Demise of the self-employed
The author is an economic news editor of the JoongAng Ilbo.
One afternoon in September 2020, four college students sat along the Cheongye stream in downtown Seoul with beer cans in their hands. A girl raised her hand in victory as others sighed looking at their phones. They giggled as they drank their beer while playing app games.
On an evening in September 2020, eight employees gather for an after-work drink — each at his or her own home. They sat in front of their computers with drinks and snacks of their own choosing. They are connected online to colleagues they have not seen since remote working began a month ago.
Much has changed since coronavirus seeped into everyday lives. A year ago, college students would have filled pubs and cafes around their campuses — not around a stream in downtown Seoul. After-work drinks would have taken place in bars or restaurants around workplaces.
Covid-19 has kept indoor activities to a minimum. People were told to refrain from visiting internet cafes, noraebang (singing rooms), pubs, cafes and restaurants. These locations are primarily run by the self-employed, whose businesses are based on human gatherings. Covid-19 has brought social distancing as a new norm. That’s not a norm that is friendly to the hospitality industry.
The pandemic has devastated self-employed businesses in the country. A blow is too mild of a word for what they have experienced. One can bounce back after receiving a blow if conditions improve. But once a business is devastated, it does not come back.
According to a survey of mom-and-pop stores aligned to 22 business associations, their sales and profits plunged 27 percent and 33 percent, respectively, in the first half compared to a year-ago period. The outlook is even bleaker. Due to the government’s rigorous social distancing measures, the figures on the top and bottom lines were projected to sink 36 percent and 42 percent, respectively. If the social distancing Level 2 is maintained, their sales and profits were estimated to plunge 46 percent and 53 percent, respectively, in the second half of the year.
In Myeongdong — a must-visit shopping district for tourists in downtown Seoul — out-of-business signs are hanging on every other shop. That sight has become common in many other neighborhoods. Revenues of internet cafes and noraebang have plunged more than 80 percent. The number of the self-employed stood at 5,548,000 as of July — a 127,000 decrease from the same period a year ago and five times the reduction seen in the previous year.
In Korea, the self-employed serve as a cushion for the labor market. When people lose jobs or retire, they start a business to make a living or follow their new dream. If the self-employed habitat collapses, so will employment. When self-employed people disappear, massive layoffs will hit the country.
Korea has too many self-employed — with one out of four workers being self-employed. Their share — 25.1 percent as of 2018 — is four times the share in the United States and 2.4 to 2.5 times the share in Germany and Japan, according to a survey by the Organization for Economic Cooperation and Development (OECD). Millions would be out of jobs if Korea’s self-employed share is lowered to the levels in Germany and Japan.
The phenomenon will likely continue as most scholars project our lives to become entirely different after the pandemic. The living paradigm is rapidly shifting toward remote working and automation. Self-employed businesses in Korea will inevitably be phased out.
Time is running out. The Moon Jae-in administration must promote the migration of the self-employed to a less vulnerable realm. It must draw up a long-term plan for social security and retraining of people between jobs. In his book “Corona Sapiens,” Chang Ha-joon, a professor of economics at the University of Cambridge, projected that the self-employed could sink to the extremely poor class after one or two failures. Even the British government is proposing to cover 80 percent of its self-employed population’s incomes, he says.
The self-employed should be saved to prevent the flooding of unemployed. Otherwise, the country could become a deathbed for the self-employed once the war against Covid-19 is over.