine the effects of government subsidies on investment by small companies. They begin with the venture support policies at home and abroad. The current venture support programs in Korea are divided into subsidies, loans and securities, and exhibitions and conventions. The authors list some examples of other country cases, although it is difficult to find counterparts abroad to Korean business startup subsidy projects that are used to provide cash incentives for new business. The authors then focus on the Venture Investment Subsidy Program (VISP) introduced by the Korean government in 2007, under the Small and Medium Businesses Administration, to promote business startups and employment creation. The program provides support for some investment costs for new manufacturing businesses in nonmetropolitan areas. Subsidies are paid as part of the National Balanced Development Committee’s measure for boosting local economies. Venture businesses have received subsidies only since 2007, and therefore the data accumulated thus far are limited. The authors examine, through empirical analysis, the effectiveness of this program in terms of promoting investment.
Hyungpyo Moon examines the compliance behavior in the National Pension system in Korea and evaluates the effectiveness of the matching contribution subsidy in expanding coverage. The author begins with a brief history of the system and its pitfalls. In 1988 the Korean government introduced the National Pension Scheme, but with limited coverage. According to data from the National Pension Corporation for the year 2009, a total of 18.6 million people were insured under the system. Slightly more than half were insured through their place of work and the others were insured as individuals. However, well over half of the individually insured were given exemptions or deferrals from making contributions. In Korea, workers are entitled by law to be insured through their place of work. But employers in smaller companies often are either unable or unwilling to pay the employer’s contribution to the scheme, leaving the workers uninsured. Such workers may join the scheme as individuals, but many of them choose to remain excluded from the system, either because they do not want to pay the premium or because of the burden it would place on an already low level of income.
Wankyo Chung estimates the poverty reduction effect of the Basic Old-Age Pension (BOAP) in Korea. More specifically, he examines the poverty reduction effects of the direct income transfer through the BOAP to the elderly. Chung begins with an overview of the National Pension Scheme (NPS) and the BOAP. The NPS, initiated in 1988, was expanded to universal coverage in 1999. But by 2009 only about 28 percent of the elderly were recipients, because it had been introduced recently. Due to the low coverage, an additional pension scheme, the BOAP was introduced in January 2008. The purpose of the BOAP is to help to alleviate poverty among the elderly, but the amount of the benefit is small: only 5 percent of the three-year average earnings of everyone insured by the NPS. The author conducts statistical analysis to examine absolute poverty, using the minimum cost of living as the poverty line. Both the poverty rate and the poverty gap index are used to estimate the poverty reduction effect on the elderly resulting from the newly introduced BOAP.
James P. Ziliak
James Ziliak surveys recent developments in antipoverty policies in the United States and evaluates their effectiveness. He begins with an overview of major programs and substantial growth in the social safety net and how they affect poverty and its correlates. Raising the question of what accounts for this spending boom in the social safety net, the author finds that the answer varies widely across programs. Typically it can be accounted for by changing demographics, business cycles, policy implementation and, in some cases, policy reform. Participation in the food-stamps program, for example, moves counter-cyclically with the business cycle, and thus the increased expenditure since 1999 resulted in part from the weak economy. The Earned Income Tax Credit is a refundable tax credit available to low-income families and individuals, but only those in the labor market. As a consequence of the changing labor force composition and policy, expenditures on this tax credit make it the largest cash assistance program to low-income working persons. By contrast, increased spending on disability insurance took place not through policy reform but as a result of changes in the implementation of program rules, combined with an increase in the proportion of the population applying for benefits.
A Comparative Analysis of the US and Korea
Edited by John Karl Scholz, Hyungypo Moon and Sang-Hyup Lee
Youngsun Koh discusses various policy options to improve the effectiveness of Korea’s social safety net, to secure long-term fiscal sustainability, strengthen the activation policy, target welfare programs at the most needy and delineate the respective roles of the central and local governments. Koh begins by discussing Korea’s income inequality. Korea experienced rapid economic growth up through the 1980s, while income distribution remained stable. The trend of inequality began to appear, however, in the 1990s, with a jump in the Gini coefficient from 0.245 in 1992 to 0.295 in 2009. Particularly vulnerable are the elderly, who represent roughly one-eighth of the total population. Koh then turns to the main features of the social safety net that has been developed in Korea since the 1970s, including health insurance, pension plans, employment insurance, public assistance, tax credits for poor households and active labor market programs. The author notes that, despite rapid spending growth, the social safety net has played a limited role in reducing poverty in Korea. He discusses three problems: gaps in the safety net, inadequate attention to activation policies and the inefficient delivery system.