hankyoreh

By Hwangbo Yon, staff reporter

As Oh Dae-hwan (53, not his real name), who has been running a clothing outlet for six years in a traditional market in Seoul, let out a big sigh as he calculated his profits and losses from the previous month.

In the clothing business, the income from the peak season, from April through June, generally has to make up for the losses during the off-season, from January through March. But Oh found 4 million won (US$3,885.40) in losses. Oh’s monthly costs - including rent and the salary for his one employee - add up to 11 million won, but he only had 7 million in revenue for the month.

“My customers started leaving me for department stores and large retail outlets a long time ago. But on top of that, the number of social outings and events has decreased after the Sewol tragedy, and revenues have dropped abruptly,” Oh said.

According to employment trend figures provided by Statistics Korea on July 20, there were 5.726 million self-employed South Koreans like Oh as of June. When the people helping the family business without receiving any wages are thrown in, this rises to 7.017 million people, representing 27% of all people working in South Korea.

When household income remains stagnant and consumers keep their pocketbooks closed, the self-employed are hit the hardest. And when the earnings of the self-employed fall, this in turn holds back the domestic economy. This is why it would be hard to increase the overall level of household income and stimulate the domestic economy without rescuing the self-employed from the morass into which they have fallen.

The percentage of self-employed in South Korea was 28.2% in 2012, which is considerably higher than the OECD average of 15.8%. The South Korean rate is below Turkey, Greece, and Mexico, but it is two to three times higher than the US (6.8%), Germany (11.6%), and Japan (11.8%).

The workers who were ejected from the labor market due to the corporate restructuring that followed the shock of the 1997 Asian financial crisis moved en masse to self-employment, with the sector peaking at 6.19 million in 2003. While this number has decreased gradually since then in the aftermath of the domestic slump caused by the 2003 credit card crunch and the 2008 financial crisis, it still remains at 5.6-5.7 million.

While around three of every 10 people have their own business, their incomes are stagnant. In the Hankyoreh’s analysis of income accounts per sector provided by the Bank of Korea, from 2000 to 2012, the average yearly rate of increase in household operating surplus was just 1.4%. Household operating surplus can be used as an index for tracking income trends for the self-employed.

The operating surplus for companies (excluding financial firms) over the same period increased by an average of 9.2% a year, and employee compensation, that is, the wages earned by workers, showed an increase rate of 7.0%.

The same applies when we look at the relative poverty rate, which indicates the percentage of households whose yearly income is less than half of the medium income. 20.9% of self-employed households are in relative poverty, which is much higher than households of wage workers (7.2%) and all households (11.8%). The slump in income for the self-employed is the biggest factor keeping down the overall household income level.

The types of business that are the easiest to start for South Koreans who have been forced to leave their jobs are wholesale and retail, and food services and accommodations. These two sectors account for 37.1% and 32.0% (as of 2009) of the total self-employed sector, which are 18.3 percentage points and 15.6 percentage points higher than the OECD average, respectively.

With recent restructuring taking place in the private sector, including the financial sector, and with the baby boomers (born between 1955 and 1963) beginning to retire over the next few years, it is very likely that the number of people running businesses in the service sector will increase once more. The Korea Development Institute (KDI) estimated that 1.33 million baby boomers would retire between 2013 and 2020.

“The number of people 50 years and older who are running their own businesses is increasing significantly because of factors including the early retirement of wage earners, the difficulty of getting rehired after retiring, and the inadequacy of pension income. It is urgent that we create a system to deter additional people from starting businesses,” said Lim Jin, researcher at the Korea Institute of Finance.

The crisis faced by the self-employed was caused by three problems that hit at the same time: excessive competition resulting from an unstable employment market, a long-term slump in the domestic economy, and large corporations‘ encroachment on the domain of small local businesses.

“The private business sector in South Korea shares the characteristics of underdeveloped countries. It underwent unnatural growth when workers who were forced out of the wage earning market were forced to start their own businesses,” said Lee Byeong-hee, researcher at the Korea Labor Institute.

“The fundamental solution is to create a lot of decent jobs in the labor market to convert a significant number of the self-employed into wage earners while preventing large corporation from engaging in predatory expansion into new markets,” Lee said.

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