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The self-employed hold 24.6 percent of all jobs in Korea, sixth highest among OECD nations
By Yoon Ja-young
In the hit Netflix series, "Squid Game," the main character, Seong Gi-hun, joins the fight-to-the-death challenge, driven by the 400 million won he owes, after the failure of his restaurants, a business he started after losing his job at a car manufacturing company. Hit by the COVID-19 pandemic and changes in the economy, many small business owners say they are no different from Seong.
In an internet forum on the country's top search engine and platform, Naver, where the self-employed share information, a man who runs a small sushi restaurant said he could not take his eyes off the show. "The show depicts in detail what it is like to be on the edge of a precipice," he wrote. Another said he felt like he was living right in the middle of the game. The only difference is that "there will be no prize money even if I win," he commented.
According to the National Self-Employed Emergency Response Committee, at least 22 small business owners have taken their own lives since the coronavirus pandemic began. One of them retrieved the deposit for her one-room studio apartment so as to pay her part-time workers before committing suicide. For many, even if the business is continuously incurring losses, immediately shutting down is not an option because they cannot terminate their rental contract without losing additional deposit money.
The government is providing some aid to business owners who have suffered losses during the pandemic, but it is far from enough. Experts say there were already too many structural problems behind the suffering of the self-employed since even before the pandemic.
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Number of self-employed grew after 'IMF crisis'
"Following the 1997 Asian financial crisis, massive layoffs drove those who were once salaried workers to start businesses, as they had nothing else to do. As Korea's social safety net is not strong enough yet, the unemployed cannot remain jobless for long. They must do whatever they can," said Ha Joon-kyung, a professor in the Department of Economics at Hanyang University in Ansan, Gyeonggi Province.
He said that Korea's hierarchical work culture also prompts people to turn to self-employment.
"As the hierarchy is very rigid in companies, workers often experience unjust gapjil from their bosses. They come to think, 'Maybe I should be my own boss,'" he said, explaining why Korea has so many small merchants. "Gapjil" is a Korean term that refers to the authoritarian behavior on the part of a person in power towards people on the weaker end of a power relationship.
According to the Korea Economic Research Institute (KERI), the self-employed hold 24.6 percent of all "jobs" in Korea, which is the sixth highest figure among the 35 Organization for Economic Cooperation and Development (OECD) member countries, behind Colombia, Mexico, Greece, Turkey and Costa Rica.
"The total percentage of the self-employed tends to fall as per capita income increases, but it is exceptionally high in Korea. If Korea were to follow the trend of the graph, this figure would be at around 18.7 percent," said Kim Yong-chun, the chief of research on the job policy team at the institute, pointing to the fact that Korea's percentage of self-employed is much higher than the norm, including those of the U.K., France, Japan, Germany and the U.S.
He also pointed out that most of the self-employed in the country are concentrated in just a few sectors. Among them, 43.2 percent are in sectors closely related to daily life, such as wholesale and retail, lodging and restaurants.
"These types of businesses have low entry barriers, but the profitability and survival rates are also low. In the case of the lodging and restaurant businesses, the ratio of the earnings to sales stands at a mere 1.24 percent, and only one out of five of these businesses lasts for more than five years."
The shift in consumption practices to online platforms is also hitting many merchants who rely on traditional offline business models. "As consumers are making purchases using online information, big players like franchises that can invest in online marketing have a competitive edge. Small players, meanwhile, find themselves in a dilemma as their profitability will be hurt if they increase their spending on advertising in order to pull up sales," a report from the Korea Institute for the Future notes.
The country's declining population is another significant concern, the report says.
"Korea might be able to maintain such a high number of self-employed people, if the population were to continue increasing. The population, however, started decreasing from its 2019 peak, and the percentage of young people in their 20s and 30s, who are the main consumers, has been decreasing."
A more immediate threat is the rising interest rate, with the self-employed holding 858.4 trillion won in total debt as of the second quarter, up 13.7 percent from last year. Among the indebted self-employed, 10.9 percent are categorized as "vulnerable," which means that they will fall short in terms of their ability to pay back their debt in full. Following the 0.25 percentage point hike in August, the central bank hinted that there would be a further hike before the end of this year, and it is estimated that a 0.5 percentage point hike in interest rates will increase their average annual burden by 530,000 won to 3.73 million won per person.
Transitioning to other sectors
Professor Ha said that creating decent jobs is the most crucial solution for the issue of Korea having "too many self-employed," but this won't be easy.
"Decent jobs are provided by conglomerates, but they can't hire as many as before, because industries have been shifting from manufacturing to services. Globalization has also moved jobs overseas."
The pandemic has negatively affected conglomerates' capacity for hiring, too. According to the Korea Economic Research Institute, 48.4 percent of companies listed on the main KOSPI bourse slashed their number of employees during the first half of the year.
While the increase in the minimum wage to 9,160 won per hour ($8), set to take effect in 2022, will also hit the self-employed, as they have to pay their workers, Ha says that this factor can enhance the overall competitiveness of the sector in the long term.
"As a higher minimum wage increases costs, it will prompt restructuring in the long term. This can decrease excessive competition among the self-employed," he said.
The Korea Institute for the Future points out that policymakers should consider these structural problems and take measures to transit the self-employed into the salaried job market or help them switch to other sectors that have better business prospects, instead of making them just sustain the same business despite slim chances of survival.
"Currently, job training programs for the unemployed are mostly focused on sectors like restaurants, which have a low entry barrier but a high possibility of failure. These programs should shift to sectors with better growth potential," it added.
