South Korea Jobless Rate Jumps to 10-Year High Amid Pandemic

South Koreas jobless rate jumped to a 10-year high in May as the coronavirus pandemic continued to take a toll on the trade-dependent economy.

South Koreas businesses are slashing hiring to cut costs as exports continue to fall and consumption remains sluggish. The rise in the unemployment rate comes despite the government relaxing social distancing restrictions in April, allowing freer public gatherings that unleashed some pent-up demand for services.

The headline jobless rate may not be so bad by global standards, with the OECD average rising to 8.4% in April when many member countries imposed lockdowns. Still, South Koreas data overlooks a surge in economically inactive people in May, by 550,000, as many gave up looking for jobs.

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A broader gauge of South Korean unemployment, which includes the underemployed and potential workers, has remained above 14% since March, according to statistics office data. A separate report this week from the labor ministry showed payouts for jobless claims topped 1 trillion won ($835 million) last month, the highest on record.

“The jobs situation is difficult to predict going forward,” South Korean Finance Minister Hong Nam-ki wrote on Facebook after the unemployment report. “Economic contractions in trading partners are leading to falling exports and that is negatively affecting employment in manufacturing.”

Wednesdays report showed the manufacturing sector lost 57,000 jobs in May, with another 371,000 positions shed by firms in retail, wholesale, restaurant and hotel businesses. The economy added 54,000 jobs in agriculture.

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Weakness in the labor market adds urgency to President Moon Jae-in‘s push to create jobs in technology sectors less vulnerable to a pandemic. The latest extra budget, part of which is earmarked to fund Moon’s “New Deal” project for jobs, is awaiting parliaments approval.

South Koreas government has so far pledged more than 270 trillion won in spending to cushion the impact of the virus, while the Bank of Korea has slashed its key rate to a record low of 0.5%. Still, the government expects the economy to barely grow this year, with no increase in employment.

“The coronavirus outbreak may have dwindled in South Korea, but it‘s the freeze-up in trade that’s causing a second shock in the jobs market,” said Joseph Han at the Korea Development Institute. “South Korea stands at a crossroads. Economic activities at home are increasing with government spending and less social distancing, but falling exports will weigh on companies and employment.”

(Adds comment from economist, new details from jobs report)