The South Korean Social Security System at a Crossroads

This chapter presents a critical analysis of the current South Korean welfare state, characterizing it as standing at a crucial crossroads amidst deepening income and wealth inequality and alarmingly high rates of elderly poverty. The authors argue that the existing social safety net, comprising means-tested social assistance and contribution-based social insurance, is structurally ill-equipped to address these challenges effectively. Specifically, the chapter critiques the inadequacies of social insurance programs, such as employment insurance and public pensions, in protecting precarious workers and outsiders in a heavily dualized labor market. Furthermore, it highlights the severe limitations of the National Basic Livelihood Security System (NBLSS), which generates prohibitive Participation Tax Rates and Effective Marginal Tax Rates. These high rates create “welfare traps” and unfair income reversals between beneficiaries and non-beneficiaries, while the household-based assessment incentivizes family dissolution. Finally, the analysis addresses the tax system, noting that various regressive income deductions undermine statutory progressivity and erode the tax base. Consequently, the chapter advocates for a fundamental structural overhaul that transforms these regressive deductions into universal refundable tax credits, preparing the system for the AI-driven labor market polarization.