Self-Employed a Drain on Korea's Economy

  • By Bang Hyeon-cheol

    October 25, 2016 08:27

    Self-employed retirees are nibbling away at the growth potential of the Korean economy.

    The sector has been burgeoning as many retirees are unable to live on their savings and investments, and there are fears that the small mom-and-pop stores or noodle shops they open are sucking money and personnel out of developing new growth engines.

    According to OECD statistics, the proportion of the self-employed among the working population in Korea is the fourth highest among member states at 23.2 percent, behind only Greece (31.8 percent), Mexico (27.5 percent) and Turkey (23.9 percent).

    The number of self-employed people has jumped from 5.37 million late last year to 5.68 million in September this year, but a whopping 330,000 eateries or corner shops are closing each year.

    The average income of the self-employed is shriveling amid this oversupply, which leads to dwindling domestic consumption.

    In 2013, the annual per-capita income of the self-employed was W20.72 million, a mere 67 percent of that of wage earners (W30.74 million) (US$1=1,132).

    And household debt per self-employed person was W93.92 million last year, 38 percent more than the average debt of wage earners (W68.30 million).

    And if 330,000 small businesses fold each year, W31 trillion -- W93.92 million multiplied by 330,000 -- vanishes like smoke instead of flowing into new growth engines.

    Prof. Kim Jung-sik of Yonsei University said, "The country's pension system isn't nearly as developed as in advanced countries, but conglomerates are nudging out workers in their 50s because of their high salaries. That means middle-class retirees are forced to become self-employed and the country's entire productivity is dropping."

    "Excessive competition among small businesses is hurting the self-employed people themselves, and that stalls the entire economic cycle by preventing new investments or innovations in the service sector," said Prof. Ha Joon-kyung of Hanyang University . "The country needs to find ways of keeping the number of self-employed people to an optimum level."

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