Social distancing, minimum wage hike drive small businesses to brink

Only three customers dine at a restaurant in Incheon on July 12, the first day of the Level 4 social distancing measures. Yonhap

By Yoon Ja-young

With the COVID-19 pandemic continuing for more than a year now, there seems to be no way out for small business owners. The recent re-imposition of strengthened social distancing measures amid a fourth wave of the pandemic, and the increase in the minimum wage, are adding to their concerns.

"Most of the evening customers used to come in groups of three or four. I have been maintaining the business thanks to our loyal customers, but I don't think things will be sustainable if the Level 4 distancing measures continue," said Ji who runs a restaurant on Yeouido, Seoul.

The government had originally planned to ease social distancing starting July 1 to help small businesses get back on track by increasing the number of people allowed at private gatherings from four to six in the Seoul metropolitan area, and extending the operating hours of restaurants and cafes to 12 a.m. from 10 p.m. The plan, however, has been postponed indefinitely after new infections bounced back to record highs over the last week. The distancing rules were toughened to Level 4 ― on a new scale ― which includes a ban on gatherings of more than two people after 6 p.m.

Small businesses have been suffering since the pandemic took hold here. According to the Korea Economic Research Institute (KERI), eight out of 10 saw their total sales decrease in the first half of this year compared with the same period last year. They reported an average 21.8 percent drop in sales.

The KERI report is based on a survey of 521 small businesses in various sectors, including restaurants, cafes, convenience stores, private academies, hair salons, garment shops, florists and laundromats.

Among those who reported a drop in total sales, 58.2 percent cited COVID-19 as the biggest reason. Three out of 10 also reported an average 17.7 percent decrease in net profit.

Moreover, there is a generally pessimistic outlook for the second half of the year, with more than half of the businesses surveyed, or 65.3 percent, projecting a further fall in total sales over the period compared with 2020.

"When considering that the survey was conducted before the recent resurgence in COVID-19 cases and the rise of the Delta variant, small businesses are likely to have an even worse outlook for the latter half of the year now," said Choo Kwang-ho, director of the Research Coordination Department at KERI.

According to a joint analysis by the Seoul Institute and Shinhan Card, offline sales at stores in Seoul are estimated to have dropped an overall 9 percent last year amid COVID-19. Around the end of 2020 when the third wave of the pandemic hit the country, stores saw a 34 percent drop.

Minimum wage increase weighing on small businesses

On July 13, the very day after Level 4 social distancing measures were implemented in the greater Seoul area, the Minimum Wage Council announced that the hourly wage for next year will be 9,160 won ($7.97), a 5 percent increase from this year. This news raised discontent with both unions and employers. The Korean Confederation of Trade Unions is criticizing the President Moon Jae-in administration for abandoning his presidential pledge of attaining a 10,000-won minimum wage within his term, in order to bolster the financial safety of low-income earners. The employers' federation, meanwhile, is claiming that it goes beyond the capacity of small businesses who will be most affected by the minimum wage hike.

"Small businesses and the self-employed have been barely sustaining themselves, as sales have plunged due to COVID-19. We are devastated by this minimum wage increase," Korea Food Service Industry Association President Jeon Kang-sik said, claiming that the association's 420,000 members are facing a survival crisis.

In the survey conducted by KERI, small businesses cited labor and rental fees as their highest costs. Among employers, 43.4 percent indicated labor costs as their biggest burden; with 44.9 percent of small businesses having reduced their number of employees this year.

A convenience store owner near the Sejong Government Complex said that it's already been a few months since she laid off her part-time worker. "As you see, there aren't many customers. There will scarcely be any profit if I pay a part-timer. That's why I am working here."

The council of convenience store owners said in an announcement July 13 that it "cannot accept this minimum wage hike, which ignores the reality of the self-employed, including convenience store owners."

Many small businesses across the country had been forced to close even before the fourth wave of the pandemic and the 2022 minimum wage increase, with the Korea Small Business Institute reporting that the number of self-employed who hire contractors had dipped 4.8 percent from a year ago.

"Reaching herd immunity and thereby easing social distancing measures quickly should be the top priority of the government, but it should also minimize the burden on small businesses," Choo at KERI said, citing labor costs, rent and utilities as factors where the government could exert its influence to decrease the financial pressure on small business owners.

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