Boost competitiveness beyond a quick fix

Relieving and reviving the self-employed and small merchants would be the government’s top economic priority in the second half, according to the latest measure outlining 25 trillon won ($18 billion) of support for microbusinesses. They include deductions in electricity and debt interest charges, expansion of policy loan targets and a deferment in loan maturity, as well as support for the re-employment of workers of shuttered businesses.

The self-employed and microbusinesses pose as some of the weakest parts of the Korean economy. The number of self-employed people is 5.7 million, taking up 23.5 percent of all employees as of 2022. The self-employed ratio is exceptionally high in Korea due to the country’s weak social security and lack of quality job offerings. Because business had been started as an expedient option, the self-employed are mostly marginal. The weight of microbusinesses earning less than 50 million won a year increased — and the share of people in their 20s and 30s in the category also grew in 2022 compared to 2019.

Their business finances — barely sustained by a debt and relief program since the pandemic turned — got worse due to high interest rates on top of a sluggish economy and consumption. According to the Bank of Korea, overdue loan obligations by the self-employed reached a whopping 10.8 trillion won at the end of March. The delinquency rate of the weakest borrowers among the self-employed shot up to 10.2 percent in the first quarter versus 5.3 percent in the final quarter of 2022.

Battered self-employed people and microbusinesses certainly need an immediate rescue. And yet, government relief measures lack long-term means to enhance their competitiveness and self-sufficiency and do not show structural guidance to advance the sector. Without restructuring for future sustainability, the latest measures will not be effective.

Meanwhile, the Minimum Wage Council denied a petition by the self-employed and microbusiness owners to differentiate the base rate in light of the industry’s features and fragility. Eatery, taxi and convenient store owners asked for lower wage floors to afford hires. But after the wage council’s decision, all industries must pay near 10,000 won for a hire per hour from next year. An unaffordable minimum wage will only result in fewer job offerings and help breed criminals for breaking the law. As business types and the economy become more fractionalized, industrial diversity should be appreciated. The government must inspect all industries to prepare a differentiated wage system. The rise in the minimum wage should at least be minimized to lessen the shock on the weak industry next year. The decision-making structure of the Minimum Wage Council also needs to be restructured.