Enhance the productivity of the self-employed
Published: 07 Oct. 2024, 19:46
Yang Joon-mo
The author is a professor of economics at Yonsei University.
The self-employed sector is in crisis. Self-employment had been the lynchpin of the common people’s economy. Self-starting is synonymous with entrepreneurship. But the sector is collapsing. The number of the self-employed that peaked at 5.68 million in 2018 skidded after the minimum wage spiked by double digits in 2019. By 2022, the number fell to 5.51 million. The toll has improved since the end of the pandemic, but the sector’s share compared to the employed remains below 20 percent.
Starting a business in Korea is not easy. Even when one goes through the hassle of all the paperwork to earn permits and beat the regulations to start a business, few can afford employees. Three fourths of the self-employed are running their business without any employees. The government encourages self-employment when the labor market becomes slack. There are many self-starting policies, but the onus entirely falls on the business owner once the business gets going. People start a business to make a living, but in the first month, they regret and fret about how long they can keep their business open. The government expediently turns to promoting self-employment after they run out of ideas on job policies.
There are a myriad of reasons why self-employment is so hard in Korea. Young people and retirees turn to self-employment because they can’t find work. The crash course the government provides for business starters did more harm than good. Shop owners struggling to pay employees amid a sharp increase in the minimum wage are fearful of similar eateries and services mushrooming in the neighborhood. The similar shops somehow survived the surge in labor costs and the pandemic on debt, but they have arrived at their limits in their debt obligation.
The government’s populist gimmicks have caused lush liquidity and a spike in rent prices. Vacant shops are many, but soaring rent prices are pushing the self-employed out. Expensive rent prices are not the only sore points. The cascade of delivery platforms and commonness of app-based deliveries aggravate the self-employed. Shops inevitably must rely on delivery apps, but the service only bumped up fixed costs. Deliveries can expand a consumer base, but it doesn’t translate into profit as all other competitors also offer the service. Still, eateries can’t ignore delivery apps now that take-outs and deliveries have become commonplace.
The government has been resorting to makeshift responses to ease the pain for the self-employed rather than addressing the fundamental problems. The state-sponsored settlement app and lowering credit card commissions helped little. The government-forced cuts in credit card commissions only distorted the market through differentiated subsidies for consumers.
The answers to the perils of the self-employed lie in the labor market. Redundant workers have no place to go due to the rigidity in our labor market. The labor market must become more flexible so that laborers don’t turn to the self-employment option merely because they can’t find work. The powerful unions of large companies, the top-down management-labor culture in small and midsized companies and the strong influence of the minimum wage in the labor market all get in the way of employment in Korea. Normalization of the labor market can only contain the gargantuan influx into self-employment.
The self-employed sector also must be able to build up economies of scale through raising competitiveness. Although the segment accounts for 20 percent of the employed in Korea, the concept of restructuring and competitiveness doesn’t exist in the field. Independent businesses must be able to join forces through systems and policies promoting collaboration such as in the rent business, legal service, medical service and innovative hospitality service. Self-employment can be self-helped only when their productivity improves.
Our society also should appreciate personal services. We must respect differentiated services and allow businesses to vie with diversity. Instead of regulations and overprotection, public policies should be tailored to help big and small businesses co-exist in harmony. The self-employed should not simply make a living, but to contribute adding value to society.
Translation by the Korea JoongAng Daily staff.
with the Korea JoongAng Daily
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