Small Businesses Crushed Even Before Pandemic

      March 28, 2022 08:35

      The earnings of small business owners and the self-employed have been declining since 2018, even before the coronavirus pandemic dealt the fatal blow to many.

      People Power Party lawmaker Yoo Gyeong-joon last week said data from the National Tax Service show that the number of self-employed people who reported either losses or no income already rose from 179,000 in 2017 to 226,000 in 2018 before jumping to 282,000 in 2020 when the pandemic began.

      Some 5.23 million people registered as self-employed in 2020, be it running small shops or as freelancers, and 5.3 percent made no profit or lost money. This is the first time that a comprehensive overview of the earnings of self-employed people has been released.

      The losses did not start with the coronavirus pandemic. According to the NTS figures, the average pre-tax profit of self-employed people fell gradually from W22.5 million in 2017 to 22.1 million in 2019 (US$=W1,221). But the decline became steep in 2020, plunging to W21.8 million. 

      By contrast, the average pre-tax earnings of wage earners continued to grow from W36.9 million in 2017 to W40.3 million in 2020.

      One reason for the declining earnings of the self-employed may have been the sharp increase in the minimum wage for shopkeepers who employ personnel. The government increased the minimum wage by 16.4 percent from W6,470 in 2017 to W7,530 in 2018 and by another 10.9 percent to W8,350 the following year.

      "Due to the drastic minimum wage hike pursued by the Moon Jae-in government, average wages of people who already have jobs increased, while losses suffered by the self-employed increased and this has been statistically proven," Yoo claimed.

      The finding at any rate contrast with government data that seem to show a steady rise in profits among the self-employed. According to Statistics Korea, the average household income of self-employed people grew from W63.6 million in 2017 to W65.9 million in 2020.

      The discrepancy arises partly because if a self-employed person registers zero profit in their first year or two of operation, the first money they make is already tallied as profit growth rather than the base point.

      Income disparity also worsened among the self-employed since the pandemic began. The income quintile share ratio -- the difference between the top and bottom 20 percent -- among the self-employed rose from 37.54 times in 2017 to 39.45 times in 2020.

      This trend is attributable to the pandemic prompting more people to have food delivered to their homes, so some restaurants and grocery stores did brisk business while other, less established ones languished or closed. 

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