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Korea must address self-employment imbalance

Published: 03 Apr. 2025, 00:02

Kwon Soon-woo

The author is the president of Korea Self-Employment Research Institute.

The crisis in Korea’s self-employment sector is not new, but its depth and persistence reflect a fundamental imbalance: there are simply too many self-employed individuals relative to the size of the domestic market. Even after recent declines, self-employed workers still account for roughly 20 percent of the nation’s labor force — a proportion far higher than in other industrialized economies.

That imbalance has only worsened with the country’s demographic decline. Since 2020, Korea’s population has been shrinking, further narrowing the consumer base on which self-employed businesses rely. In this tightening environment, competition has become a zero-sum game: one shop’s gain is another’s loss. As a result, survival — not growth — defines the day-to-day reality of many small businesses.

A food alley in Jung District, central Seoul [NEWS1]

Despite well-meaning government initiatives, efforts to “revive” the self-employment sector have largely missed the point. Without addressing the structural oversupply of small businesses, public support programs amount to little more than triage. A more effective strategy would focus on reducing the number of self-employed workers while expanding demand through targeted economic policy. Three such areas merit particular attention.

First, the government must do more to support exit strategies for low-income, subsistence-level proprietors. Many small business owners would prefer to close shop, but the financial and social costs of doing so are prohibitive. As domestic consumption continues to fall, more will find themselves in this position. Keeping these individuals in the market harms not only them but also their competitors. Earmarking greater public funds for closure support would reduce unnecessary suffering and improve the overall health of the sector.

Second, Korea needs to treat inbound tourism as a national economic priority. While reducing the number of self-employed businesses addresses the supply side, boosting inbound tourism addresses demand. With the domestic population in decline, expanding the local consumer base is unrealistic. Foreign visitors, on the other hand, represent a growth opportunity — if policy is aligned accordingly.

Japan offers a compelling case. Just over a decade ago, its inbound tourism numbers lagged behind Korea’s. Today, the reverse is true. In 2023, Japan welcomed 37 million foreign tourists, who spent an estimated 8 trillion yen — about 78 trillion won — making tourism the country’s second-largest source of foreign currency after automobile exports.

This outcome was not coincidental. In 2012, Prime Minister Abe Shinzo created a cabinet-level council focused on transforming Japan into a tourism-driven economy, chairing the council himself. Throughout his tenure, which became the longest in postwar Japan, he emphasized the importance of inbound tourism and led policy initiatives personally. His commitment was clear and sustained.

South Korea, by contrast, has relegated tourism policy to the periphery. Under the Moon Jae In administration, the presidentially led Tourism Promotion Meeting was downgraded to a prime minister–level event. The Blue House also eliminated the secretary position responsible for tourism. To reverse this trend, Korea must reframe tourism as a pillar of economic resilience and invest in governance structures that can support regional and sectoral innovation.

A store in Namdaemun market, Seoul, with a post seeking new tenant. [YONHAP]

Third, and perhaps most critically, the country must address the dual structure of its labor market. At one end are workers in large conglomerates who enjoy high pay and secure employment. At the other are a vast number of workers in small and midsize firms or on irregular contracts, marked by low wages and job instability.

The division is difficult to bridge. Quality jobs are limited, and poor-quality ones abound. This imbalance makes self-employment not a choice, but a fallback. Many of those operating small businesses today are doing so not out of entrepreneurial ambition, but out of necessity — having found no viable alternative in the formal labor market.

This is why addressing self-employment solely through the lens of small business policy misses the broader picture. The oversupply of self-employed workers is a byproduct of deeper structural issues: a shrinking population, a stagnant consumer market, and a polarized labor system. Labor market reform that diversifies job types and narrows wage disparities is essential if the self-employment problem is to be resolved in any sustainable way.

A healthier balance between employment and self-employment will not come through subsidies or slogans. It will require strategic choices — difficult, long-term decisions about how to reshape labor, consumption, and investment in a changing society.

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.