Fried chicken economics
The author is a columnist at the JoongAng Ilbo.
The Wall Street Journal connected the household debt crisis with too many fried chicken shops in an article published in September 2013. Fried chicken eateries mushroomed to 36,000 by 2013, tripling over a decade as the snack mixed with beer had become popular after the 2002 World Cup competitions in Korea, the paper reported citing data from KB Financial Group. About 7,400 fried chicken shops opened every year, whereas 5,000 went under. Nearly half of the joints closed within three years since opening and less than 20 percent lasted for 10 years.
The situation has not changed. According to the latest data from KB Financial Group, 6,200 fried chicken stores opened last year, whereas over were 8,000 shuttered. For the last four years, businesses closed more quickly than they were opened. The reason is obvious: The businesses lost money because cost went up even when profit fell due to slow business. Annual operating expenses in running a fried chicken shop averaged 62 million won ($52,842) in 2011. That nearly doubled to 117 million won by 2017. Operating profit during the same period fell by 32 percent from 20 million won to 14 million won.
The woes of self-employed have become a fixture, worsening with the surge in retirees in a fast aging society. In a column five years ago, Kookmin University Prof. Kim Byong-joon pointed out that the income of self-employed families stayed stagnant at 3 million won a month for the last decade. Over the same period, household income of salaried workers increased to 4 million won. Moreover, the self-employed were more heavily indebted than salaried workers. Their loans averaged 120 million won, triple the 40 million won for a salaried worker. Debt by the self-employed in their 50s reached 180 million won on average.
The situation has improved little under the Moon Jae-in administration, which vowed increases in income with the goal of making society more equal and inclusive. Income of self-employed or unemployed was 3.3 million won in the first quarter. Salaried workers’ average income was 4.86 million won. Debt of self-employed jumped by 20 percent to 143.33 million won by 2018 from five years ago.
The government’s income-led growth policy cannot be entirely blamed for the troubles of self-employed.
President Moon Jae-in said that the minimum wage hikes were 90 percent positive. We cannot know what the 90 percent refers to, but evidently the weakest point of the Korean economy — the self-employed — suffers the most.
Self-employed last year were 25.1 percent of the total wage-earning population in Korea, the fourth largest among OECD members. One out of every four workers is self-employed in Korea. The ratio is 9.6 percentage points higher than the OECD average, and even higher than the share in the United States and in Japan. Overcrowding means that much more competition.
The minimum wage bombs inevitably had a devastating effect on the highly dense category. Fifteen organizations representing small- and medium-sized enterprises even issued a rare joint statement earlier this week calling for a freeze — if not a cut — in the minimum wage. The self-employed who lack any union voice have taken to collective action to survive.
Emergency action is needed. We need to freeze or cut the minimum wage this time. Some of the members of the ruling Democratic Party (DP) are calling for a freeze in the minimum wage. Heavyweight politicians — like Rep. Song Young-gil, former floor leader Hong Young-pyo and SME and Startups Minister Park Young-sun — have joined the chorus calling for a pause in minimum wage increases. Rep. Choi Woon-youl even proposed that the DP announce a freeze in the minimum wage as the ruling party stance.
It is better for the party to propose a cutback in the minimum wage than a freeze. In doing so, it can send a clear message to the market that it is serious about reviving the economy and shifting its policy direction toward growth. The move will reap not just economic but political gains. It can also score points with the self-employed and businesses. Of course, labor unions will be outraged. But that does not mean unionists will vote for the conservative Liberty Korea Party (LKP) in elections anyway. The ruling power may still want to up the stakes by pushing ahead with its policies and raising the minimum wage to help win the general election next year. But that gambling will surely wreck the economy beyond repair.